🎙 103 - Blockchains are Cities | Haseeb Qureshi

in every single country there is one most dominant city and that city is usually you know at least twice as big as the next largest city in a way is almost exactly what we see with lead ones welcome to bankless where we explore the frontier of internet money and internet finance this is how to get started how to get better how to front run the opportunity this is ryan sean adams i'm here with david hoffman and we're here to help you become more bankless really excited about this show this is on blockchains as cities we use cities as a

metaphor to determine how blockchain scale we have haseeb on the podcast who shows us what this looks like the big question here for the guest was are we going to live in a multi-chain world or will there be one chain to rule them all hasiv is very much a multi-chain world person a few things to listen for number one we talk about why networks aren't the right analogy for change why cities are number two how blockchains actually scale like cities number three why ethereum is new york city solana is la avalanche is

chicago number four what this means for layer one investors number five we end with where david and i disagree david what were your thoughts on this episode with haseeb i mean you know ryan that i'm a big sucker for metaphors and mental models and so that's why i thoroughly enjoyed talking with haseeb today because metaphors are just a shortcut to understanding and i think a lot of newer people who are still trying to wrap their heads around the blockchain space are really going to appreciate

just understanding the relationships between cities and blockchains and how they relate to each other and i think perhaps understanding uh you know ethereum's uh roll-up centric mode roadmap uh using new york city as a mental model for that and then also how uh solana is like la and la kind sprawls very horizontally where ethereum builds up very vertically i think people are going to really appreciate these these mental models but also just talking about why uh blockchains have scalability issues in the first place uh

we talk about stuff like this at the very in the first half of the show um but then we go into the second half of the show where uh you and i uh uh take apart a little bit of uh hasev's mental models where he calls blockchains as cities but we think blockchains are actually nations uh and so we unpack all of these uh metaphors at some point at the end of the day all metaphors break down and so we really stretch this metaphor these metaphors into their limits uh but uh i think it was it's just overall super helpful nonetheless yeah and this is worth listening guys

because i i do think this is the question of the year maybe the question of the next few years maybe the question of the decade uh remains to be seen which is multi-chain that means multiple layer ones or will there be one primary uh central chain like an ethereum for for instance that provides settlement to many of the other chains that is the discussion the debate today and the context as well guys as always if you're listening with us thank you very much make sure you like and subscribe wherever you're listening if you're a podcast subscriber

make sure you review this podcast if you liked it that's how we go top of the charts right after this as well david and i are recording our debrief where we give our thoughts on the episode with haseeb i've got a lot of thoughts swirling around uh i know david does too if you are a premium subscriber premium bankless subscriber you can tap into your premium feed and listen to that as well kind of a bonus episode that comes out every single bankless podcast we will get right back to the podcast with jesse but before we do we want to tell

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bankless nation we are super excited about our next guest haseeb qureshi hasib is a managing partner at dragon fly capital which is a cryptocurrency venture fund a pretty fantastic one he invests in all aspects of crypto this entire industry he's one of those investors who's also had a very successful background in poker which would be a topic for another podcast we're not going to get into that today we've had him on the show before we were talking about something similar subject of cities how crypto was going to scale how it was going to evolve in

the future in in the future and we've invited him back to talk more about that today he published a fantastic post uh using cities as a mental model for blockchains which we're going to dive into haseeb great to have you back on bank list how are you doing today i'm doing great thanks for having me oh man it's an exciting time in crypto of course we're trying to figure out this uh the scaling thing we're wondering if there's a bear market going on and in the in the backdrop of this you wrote uh this post and i think this post is kind of an

analogy for probably one of the most important debates i guess in crypto or investment thesis which is which is this are we going to live in a multi-chain world or will there be one chain to rule them all by multi-chain of course i think that means multiple layer ones versus one chain to rule them all is one heavily dominant layer one that's kind of the juxtaposition so that's what we're going to be talking about today but i want to start with maybe this uh

this this cities metaphor that we're using um let's get in the frame of mind where we're when you tell us about cities what cities have you lived in in the past to see where you where are you living now what city you living in now i'm i'm living right now in san francisco actually since covet i have been kind of floating around a little bit but san francisco is usually usually home base which it features in the article um it's interesting actually uh kind of the genesis of this whole metaphor because as you mentioned you know i'd written about this uh this metaphor of cities

and kind of trying to contextualize blockchain spatially uh actually writing about sharding and writing about e3.0 and in many ways sharding is the whole idea of sharding is actually very similar in principle to what we think about when we think about a multichain world because you have these logically separate kind of mini blockchains operating alongside each other kind of doing different things but being able to connect up to each other in some way and almost every vision of how to scale blockchains is directionally similar right like layer twos are sort of these

like mini blockchains that kind of spin out from layer ones their other alternative layer ones are so many of them are evm compatible so they're literally built on the exact same uh virtual machine that ethereum is built on but they happen to be you know totally different validator set or totally different consensus mechanism sharding is a similar story but in you know ease 2.0 which i guess we're not allowed to call that anymore whatever you know the great future of ethereum we'll censor that yeah sorry sorry sorry please please believe that please please um you know the vision of sharding is kind

of similar and what i found in the last year so you know i'm an investor in the last year i've been chatting with lots of folks who've come into the crypto space who are brand new and don't know about any of the prior art for all these conversations that like you guys and ourselves have been having and they just come into this world they're like okay i keep hearing all this stuff about solana salon is the future of you know crypto isn't solana just gonna eat everything and isn't this just like an open and shut story that you know ethereum was like ms-dos and then like solano is now you know windows 10 and isn't that just how it works

and um i realized that it was very difficult for a lot of folks who are entering into the space to wrap their head around a good mental model of why isn't it that a blockchain that's just faster and can fit more people into it and fit more transactions into it why is that not obviously going to win and in most technologies that's the case the thing that's faster and bigger obviously wins right if you just have you know if somebody comes along with a database that is you know 10 times bigger 10 times faster 10 times cheaper than postgres it's just going to

wipe the floor everyone's going to be using it in five years that's just obviously how it works and the thing is i think you and i know people have been in crypto for long enough know that in crypto that's the wrong way to think about it it's it's correct to an extent but it's it's not sufficiently uh it doesn't sufficiently understand the nuance of why it is that blockchains are what they are if that were true then you know bitcoin would have been superseded by bitcoin cash and buy bitcoin sv and buy litecoin or whatever right like we know that these things don't happen in things like bitcoin why don't they happen for

ethereum and that's what led me to coming up with this metaphor and trying to you know i i i use it informally in a lot of conversations with people when i was trying to explain to them why it's not the case that salon is just going to eat everything necessarily it could be that salani is everything but it's not obviously going to happen um and that's that's why i decided hey you know what i should write this thing up because a lot of people seem to find it a very valuable mental model for understanding their ones and hesiva bankless listeners will know that we are just a complete sucker for

mental models and just the actual concrete imagery i think will actually allow people to just grapple on to this concept of using cities and geography as a way to understand a blockchain so let's just go and get started with unpacking this metaphor why are cities a good mental model for understanding blockchain just setting the context for the whole rest of the podcast why cities yeah so usually when people describe blockchains

the word they use is network and the place where i want to start is that network is actually the wrong word to use when you're trying to describe a blockchain and the reason why is that network brings with it a lot of implications about the other kinds of networks to compare blockchains to right so when you think network you think like the internet you think like uh you know electricity grid you think like um you know something like telegram or facebook you think of traditional types of networks in traditional networks when you add another node to the network you add another server to facebook you add another whatever

you can basically scale a network linearly it's almost this kind of ethereal thing that can grow as a larger larger cloud over time but blockchains are not like that blockchains when you try to make a blockchain larger the larger you make a blockchain the more expensive it is for that blockchain to get validated and there's a bound on how large a blockchain can be right even something like solana which tries to be extremely uh sort of scaled vertically by just saying look the nodes that run solana are going to be super beefy and highly optimized and have you know 16 gpus or whatever it is uh

even even for this there's a there's a limit on how big solano is going to allow its nodes to be right there's not arbitrarily scalable the way that facebook is arbitrarily scalable or google is arbitrarily scalable and so the reality is that blockchains unlike traditional networks are physically constrained there's only so big that a blockchain can get per unit time and that's why we have finite block sizes and that's why we have this fundamental problem of blockchains that they cannot get arbitrarily big and that makes blockchains more like

cities cities are constrained by the land that they're on they can grow they can kind of scale out more and more over time but they can't get arbitrarily big right you can't have a city the size of an entire country when you do naturally what happens that the city sort of gets cut off and a new city starts at some point and that's just the nature of how cities evolve and so if you think of blockchains as cities what is ethereum everyone complains about ethereum right ethereum is super expensive it's super slow it's congested you know

everything's super old things never change like people are like oh what happened to what about turbo geth what about e2.0 nothing ever seems to actually happen around here ethereum is manhattan it's a super expensive or new york city more broadly it's a super expensive city it's super old it's been around forever and everyone is annoyed anyone who goes to manhattan will just complain non-stop about how you know that the train stock and the infrastructure stocks and the homeless are everywhere everything's too expensive the rents are crazy nothing can ever seem to get built

but manhattan is the most happening place on earth if you want to be a somebody and you want to be at the epicenter of the financial activity and the cultural activity in america the one place per square foot that that is maximized is in manhattan and ultimately if you want to find the richest people in in the us they're in new york if you want to find the the most culturally influential people in the us they're in new york maybe in l.a but let's say new york

and in the same way if you look on ethereum ethereum has the most you know the biggest whales are all in ethereum the most expensive nfts are all on ethereum the biggest d5 protocols are all in ethereum the biggest nft uh uh the biggest dowels are all in ethereum like manhattan new york is like ethereum in that it is the oldest and most robust place now if you want to go start a new d5 protocol the same way if you want to go start a new bank if you don't have a headquarters in manhattan then you're not serious right you're not gonna be playing in the

biggest games yes i know manhattan's expensive yes i know that everything's crowded and everything sucks but look if you're not there then you're just not gonna be playing in the biggest games and that's also true today on ethereum if you're an emerging d5 protocol you might say look ethereum's too expensive i'm going to go here i'm going to roll up i'm going to go to another one but it's it's obviously true today the vast majority of tvl that exists in d5 is on ethereum now if you're a newcomer and you weren't around in the early days or you're not super wealthy or you're not you know one of the one of the sort

of rich and famous or part of the intelligentsia then you might say like look it's it's a little late for me to show up on a theory the fees are already crazy high there's no room for people like me i don't have a rent control you know i don't have a rent control department so i i if i want to strike out like look i can't move to new york it's just too expensive i gotta go find some place where i can build my career and for that marginal person that marginal entrepreneur that marginal user they might say like look this stuff is too expensive for me the ethereum's for the billionaires i gotta go somewhere else so the question there is how do you

scale a city when uh you know new york is just there's only so much land and and not that many more people can can go there so broadly speaking there are three approaches to scaling blockchains and in order they are rollups interoperability networks and other ones so i'll go through each of them in turn well can we just pause here before we go through each of those to see um i want i want to go back to what you said around the physical constraints right and make sure that that is hammered home because um you know what

you said it's like facebook you could just add servers you could scale and blockchains you can't just add servers and scale just just to ground people on that particularly those who are new why are blockchains physically constraining themselves right so i'm not sure that this necessarily might make sense to someone but like uh are they doing this because there's a trade-off are they doing this because our cryptography isn't good enough are they doing this because there's some sort of other bandwidth limitation like why are

they even constrained in the first place that's a great question so the reason why blockchains constrain themselves is not because you can't build a big distributed system that you know grows arbitrarily big the reason why is that the core foundational component of what makes blockchain's blockchains is the fact that they are trustless now what does it mean to be trustless right we can we i mean this this could be itself an hour-long conversation but part of what it means to be trustless is that you yourself don't have to trust any

third party in order to verify that the blockchain has been executed correctly no one's cheating no one's making [ __ ] up no one's creating money out of thin air or deciding to change the rules on the fly everything is according to the way that the rules were originally set into place when the blockchain was initially created right that's what everyone wants to know and so in order for you not to have to trust a third party you have to be able to run the complication yourself or verify the computation yourself that what has happened in your corner of the world in your blockchain and

everything that touches you has been executed correctly now if the blockchain can only be run by a supercomputer because it's so large and it's so big that the that all the computations in it cannot be compactly executed or verified on consumer hardware the kind of thing that you or i could get our hands on and actually run ourselves then ultimately you have to trust a third party you have to trust somebody else who is actually going to go run the supercomputer who is actually going to check all the transactions on the blockchain now you might think that look i'm okay with trusting a third

party because you know whatever i i want to but uh the the the core philosophy behind ethereum and not every blockchain shares this philosophy but the core philosophy behind ethereum is that individuals should be able to check themselves that everything that happened on the blockchain is correct and therefore that they do not need to rely on any third parties outside of the kind of things you could run on your own consumer hardware without relying on aws without relying on the government without relying on anyone

intermediating between yourself and the blockchain right um go ahead so blockchains are physically constrained because they are attempting to keep the cost of verification low while also scaling the amount of transaction throughput so that's the key there is keeping the the cost of verification low and that's why they can't just like expand indefinitely that's why they are more like cities because they have some borders they have some limitations they have a set of square miles

that um you know they've allocated for themselves and they can't really expand beyond that exactly that's exactly right and the the way that i've thought that's a useful way to understand this is that if we want to just you know scale up a web 2 database right like a facebook database we can just arbitrarily add more cpus more more gpus more memory and it doesn't really matter because generally we're adding that physical hardware into the same spaces as all the other physical hardware like you like facebook only has so many databases

google only has so many databases there's a handful of them you know five i don't know five five to ten ish uh in blockchains and and when we want to have things be trustless we have an arbitrary number of databases that all need to maintain consensus they all need to sync up with each other and so in a web 2 world when you add hardware to a database because it's centralized you just linearly add capacity just resources but in a blockchain world because all these locations of these databases are spread out around the

world when you add a new computer to the network when you add a new node to the network you on net actually slow down the network so it's the in web 2 when you add resources it speeds it up and web 3 when you add resources it actually slows it down and the way that the way that it slows it down just to unpack that a little bit more is that some blockchains accept a certain level of speed with how much data they allow with the network to handle and some networks want to throttle themselves back so that any

computer any reasonable computer that was made in the last five to ten years can keep up with a chain and then other blockchains say like oh we only want computers that have been made in the last uh two years and also are super powerful we only want those to be able to keep up with the chain and so it's it's an inversion in web 2 world when you add network resources you speed up databases but in web 3 world when you add network resources you slow them down because you need to make sure that every single individual is able to keep up with the chain and

the tolerance for how many individuals can keep up with the chain is a uh spectrum that different block chains can you know tinker with as they see fit um do you want to add anything to that metaphor no i think that i think you you nailed it so um i think the intuition that most people should be walking away with is that look different blockchains have different ideas about what that threshold ought to be how much uh how how much is it okay to say that this is the kind of hardware

or the kind of cost that you need in order to actually verify the blockchain yourself if you're buying smart chain then that cost is very very high it's very difficult to run a node for binance part chain on any kind of consumer hardware for solana it's maybe you know similarly quite expensive but maybe a little bit cheaper than buying smart chain and as you go further down the chains with respect to their intrinsic performance requirements those things get cheaper and cheaper and sharding throws a whole other you know curveball into this whole story because sharding kind of uh makes makes the story a little bit more more complex but i think it's probably beyond

the scope of this particular conversation because um it applies in general even across individual shards about okay even within the context of one chart how big is that shard going to be that you can actually verify it on your own consumer hardware okay well so now let's return to our thread has even where you're going the question of how do you scale up a new york city how do you scale up you know generalize at any city uh what are the different paths you mentioned three of those and maybe you could reiterate those and then we could dive into them one by one

yeah so if if a theorem is new york and ethereum's too crowded how do we scale up new york and the three approaches within blockchain land are first roll-ups second interoperability networks uh and third would be other layer ones so let's start with let's start with rollups roll-ups are the um well so if you sort of take it to the city analogy right let's say you're in new york and you know it's i don't know maybe year 1900 and you're like okay new york is full

everyone is here rents are super high everything sucks how do we get more people into the city because there are a lot of people who want to live here and the answer of course in urban planning is build up so start building taller and taller buildings until you culminate into skyscrapers and skyscrapers are obviously they're you know they're marvel of engineering they're incredibly complex to to actually build and get them to where where we are today with skyscraper technology but the fundamental thing that skyscrapers do is they allow more people to fit into the same city

with the same kind of underlying land because the fact is if you build up yes exactly the same the same footprint on the on the underlying land now putting more people into a city is a beautiful goal but uh when you have skyscrapers we have a city full of skyscrapers the reality is that so one although a lot of people have managed now to be able to move into the city because they can live up above the uh the underlying ground um each person who enters into the city through the skyscraper um

they require less overall land but they still tax the underlying resources of the land to some degree right if you have if you have people living on the ground floor and then you add another you know you add another uh uh uh another layer on top right and then so great you know you have a two-story building and new people come into that two-story building um the overall utilization of the city has increased much less than it would be if you had to add more you know those people on the ground floor but it's increased somewhat it's increased very very slightly right and as you keep adding more and more layers you can add people more and more

cheaply um but the experience of those people if i come in and live in a skyscraper in manhattan right um it's it's maybe nice because it's you know we've added a lot of headway a lot of extra rooms there's a lot of vacancies rents can go down now that we've added more land or not more land but more rooms rather but the downside of living in a skyscraper of course that if you live in a skyscraper and i live in a skyscraper and i want to come see you i have to go down my skyscraper get on the ground floor go hail a taxi get across town pay the tolls along the way

and come to your skyscraper and go up all the flights of your stairs until i go find you and by the way in new york it takes like one hour to go like you know three miles that's right it's a it's a huge pain in the ass right we do not get to escape the fundamental constraints of the city we live in if you and i live in different skyscrapers which we most likely will if they're going to be a lot of different skyscrapers in the city so now what's the blockchain equivalent to that it's roll-ups vitalik has claimed that roll-ups are

the future of ethereum scaling right we now we now have this full capitulation in the story of ethereum i want to say 2.0 the future of ethereum that uh post-sharding ethereum is not going to have native execution on its shards it's instead going to be a roll-up-centric view of how ethereum is going to scale and so what that means is that uh these roll-ups so roll-ups i mean i get probably beyond the scope of this to exactly describe the mechanics of rolos but long story short they are scaling

solutions they're like kind of mini baby blockchains that emerge from the underlying blockchain with the security properties of that underlying blockchain they sort of obey the institutions and the trust properties of that underlying blockchain in the same way if you live in a skyscraper in manhattan you might have you know some rules for living in the building but you're still fundamentally living in manhattan all the rules of manhattan apply to you and all the trust model all the taxes all the whatever you're you're still a member of manhattan just because you live in a skyscraper you might have extra rules on top of it but you fundamentally still live in the same

city the same thing applies in a roll-up a roll-up extends out from the layer one uh everyone who lives in that roll-up has the same trust guarantees as the underlying layer one that they're operating on which in this case would be ethereum um but they're uh things are a lot cheaper things are faster things are more scalable right now they're not infinitely cheaper or infinitely faster and you know there's some non-roll-up designs like you know volition or validium that that might have very very very high scalability properties for most roll-ups uh it's a you know very significant

factor uh increases you know 10x or 20x or something like that but it's not you know 1000x or 2000x or anything like that for most of the rollup designs that exist today so all that is to say rollups have the same issue that i just described in a in a skyscraper if we're in a roll-up uh if i'm going to roll up and you're in a roll-up and we're not in the same roll-up then if i want to transact with you i have to exit from my roll-up go down to layer one transfer across layer one and then go up into

your roll-up to go and transact with you now there are other solutions like crosstalk bridges you can imagine you know there's maybe uh uh you know kind of like the the you know those those sky bridges you have those disney towers yeah sky bridges yeah that's what they're called yeah you can imagine like some sky bridge type things type contraptions but you know if you want to move an enormous amount of stuff across the sky bridge maybe you can't do it right like it's it's somewhat complicated with these crossbridge um these cross-chain bridges they can't bridge exactly everything there are some things that can't be bridged um all sorts of things in particular some of the sky bridges

look a bit more like tightropes right exactly exactly exactly it's not quite it's a very narrow sky bridge at least today and i think there's some fundamental reasons why those sky bridges have to be narrow because of liquidity that's needed for uh the the different assets that you might want to bridge on each layer too but at the end of the day skyscrapers are great they're a huge improvement of on what you can build inside of a city but skyscrapers are not themselves i mean if you think about it like okay we we got skyscrapers now in big cities

but not everybody lives in manhattan or new york even though we have a lot of skyscrapers right there is a there is only so much you can get in cheapness from living in a skyscraper in new york right like fundamentally living in a skyscraper in new york is never going to be cheaper than living in you know just some random town in virginia um and that's a fundamental property of the fact that you have to be taking up space in manhattan there is some externality for you being there that is imposed by your presence in the city

and if you want to get to the place where basically you're paying you know some small town in virginia type rent or let's say you know some some new layer one type fees which which can be you know in the fractions of ascent you're never going to get that in a roll-up doesn't matter how you know it doesn't matter how beautiful or how well designed the roll-up is going to be or at least you know to a first approximation if it's truly a roll up and it actually is posting uh transaction data on chain which all roll ups do then you're never going to get it to be that cheap compared to an underlying layer one transaction and