Blocknative CEO and Co-Founder Matt Cutler explains the potential in ethereum's proof-of-stake upgrades, the outlook of crypto markets, and Web3 capabilities.

- Ethereum finally completed its long-awaited merge upgrade this morning. Joining us to discuss what this means for Ether and the crypto market overall is Matt Cutler, Blocknative CEO and co-founder. Good to have you, Matt. I mean, obviously this was hyped for a very long time. But help us clear up some of the misperceptions. What changes and what stays the same between proof of work going to proof of stake?

MATT CUTLER: Thank you. Great to be here. And the merge has been six months away for four years now. And last night, it finally hit. The Ethereum merge, the transition to proof of stake occurred at about 6:42, 6:43 UTC, about 11:42 local time here on the Pacific Coast. And the big change is the transition from a proof of work consensus mechanism where computers, a lot of computers, consume a lot of energy to solve complicated problems in order to secure the network, to a proof of stake consensus mechanism, whereby participants in securing the network stake Ether. And if they tell the truth, they get small rewards. And if they play games or don't tell the truth, they get slashed.

The net effect of this will be a 99.98% reduction in energy consumed by the Ethereum network and a whole bunch of under the covers upgrades that will make future scalability, future enhancements possible. So it very much is the foundation for the next generation of Ethereum so that Ethereum can be the foundation of the next economy.

- Now, not everyone was on board with the merge. We heard from one Bitcoin proponent who said the merger is full of risks that will likely only centralize the project more into the hands of insiders, exchanges, and other entities. What's your reaction to that?

MATT CUTLER: So proof of stake as a consensus algorithm is well proven among other blockchains. So the consensus algorithm has been established in production. Ethereum is by far the largest chain to ever go through such a transition and is the largest proof of stake chain. There are always centralizing forces in various cryptosystems. And part of the focus of the merge is modularity at the core of the network to encourage maximum decentralization at every level of the network.

This will be an ongoing process and saga where you push on centralization in one part of the network and it will pop up elsewhere. But there there's a lot of focus on this as an area for innovation. And Ethereum as a blockchain, if anything, is highly progressive technologically and has always demonstrated a willingness to take on new and challenging problems in pursuit and maintaining massive scalability while preserving high degrees of decentralization.

Today, under proof of stake, any home user can be a participant in the network. You don't need specialized hardware. You don't need specialized software. You don't need much. You can really help secure the network with nothing more than a Raspberry Pi, which is pretty remarkable when you think about it. And so we'll see how this plays out over time. But those of us in the ecosystem are very optimistic about where we are today, how smoothly the merge went, and how well we're positioned to power Web3 moving forward.

- And speaking of Web3, a lot of people are wondering, what's next? You say after the merge comes the surge. Break that down for us.

MATT CUTLER: Yeah. So the merge is this major milestone in the Ethereum roadmap. But it's just that. It's a milestone. Not a destination. Believe it or not, the next major milestones are the surge and then the verge and then the purge and then the splurge. And that's probably 18 months to maybe 36 months of major upgrades to the network. There's some simple mnemonics that you can use there.

So the merge is obviously merging these two chains together and the transition from proof of work to proof of stake. The surge, the S, is all about scalability. It's about under the covers improvements to enable next-gen scalability and to significantly expand the capacity of the network. The verge is a little bit technical. It's the transition to Verkle trees that have a bunch of advantages in terms of data processing and data storage. The purge is what it sounds like, removing old data from the network that doesn't need to be kept around so data storage requirements go way down.

And then the splurge is sort of everything else. There's a whole bunch of other capabilities and features that are planned. And many of those are batched together in what today is known as the splurge. So if you like the story of technological progressivism, if you like the story of innovation and you're curious about Web3 as a progressive force, Ethereum is a very interesting place to be paying attention and I'd like to think a very interesting place to be investing.

- And we know that you mentioned the environmental concerns that were attached to mining. With those now off the table, at least for Ethereum, people are wondering, what does this mean long term? When you think of things like smart contracts, when you think of Web3 infrastructure, how much does this change the game in terms of innovation going forward?

MATT CUTLER: So I equate Web3 and Ethereum to the early formative stages of the internet, which is in the '90s, the internet-- and I was actually building in that era-- was hard to use. It was full of weird stuff. It was difficult to access. Not a lot of people were on it. And there were what felt like much more organized alternatives like AOL and CompuServe and Prodigy. And we know how that played out. The internet won out in the end. And why is because it made content programmable and reduced the cost of distribution effectively to zero.

The same forces are in effect in Web3 where, today, it can be challenging in certain ways. It can be difficult to access. It doesn't feel like there's as many people there as there are on other systems. But fundamentally under the covers, we have made value programmable. And we've reduced the cost of distribution to zero. And what that means is sort of an infinite degree of expressivity and programmability in the network.

And all sorts of new value applications can be built on top of it. And we're already starting to see many of those begin to emerge. So the merge for Ethereum is all about setting the stage for the next generation of users to come on board, the next generation of applications to be built on it, and the next generation of transaction volumes to come onto the system. And so we're incredibly well positioned to do so.

In many ways, just like the early internet was almost unrecognizable from today's internet and the early iPhone was very primitive compared to the current iPhone, I think we'll see in just a few short years Ethereum ecosystem being significantly more sophisticated than it is today.

- I mean, fascinating stuff. I still remember doing research on the early days of the internet and it said, you've reached the end of the internet. So, clearly, a lot has changed since then. A big thank you, Matt Cutler, for joining us. Thank you so much.

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