I’ve lost count of how many times people have asked me to explain what bitcoin is over the years, but I don’t think anyone has ever asked me to explain Ethereum.
Probably because by the time I’m done with bitcoin their eyes have glazed over and they want to save another ear.
But today we ask: what is Ethereum?
If you thought explaining bitcoin was hard…
A brief history of ethereum and Vitalik Buterin, its founder
Ethereum is, by market capitalization, the second largest cryptocurrency since 2018. It is the brainchild of Russian-Canadian programming prodigy Vitalik Buterin, who first proposed the idea in a white paper in 2013.
Buterin had already been in bitcoin for several years at this point. He was first introduced to bitcoin by his father, a computer scientist, in 2011, when he was just 17, while in college (he will soon drop out). He then founded Bitcoin Magazine the same year.
Just to make you feel misfit, Buterin is just 27 and a multi-billionaire — so many times that he’s already given away over $2 billion in philanthropy.
Philosophically, Buterin is rather hardcore techno-libertarian. In 2018, he authored an article with economist Glen Weyl titled Liberation through radical decentralizationin which he “proposed ways to harness markets and technology to radically decentralize power of all kinds and shift our reliance on authority toward formal rules”.
In 2019, his article, A flexible design for the financing of public goodswritten with Harvard PhD student Zoe Hitzig defines a new method for the optimal delivery of public goods and services, using “quadratic voting” – a more nuanced voting system that allows for a much more direct system of democracy than representative systems current.
Buterin published his Ethereum white paper in 2013. He chose the name after going through a list of items on Wikipedia. “It sounded good,” he said, “and had the word ‘ether,’ referring to the hypothetical invisible medium that permeates the universe and allows light to travel.”
He announced the project in 2014 at the North American Bitcoin Conference and development began with an all-star founding team that included Anthony Di Iorio, Charles Hoskinson (founder of Cardano), Mihai Alisie and Amir Chetrit, and soon after Joseph Lubin, Gavin Wood, and Jeffrey Wilcke.
They raised money to found the project via crowdfunding in the summer of that year. By this point, Buterin was already considered a prodigy in crypto circles.
I remember being invited to participate in this funding, but I was annoyed by the way the project was poorly explained that I was not going ahead. Duh!
The project finally launched in 2015, and despite numerous setbacks, including a $50 million hack after a $150 million public sale and numerous forks, the project must be considered a huge success.
The market cap of Ethereum is around $400 billion. Ether, the currency that changes hands on the ethereum network, has risen from less than $1 at the end of 2015 to $3,500 today.
What is Ethereum really for?
The founding principle of the project was to use blockchain technology for purposes other than an alternative digital currency system. Bitcoin has its blockchain, as does ethereum – a completely separate network, using similar distributed ledger technology (aka blockchain) to verify and record transactions.
Like most cryptocurrencies, Ethereum is an open source platform. Ether is used and accepted as a form of payment, but that’s not really what ethereum is about.
Byte Tree’s Charlie Morris compares it to a decentralized App Store. Developers can use the platform to create and publish smart contracts and distributed applications (dApps), and it is a kind of marketplace for financial services (Defi), NFTs (non-fungible tokens), games and apps, all of which can be paid for in ether.
This is why it is known as the “programmable blockchain of the world”. It can be used, he claims, to “codify, decentralize, secure and exchange just about anything”.
Thus, coders can deploy decentralized applications on the Ethereum blockchain. These become immutable and permanent, and users can interact with them.
Decentralized finance (DeFi) applications enable all sorts of financial services – decentralized exchanges, for example, or borrowing and lending systems – without the need for typical financial intermediaries such as banks or brokerages.
Ethereum enables the creation and trading of NFTs – tokens that are connected to digital artworks and other forms of digital property.
Many use the platform for initial coin offerings, and many cryptocurrencies actually run on the Ethereum blockchain (like so-called ERC-20 tokens). DAOs – digital autonomous organizations – take shape on the platform.
So overall, Ethereum has found a lot of use, and it’s been a fantastic way to play up the amazing innovation that’s happening in this industry.
Will Ethereum lose out to its competitors?
One of my close friends of bitcoin’s “original gangster”, who in this case I’m sure would prefer not to be named, keeps telling me, “Ethereum should fail and it’s a mystery to me why This is not the case”.
Many feel the same. The blockchain is not as robust as that of bitcoin; Ethereum is not properly decentralized, and the many forks that have taken place in reaction to the hacks prove it, critics say – they wouldn’t be possible with a properly decentralized platform. Too many coins were pre-mined and distributed to founders. Ethereum 2.0 encountered lag after lag. Transaction costs, known as gas fees, are exorbitant (I can attest to that). Sometimes they cost several hundred dollars when they should cost pennies. It’s a ticking time bomb, critics say.
May be. Ethereum has many competitors – Binance Smart Chain, Polkadot, Cardano, Terra and Solana, for example. Both Cardano and Solana have had amazing runs, the latter just in the last few weeks. Many of them are technologically superior, reviewers say – faster, sturdier. Granted, they don’t have exorbitant gas costs.
But the one thing they don’t have is the user network. Ethereum has that. It is the first coin that the general public thinks of after bitcoin, even if they cannot pronounce it correctly. This is often what gives you the first mover advantage.
But that’s the market. Everyone submits their bid, makes their case, and the price is the result. The witness does not always win.
Ethereum is second only to bitcoin. He had a great year, after several great years. It’s like bitcoin’s cash for gold – in addition to having many more uses, it’s more volatile. It often moves later in the cycle, but more, but when the correction comes, it is also more affected.
At the end of 2015, it was trading as low as $0.42. It went as high as $1,400 in early 2017. It then lost 95% of its value and dropped to $80. In this year’s correction, he lost more than 60%. But the bottom line is that it started 2021 below $800 and is now more than four times higher at $3,500.
The direction is up. But for how much longer?
Daylight Robbery – How taxation has shaped the past and will change the future iis now available in paperback from Amazon and all good bookstores along with the audiobook, read by Dominic, on Audible and elsewhere.