An Ethereum primer
Originally published on April 10th 2014.
Republished in April 2015, and March 2021.
Ethereum is a platform that makes it possible for any developer to write and distribute next-generation decentralized applications. Borrowing the concept of distributed consensus and cryptographic proof that makes cryptocurrencies such as Bitcoin so effective in trustless payments, Ethereum extends the use of these technologies to trustless agreements. This allows developers to easily build innovative new products on a censorship and collusion-resistant foundation.
The fundamental building block in Ethereum is a contract, a program that lives on the Ethereum network and follows a series of steps every time it receives a transaction. Contracts can store data, send and receive transactions and even interact with other contracts holding third party data. They are maintained by the network, without any central ownership or control. Contracts are written in a language instantly familiar to any programmer and powered by Ether, the base unit of Ethereum cryptocurrency (put differently, its cryptofuel).
Ethereum can therefore be thought of as a programmable distributed network. This has implications going far beyond the seemingly obvious applications such as financing agreements. The fact that Ethereum, is, by its very design, resistant to tampering and fraud, also permits a range of other solutions to everyday problems regarding identity and verification which are currently solved at great expense. Voting machines, healthcare software, registration of legal documents such as wills, transfer of title to goods and land, reputation systems, and even traffic navigations systems or social networks can be build on a network where users stay in control of their personal information — and funds — at all times.
It may even be that the Ethereum applications that will have the most impact on the world are yet to be discovered, just like it took about four years for social networks to be ‘invented’ on the web — and many more for them to diversify and invent novel applications such as microblogging.
Ethereum can be used to develop, decentralize, secure and trade just about anything, and is limited only by the creativity of developers. For example: company governance, startup crowdfunding, voting, domain name registration and intellectual property. Even smart property — transferring and securing real-world assets — could be implemented, provided that complementary hardware is developed and integrated.
Freedom of Entrepreneurship
If you’ve seen people excited about Ethereum’s potential, it’s probably because they realized it empowers them to build applications that will have a genuine, measurable societal impact — the ‘a-ha’ moment of Ethereum.
Ethereum makes funding, launching a business and listing its stocks a universal, straightforward process. Think Kickstarter on steroids where early adopters acquire ‘shares’ in a business rather than a pre-ordered product. Coupled with Ethereum’s potential to deliver on the promise of microfinance, it could also empower the 2.5 billion unbanked with the tools required to elevate themselves in a truly free world economy.
Even where ample business infrastructure exists, such as it does in the developed world, Ethereum holds the potential to assist companies of all kinds reduce their operational costs and scale more rapidly. It also creates a two way conversation between consumers and corporations through total transparency. There is no room for collusion or corruption within decentralized organizations running on Ethereum as all assets relating to accounts and governance are stored in plain text on every network node.
Within this infinitely free market, bad actors are weeded off almost immediately, as establishing competing and fairer businesses becomes trivial to anyone willing to offer a similar service.
Business in most countries exists in two states : grey area (“System D”) and government sanctioned. Ethereum’s technology allows for a third state, enabling access to global resources for any businesses regardless of location, accelerating both democracy and free enterprise.
Here are a few verticals where Ethereum could engender disruptive innovation:
Decentralization of consumer contracts and consumer credit
All forms of existing business contracts are surprisingly simple. The vast majority of the complexity sits in the arbitration, compliance and fraud protection associated with said contracts. Ethereum itself forms the backbone for arbitration, regulation and fraud protection. The business contracts are the entities that you program into its network using a powerful, yet approachable programming language. Decentralized, user-friendly web interfaces will lower the barriers of entry even further, down a simple exercise involving the selection of a few boilerplate parameters at the click of a mouse.
Universal access to financial instruments
Any financial instruments or security can be modeled within Ethereum, including stocks, bonds, letters of credit, loans, mortgages, derivatives (futures, forwards, swaps, options) and CfDs (Contracts for Difference).
Consumers could use decentralised markets to trade instantaneously, internationally, and inexpensively; financial institutions themselves could use decentralised applications to remove the need for expensive transaction managers and gain access to capital from a broad user base in a secure and transparent way.
Disruption lies in the fact that their trading takes place on decentralized markets, with no censorship and virtually no fees, in a peer to peer fashion. Trustless exchanges and decentralized escrow would allow funds to remain under the user’s control and never be at risk from a corporate insolvency, fraud or theft, even if the exchange itself were to shut down or its operators were to disappear.
Socially beneficial distributed computing
Ethereum makes it possible for distributed computing platforms to reward their users with an additional incentive layer, which could be implemented as part of a contract. This special type of currency — or ‘meta coin’ — issued by research departments or charities, could be assigned to users after completing arbitrary actions such as folding protein for cancer research or participating in the SETI at home program.
‘Drop in’ economic application layer
Games or applications that embrace user-driven economies such as CCP’sEve Online could leverage Ethereum-based economies across franchised games — a digital good acquired in a real time strategy game could for example be traded on decentralized exchange and be used as part of a first person shooter. Of course, these economies would benefit from having access to the same variety of financial instruments mentioned above.
Decentralized cloud services
Using cloud services today, while convenient, is also fraught with risk of hacking and companies going out of business, along with their users data. Ethereum enables some users to pay for nodes to encrypt and archive their data, while others could earn money by renting out the free space on their hard drive (using decentralized storage options such as MaidSafe or Bittorrent). Of course, all of this would be driven by market forces, with contracts autonomously relocating to more cost efficient nodes as required.
The dawn of Super Applications, DAOs and Intelligent Agents
Because contracts live as independent processing units on a decentralized network, making use of existing services instead of reimplementing basic functionality is common sense. A decentralized version of Ebay could for example interact with an escrow contract, a reputation service, a postal delivery tracking service and a distributed storage layer.
Applications assembled with ‘lego blocks’ of logic hint at the future formation of ‘Super Apps’, the components of which would be individually compelled to maintain maximum value and customer satisfaction or face being replaced.
Taking this concept further are ‘Decentralized Autonomous Organizations’ (DAOs). Consisting of one or more contracts, a DAO is funded by a group of like minded individuals, who subsequently own ‘shares’ in the project. DAOs operate completely transparently without human management, and are no longer subject to voting or other control by their creators or any other stakeholder. A DAO will survive for as long as it can offer valuable services to its user base and earn revenue sufficient to cover its survival costs.
As such, there are too many examples to list in this brief overview. Ethereum’s potential for disruption encompasses many other verticals, including medical data, consumer loyalty and media distribution. By bringing the creation of trustless and decentralized applications within the reach of any developer, Ethereum is set to precipitate the next phase in innovation acceleration.
Ethereum represents the intersection of several disciplines: computer science, monetary theory, business development, and economics. It operates in these areas to effect positive change in social systems. It may represent the first viable system that guarantees free market capitalism and universally fair social systems, in short, the first Social Operating System.
About the Author
Stephan Tual is the Founder of the world’s first blockchain Consultancy, Ursium (http://www.ursium.com)
In January 2014, Stephan joined the Ethereum project as CCO. His current focus is on the intersection of blockchain technology and embedded hardware, where autonomous agents can transact as part of an optimal Internet of Things economy.
An established thought leader on blockchain technology, decentralization and DAOs/DACs, Stephan regularly speaks at conferences, community events and meetups, and is the media contact for the Ethereum project.
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