Is Ethereum Poised To Be Next Tech Movement?

The following was originally published on Medium.

My goal with this piece is to provide an elementary introduction to Ethereum, a platform upon which decentralized applications (DApps) can be built by developers, what’s happened over Ethereum’s recent past, and a few potential short and longer term purposes.

What is Ethereum?

Ethereum is a blockchain with it’s own programming language, called Solidity, which allows developers to create “smart contracts.”

Here’s some background reading on Ethereum and Bitcoin, the two leading cryptonetworks.*

I’m going to skip over Ethereum’s White Paper back in 2013 and its release in July, 2015. I trust you can intelligently use Google. Instead, let’s jump to a pivotal moment in the young tech and community’s existence.

Week of June 12th, 2016

Over the course of about a week, someone hacks into the DAO & exploits Ethereum using the “recursive ethereum send exploit.” Read more about the DAO hack analysis here.

In layman’s terms, an unnamed hacker siphoned more than $100 million from the decentralized autonomous organization (DAO), which created an existential crisis in the young life of Ethereum.

The Predicament: Is Code Law?

This was the fundamental question for the ethereum foundation to answer and execute. Do you perform a “Hard Fork” to revert the blockchain to a moment prior to the hack and create a new chain, rendering the old one surplus? Or, do you respect code as law and suffer a major setback to the mainstream adoption of (almost all) blockchain-based currencies’ future legitimacy.

Vitalik Buterin showed his potential as a future Titan by allowing for a democratic decision process. The community (and developers) chose to support the hard fork, revert the chain to an instance before the hack, and continue developing on the “new” chain. The old chain was left decrepit.

Or so one would think. But remember, this is crypto we’re talking about. Diehard keyboard warriors vehemently objected. Renowned crypto “Experts” such as Barry Silbert and exchanges like Poloniex put their support, reputation, and [allegedly] Bitcoin as well, behind the now-moribund Ethereum “Classic.”

Predictably, in the short-term, the price of Ether** (Eth) tanked, Etc’s price and volumes benefitted from the euphoria, but ultimately the developers and miners chose Eth, the chain created and democratically backed by the community post-hard fork.***

Etc will still exist in the future, but operate how Litecoin does in relation to Bitcoin instead of mounting a serious challenge to overtake Ethereum.

Ultimately, the community intelligently decided code was not law and that adaptability is more important than immutability. You can hear Vitalik discuss Ethereum alongside Andreessen Horowitz’s Chris Dixon here.

So, where does this leave the future of Ethereum and Bitcoin?

Blockchains will replace the underlying tech behind current institutions and companies

This technology will transform our approach to the world much like social media (Facebook Inc FB / LinkedIn Corp LNKD / Snapchat / Twitter Inc TWTR) has fundamentally transformed our approach to social contracts in recent history.

Paradoxically, most people will not witness the transformation of the underlying technologies of today with blockchain-based technology. To them, it’ll be an instant swap and not a gradual transformation like we witnessed with Web 2.0 (Social Networks), the infrastructure of which took a few years to develop and a decade to be brought to the masses.

Interestingly, individual blockchains may actually move in the opposite direction as and be an exception to Metcalfe’s Law and Reed’s Law.

So think of blockchain like social media and each individual blockchain as a Facebook, a Linkedin, or a Twitter. Over the course of Web 2.0 (and before with the telephone), Metcalfe’s Law and Reed’s Law have helped explain the massive value which comes from a an individual digital network. However, I don’t think this will apply to a technology that, as its ethos, is decentralized.

I think the “Laws” will still be true when speaking about blockchain more broadly, but not to each individual blockchain-based network since each will be decentralized. There could be a stratified application of those two laws, however, so the Laws could be held to be true for “n” values between n1 — n2, but then not be true between n2 — n3. Time, development, and the market will tell.

The possibilities for smart contracts are endless, from innovation in corporate securities (h/t Terrence Yang) to a new way to administer loans — whether it be bank-to-consumer or through peer-to-peer smart contracts, to smart contract-based wagers in eGaming and eSports and an upgrade to the Dewey decimal system borrowing digital content from libraries and academic institutions.

Imagine a peer-to-peer ride-sharing service to compete with (or run by) Uber, a decentralized and immutable UN database to identify and track refugees, and a healthcare database and system that will make patient records accessible to any institution in the network in order to more effectively share knowledge and conduct research to improve patient outcomes — though this will require a lot of reworking of current health care legislation in the U.S.

Entire voting systems could be changed by linking votes to immutable and nontransferable blockchain-linked identities. This could significantly curb voter fraud and promote more egalitarian systems and societies around the world. The academic research model could be flipped on it’s head, allowing inter-and-intra-institutional collaboration via smart contracts. Last, and definitely not the least, we could finally innovate within legal jurisprudence, where the approach has remained fairly static since 16th century England. There are several other critical use-cases, including linking digital content to the rightful owner, making sure property rights and land titles are respected (particularly within corrupt, bureaucratic governments), and faster & safer global remittances.****

And create new markets

Appropriate use of blockchain technology could create zero-to-one innovations we haven’t been able to fathom or successfully execute so far in the longer term future.

A seamless blockchain-based Virtual Reality “experience generated content” which allows anyone, anywhere to upload or create a unique experience for others to view through their Oculus (or another) headset. Gives a whole new meaning to “walk a mile in someone else’s shoes,” no?

A blockchain-based (read: immutable) human-memory vault. This could have profound implications for legal disputes, violence, and abuse of power.

These are just two examples I thought of while writing this post. People and AI systems much more creative and intelligent than I will probably come up with more intriguing use cases.

I believe many of these important innovations will take place on Ethereum — the decentralized platform which is currently in the best position to execute the scenarios/transformations mentioned above. Why? Because Ethereum has the strongest developers of any cryptocurrency so far which is critical for a platform that allows DApps to be built.

Yes, in a better position than even Bitcoin. Bitcoin will be adopted far more quickly in the near term,  particularly in finance, but Ethereum will impact many more verticals in the long term. Watch out for DApps that will be launching during and in the time after DevCon2 (Augur, Zcash, and Gnosis, to name a few).

Still, it’s a bit too early to determine a winning crypto-network since more may emerge.

Trading Strategies

Lastly, I’ll conclude with some non-committal trading strategies. I’ve successfully predicted the last few months of btc/etc crypto, for what it’s worth. To be fair, it’s a simple application of financial technical analysis I learned over the course of my finance degree.

Some traders are bullish and buying ether on the hype-driven price increase that DevCon2 in Shanghai will bring and intend to sell on the news afterwards. Others think the hype is already priced in and they’re waiting for the price to drop before re-entering positions. I personally think the hype is not entirely priced in and we’re in a for a few surprises at the conference, which will lead to an increase in the price of Eth after DevCon2 and headed into January. I predict at least a 25% increase from the current market price, though I would not be surprised if it increased further. I’m bullish on Eth longer term and think it could approach $75–$100 by June 2017.

Takeaway: Ether, which may dip slightly after DevCon2, is in for a long term bull run.***** Buy, hold, and [eventually] donate some of the proceeds to charity!

Footnotes

*Please keep in mind this author self-identifies as a “crypto-anarchist,” and his opinion regarding the hard fork should be reviewed and disregarded. Still, he explains Bitcoin and Ethereum well, so kudos. If it isn’t clear by now, it will be: I’m pro hard fork.

**Ether is the underlying currency that operates Ethereum’s smart contracts. Put another way, ether is like a dollar, peso, rupee, or yuan you would use to buy a good or loan to an associate.

**Other “fundamentals” to pay attention to:

Miners are a keystone variable in most cryptocurrency. Follow the currency’s hash rate, but understand that miners tend to follow the price of a currency and not necessarily the other way around.

Track the volume traded of a currency is important, since it is a measure for how actively trading the currency is at any given time.

****Have you ever done a bank transfer to an account at another bank? Remember how the transfer takes 3–5 days (i.e. ACH transfer) and your bank of money transfer service charges exorbitant fees to transfer and convert currencies? A Blockchain-based currency can do it in a matter of hours and for less than banks charge. For more, check out this Ted Talk.

*****This content is provided for informational purposes only and it is not intended to be, and does not, constitute financial advice or any other advice.

Image source: Flickr