In the years leading up to the dotcom boom and bust, many organizations hoping to capitalize on the potential of the internet came and went. Even as email arose as a brilliant application of the internet’s new disruptive technology, no one could have foreseen the impact of the internet, the industries it created/improved, or the tech-giants – such as Apple, Amazon, and Uber – that emerged as a result. We are now confronted with a new technology that has the potential to be more disruptive than the internet itself. I am referring to the underlying technology behind cryptocurrencies known as The Blockchain. Although still in its infancy, Blockchain has given insight into the future of trusted transactions, streamlined processes, sovereign identity, and much more. Therefore, I will make the assertion that Blockchain Technology will disrupt major industries and will fundamentally reshape the way we operate as a society. Just as Amazon emerged from the ashes of the dotcom bubble, a new Blockchain has emerged that is poised to revolutionize the world, Ethereum.
Until recently, the word “cryptocurrency” has been associated with various forms of crime. Although this statement originally carried some truth, recent recognition and understanding of the underpinning technology – the blockchain – has led to far greater acceptance by businesses and governments looking to cut costs, fraud, and third party intervention. Simply put, a Blockchain is a globally distributed ledger of transactions. Thousands of computers agree on a global distributed ledger of every transaction that has ever taken place. When a transaction occurs, it is broadcast across the network. The Blockchain is maintained by individual nodes known as “miners” (anyone who has computation hashing power can act as a “miner”, adding to the distribution and security of the network). These nodes ensure the legitimacy of each transaction and overall ledger. Modeled on how gold is mined out of the ground, “Miners” receive minted cryptocurrency such as Bitcoin or Ethereum for solving complex cryptographic equations that require large computing power. As there are millions of nodes monitoring the Blockchain’s distributed ledger, it is impossible for someone to disrupt or rewrite a transaction in the ledger as this would require an individual to hack all preexisting transactions simultaneously whilst hacking every computer on the network. As a result, Blockchains have remained un-hackable since their conception in 2009. Bitcoin (BTC) was the first implementation of Blockchain technology. In 2009, BTC was created by a group of developers as a peer-to-peer value transfer system. In layman’s terms, Bitcoin works as a software program that enabled people to securely transfer monetary value over the internet without the use of a central bank. Additionally, Bitcoin has become known as “Digital Gold”, a way for individuals – especially millennials and younger generations – to store value in an asset that is more easily held, traded, and transferred. Bitcoin accomplishes this by replacing the function of banks – whose function is establishing trust between parties and mediating the transaction process for a fee – with a complex network of computers running the Bitcoin software. These computers, known as miners, use the software to maintain a global ledger of transactions that is used to validate, verify, and transfer money (Kelly "Why Bitcoin Matters More Than Blockchain" 2017). Essentially, Bitcoin has become the first killer app of Blockchain technology, just as email was the first killer app of the internet. Bitcoin has a first mover advantage in the space and controls a lion share of the cryptocurrency market cap. However, Bitcoin is simply the first major successful application of Blockchain technology. Ethereum, a relatively new Blockchain, has made substantial moves in the space and has earned praise for its revolutionary approach to distributed ledger technology.
Dubbed the “Web 3.0”, The Ethereum Protocol was developed approximately two years ago by Russian-born, Canadian-raised Vitalik Buterin. The Ethereum Foundation expanded on the success of Bitcoins Blockchain, launching a new Blockchain with a native coding style, Solidity. Ethereum allows for Blockchain technology to span beyond Bitcoin’s purpose as a store/transfer of value and allows for revolutionary ideas to take effect. Ethereum has taken a new approach to Blockchain technology. Whereas Bitcoin has a single primary function – the transfer of monetary value quickly, reliably, and without third party intervention – Ethereum operates as a general purpose Blockchain. Like Apple’s IOS software where users can use a general coding language to build, launch, download, and use application with a multiplicity of purposes, the Ethereum Blockchain offers a base coding language and tools that can be used to assemble, launch, and use decentralized applications (known as DApps). In a simple sense, Ethereum is a worldwide distributed decentralized supercomputer with theoretically unlimited power (Tapscott & Tapscott Blockchain revolution: how the technology behind Bitcoin is changing money, business and the world 2016). Using the Ethereum Protocol and coding language, developers have the ability code a solution (i.e. a lease transfer) based on a set of predesigned and immutable conditions and broadcast it to the Ethereum network. The network then self-executes the contract based on the conditions expressed in the smart contract, verifies the outputs, and distributes value between participants accordingly. The native currency of the Ethereum Blockchain is Ether (ETH) which – unlike Bitcoin’s transactional currency – functions as a way of fueling computations and decentralized applications. The applications run in absolutely transparency without input from a central authority that could influence the outcome of contracts/transactions (Buterin “The Ethereum WhitePaper” 2015). The power of the Ethereum Protocol’s Blockchain to function as a decentralized web and remove third party intervention cannot be understated. By using self-satisfying contracts, we have the ability to completely disrupt near-every industry in the world. For example, the Title Industry is focused on settling disputes over various contracts such as land ownership due to the dilemma that ownership of assets are often unknown or have multiple parties attempting to claim ownership. However, by pairing such contracts to the an immutable and chronologically arraigned distributed ledger, we are able to identify proper ownership at a moment’s notice (Barzilay, “Will Blockchain Ignite Fractional Ownership Market For Homes?” 2017). Furthermore, the ability to compile thousands of smart contracts together allows us to create what is known as a Decentralized Autonomous Organizations or a DAOs. Take Uber, for example. What is the primary goal Uber as an entity performs? Establishing the connection and trust between two parties: the driver (seller) and the rider (buyer). Unfortunately, this intervention takes potential revenue away from the driver and overcharges the buyer. However, DAOs use smart contracts on the Ethereum Blockchain to create a Trustless environment. Although this sounds strange, Trustless simply means that the trust is built into the code, embedded in the contracts, and distributed across the decentralized network. These Trustless transactions are the backbone of Blockchain Technology and allow DAOs to operate efficiently and with 100% transparency; removing the middle man and connecting the two parties for free. As a result, buyers pay less, and sellers make more; a win-win for society!!
When considering the potential impact of the Ethereum Blockchain, it is important to identify who is taking a serious look at implementing Ethereum’s distributed ledger technology. The Enterprise Ethereum Alliance (EEA) is a testament to the widespread recognition of Blockchain technology and the Ethereum Protocol. In July, the EEA became the world's largest open-source initiative whose total membership now exceeds 200 well-known organizations, Fortune 500 companies, and government entities (“Enterprise Ethereum Alliance (EEA)” 2017). EEA’s list of members is staggering, including notable industry leaders such as Microsoft (who recently released their Ethereum-based framework “CoCo” business Blockchain infrastructure), Cisco Systems, Scotiabank, Toyota, MasterCard, NYC Melon, Sony, Ernst and Young, Deloitte, Hewlett-Packard, and many more. Furthermore, geographically tech savvy areas have followed suit. Zug, Switzerland is being hailed the “Crypto-Valley” where Blockchain startups like Ethereum-based UPort - a sovereign identity service to be used for passport registration and voting via the Blockchain - are taking foothold.
Despite widespread praise, it is important to consider the limitations of Blockchain Technology, the Ethereum Protocol, and cryptocurrency. First, the negative connotations surrounding cryptocurrency have hurt its ability to gain legitimacy in today’s society. As stated earlier, a common notion behind Bitcoin – the first Blockchain-based cryptocurrency to market – during its initial years was its use as an anonymous way to send and receive value for illegal activities such as drug trafficking, money laundering, and espionage (Mihm, “Are Bitcoins the Criminal’s Best Friend?” 2013). This belief was pioneered by the creation of The Silk Road – an online black market site which was eventually seized and shut down by the FBI in October 2013 – which used Bitcoin as its primary means of exchange. The Silk Road served an essential purpose in the history of Bitcoin; it game Bitcoin value. Before, the cryptocurrency was not used as a means of transaction for any other good or service. However, the Silk Road provided a medium for individuals to transact, giving Bitcoin a utility value. Although this was a dark time in the days of Bitcoin and cryptocurrency, it is important to recognize that most great technologies are first utilized for illegal activities. For example, some of the internet’s earliest adaptors were criminals using the new technology to disrupt services and send encrypted messages (The Gale Group Inc.,“Computer Crime.” 2002”). Fortunately, this ideology is quickly dying out as Bitcoin, Ethereum and Blockchain Technology are gaining traction across the globe. CME Group Inc. is recently displayed such transition. Earlier this year, CME Group – the largest derivatives and futures exchange in the world – made an official statement announcing that they would not be pursuing Bitcoin-related trading. However, on October 31st, 2017, CME Group announced plans to launch Bitcoin futures by the end of 2017 (Irrera, “CME to launch bitcoin futures in push for currency’s wide adoption.” 2017). This move caused the price of Bitcoin to surge to new all-time-highs above $7000 USD per coin as of November 1st, 2017, has brought a substantial amount of legitimacy to cryptocurrency, and has set the stage for more widespread adoption such Bitcoin and Ethereum ETFs.
In addition to the negative connotations formerly associated with cryptocurrency in general, it is also important to consider the technological state of the Ethereum and its corresponding regulation. The developers of the Ethereum Protocol have clear stated their intentions to build a decentralized internet by producing a general purpose Blockchain that can be utilized for any Blockchain-based operation. Although Bitcoin has been in existence since 2009, the Ethereum Blockchain – and its native currency, Ether – only came into existence around 3 years ago. Building a base-layer application Blockchain with a multitude of functions, in comparison to Bitcoins checks and balances Blockchain, is a technologically daunting task that has gone exceptionally well over the course of its existence; however, the Ethereum team – and the price of its digitally traded currency, Ether – have a few obstacles to overcome before Ethereum is the backbone of our daily operations. First, the Ethereum really pioneered the ability to easily launch Initial Coin Offerings (ICOs) – using smart contracts to accept Ether as funding for projects in return for that projects newly issued token. The number and valuation of ICOs funded using the Ethereum Blockchain has grown exponentially since Ethereum launched. According to CNBC, ICOs have raised substantially more than the entire Venture Capital Industry at $3 billion raised year-to-date vs. less than $1 billion respectively (Meredith “Wolf of Wall Street’ warns raising money through ICOs is the ‘biggest scam ever’.” 2017). Although this has shown Ethereum’s disruptiveness in the powerful VC industry, the negative side effects have dampened the celebration. First, when ICOs raise money using the Ethereum Blockchain, they accept Ether as a form of funding; which, in turn, is sold for traditional currency to be spent on office space, marketing, development, and salaries. Due to cryptocurrencies volatile nature, these ICOs sell their raised ETH when the price increases, resulting in a suppressed price per ETH. Secondly, a deleterious trend has quickly developed; the ease of raising funds from anonymous investors through ICOs creates a medium for shady figures to scam inexperienced investors out of thousands – and sometimes millions – of dollars through lofty promises and flashy websites. This realization has led to regulatory action across the globe such as the Chinese and South Korean ICO bans. These regulations, although in the best interest of inexperienced investors, stifles the innovation of legitimate projects. However, there is a silver lining to regulation. Regulation adds legitimacy, protects the interests of investors, and ensures proper use of new, disruptive technologies. Fortunately, beneficial regulation in the United States is taking shape. On November 1st, the United States Securities and Exchange Commission (SEC) filed charges against Maksim Zaslavskiy, a businessman living within the US accused of launching fraudulent initial coin offerings. Zaslavskiy was swiftly charged with securities fraud conspiracy related to two ICOs, which carries a maximum sentence of 5 years in jail (Froelings, “New York Government Arrests Businessman Due to Alleged ICO Fraud.” 2017).
The Ethereum Protocol and Blockchain Technology have sent a shockwave across the globe, disrupted major industries, and have won praise from large governments. As we move from an internet-of-information into an internet-of-value, Ethereum’s smart contracts, decentralized nature, and general purpose Blockchain will play a pivotal role in the advancement of decentralized ledger development and adoption. Certainly, challenges await young Vitalik Buterin and the Ethereum Foundation team; however, when such forward-looking, risk-hungry technical minds collaborate, great innovations are born. The Ethereum Protocol and its corresponding Blockchain Technology are un-doubly poised to revolutionize the world!
Citations
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