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business models, strategies and technologies

The Ethereum alternative – rethinking the infrastructure for transactions

Ethereum is billed as a decentralised platform that runs smart contracts – and it seems like a conceptual quantum leap onwards and upwards from the much-battered  Bitcoin cryptocurrency

New kinds of money and innovative payment networks

The first “real” blockchain cryptocurrency was Bitcoin, launched around 2009. Bitcoin uses open-source, peer-to-peer technology to facilitate financial transactions and operate independently of governments, central authorities or banks. P2P transactions take place directly between users, with no intermediary required. Managing transactions and the issuing of bitcoins is/was carried out collectively by the network.  All this seemed an exciting new breakthrough, and Bitcoin was talked up as paving the way to groundbreaking new uses that traditional, feet-of-clay payment systems rooted in analogue thinking couldn’t deal with.

Unfortunately, it didn’t work out quite as intended. One of the pivotal requirements for such a payment system lies in “value retention”, but in April 2013 wild, unexplained gyrations in Bitcoin value raised some of the first big doubts about its long-term viability. Later in 2013, the two exchanges that handled almost all Bitcoin trades in the world (CoinLab and Mt. Gox) entered into a whole realm of lawsuits and counter-suits, with still further serious damage to both public and commercial perceptions about Bitcoin viability. Tokyo-based Mt Gox ended up declaring bankruptcy early in 2014.

Quite a number of other smaller, and less successful, cryptocurrency and “altcoin” currencies emerged, including Litecoin, Ripple and Namecoin – there’s an overview here, for example. But none of them really ever gained sufficient traction to move mainstream, leaving Bitcoin as (apparently – I’m no expert, and numbers aren’t my strong suit) still the largest cryptocurrency in terms of total market value, although there’s also OneCoin.

Somehow the cryptocurrency idea seems like a good idea that had emerged slightly before its time, and then got severely battered in the harsh glare of sceptical media exposure, legacy financial practices and vested interests, and withered somewhat at a key point in the commercial takeoff process – an idea not really quite yet meeting a convincing and obvious need. An example, perhaps, of one of the inherent weaknesses of technology-driven innovation that omits to pay appropriate attention to customer validation before going to market – there aren’t many technology breakthroughs that are so blindingly attractive that they can build their own market from scratch.

In May 2016, evidence seemed to emerge that the pseudonymous inventor of Bitcoin, known as Satoshi Nakamoto, is in fact Australian entrepreneur Craig Wright. This yet again re-energised the rumour machine around Bitcoin, and the frustrating, credibility-denting lack of transparency about the whole edifice – resulting in sneaking uninformed suspicions that the whole concept is/was a gigantic, ingenious Internet scam – doesn’t fit well with global business requirements anno 2016.

The Ethereum alternative?

It now seems like there’s a cool new kid on the block – one with big ambitions and much better communication capabilities, too. Ethereum is a blockchain-based decentralised platform that goes much farther than “just” serving as a currency. Instead, Ethereum makes it possible to run “smart contracts” that make it possible to develop and deploy trustless transactions that you can rely on to work without the backing or support of traditional legal and financial edifices, and dispensing with all the fees, delays and restrictions these usually impose.

The inception of Ethereum in 2014 led to a crowdfunded raising of USD 21 million in less than a month, and the whole project seems to be raising quite a kerfuffle. Ethereum seems to be capable of redressing some of the acknowledged weaknesses of Bitcoin, using a fixed supply cap featuring a deflationary model that’s more suitable for new-era financial realities characterised by negative interest rates. For a good account of this in Ethereum’s own words, see here and there’s also a good techno-summary of the story here.

After a few apparent financial wobbles, Ethereum seems to be prospering, but I don’t know enough about these things to have an informed opinion. Instead, what I want to highlight is the quantum leap in conceptual thinking that Ethereum seems to represent, and the disruptive bomb it seems to insert under the creaking edifice of the traditional financial and regulatory systems, and the many core business processes involved.

Rethinking the business of contractual relationships

Ethereum’s promise of “smart contracts” directly between content creators and consumers seems to bode well for new business models by essentially cutting out the countless middlemen, agencies and facilitators that traditionally take a cut and a fee all the way from source to consumer, constantly complicating and delaying the path for bringing new ideas to market.

From (crypto)currency to the decentralised dimension

Bitcoin bills itself as an innovative payment network and a new kind of money, whereas Ethereum puts out its conceptual shingle as a decentralised platform that runs smart contracts. Money – be it cryptocurrency or not – only really does one thing, by which I mean serve as a register of value. Whereas the Ethereum idea seems to be working towards a much wider range of commercial-crucial capabilities that are almost infinitely malleable. It’s a platform, a paradigm and a set of protocols for infrastructure just as fundamental as water pipes and the internet itself, and just as necessary for new-generation commercial transactions as the oxygen we breathe.

One of the things that seem (seemed?) to make Ethereum particularly attractive is that there is a substantially wider perspective involved. It’s somehow much more than just the effective digital expedition of filthy lucre – perhaps an exploration of what infrastructure is really necessary and/or beneficial in a digital world order. Mankind has never really been in this situation before, so the odds are stacked pretty highly against effective solutions coming from legacy structures and institutions that’ve basically plodded on unaltered for centuries, if not millennia.

That’s why blockchain technology is only one part of a larger perspective about decentralisation – the kind hinted about by such Ethereum blog post titles as “Ethereum in practice part 2: how to build a better democracy in under a 100 lines of code”

Ethereum has a Massively Transformative Purpose

The Ethereum Foundation behind the Ethereum platform is a Switzerland-registered nonprofit with a gorgeously clear, inspirational Massively Transformative Purpose (MTP).

The Ethereum Foundation’s mission is to promote and support research, development and education to bring decentralized protocols and tools to the world that empower developers to produce next generation decentralized applications (dapps), and together build a more globally accessible, more free and more trustworthy Internet.

The fundamental insight that Vitalik Buterin (the founder and primus motor behind blockchain and cryptocurrency technologies) maps out involves how to transform decentralised transfer of value to a generalised state transition function, supporting any application or use – not just transactions, contracts or net neutrality, these just being three of the most obvious practical uses. Combined with peer-to-peer networks and providing decentralised applications (dapps) that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference. Ethereum thus strives to do everything Bitcoin does, and a whole lot more.

Basically, in relation to the Ethereum idea (great name, by the way – very Philip Pullman-esque as well as deliciously descriptive of the depth and richness of the project’s intentions) the whole “digital currency” discussion is a temporary distraction – a side issue, one practical reflection of a much wider/deeper discussion about decentralised structures and what kind of authorities, legislation and edifices should be allowed or encouraged to laud it over decision-making – whether personal or corporate – in our society.

Ethereum makes it clear that it’s a decentralised platform that already provides:

  1. the Ethereum Wallet – a gateway to decentralised applications that allow you to hold and secure any kind of crypto-assets built on Ethereum, as well as write, deploy and use agile, effective “smart contracts”
  2. Solidity, a new language for smart contracts that enables you to create tradeable digital tokens and make contracts automatically compatible with any wallet, other contract or exchange also using this standard
  3.  Ways to kickstart, crowdfund and pre-sell new projects, as well as to hold crowdsales and run auctions via a reliable, trustless structure that does away with any form of centralised arbitrator, clearing house or costly bureaucratic structure
  4. Ways to create non-bureaucratic/small footprint autonomous organisations with smoothly functioning delegative democracy as well as transparent decision-making and finances

Ethereum Meetup groups around the world reflect the community building, crowdsourced development and structural democratisation ideas at the heart of the Ethereum ambition, and the Ethereum platform as a whole seems to be a powerful, exciting path towards self-determination and independent, unregulated action for both individuals and commercial enterprises in global digital constellations in which agility, customer-centricity and innovation are more vital for new kinds of business models made possible by the digital revolution.

Astronomical aspirations, dented implementation

Unfortunately, in June 2016 it emerged that hackers had diverted more than USD 50 million in Ethereum-based digital currency from an experimental project called the Decentralized Autonomous Organization (DAO), which was specifically meant to demonstrate that such money is safe for use. According to news sources, the hackers had exploited a basic vulnerability in the project’s code. It was an issue that affected the DAO specifically – not Ethereum. But unfortunately mud doth have a serious tendency to stick – especially in the popular mind – denting yet again the many hopes, intentions and aspirations for blockchain technology, not least because its bodywork is already severely misshapen.

The fundamental idea behind Ethereum may be exciting, and the perspectives enticing (In August 2016 the World Economic Forum published a seeming resounding endorsement of the fundamental blockchain technology underpinning cryptocurrencies), but the actual blockchain technology implementation (along with other practical stuff) is kinda’ beginning to seem singularly Sisyphus-like. Perhaps blockchain technology will turn out to be not quite the right tool for the job? A situation that doesn’t devalue the job … the Ethereum Foundation seems to have its eye on a beautifully bigger picture.

External info
https://www.ethereum.org/ https://www.ethereum.org/foundation https://blog.ethereum.org/ https://bitcoin.org/en