Ethereum. Yet another next big thing

There is new fashion in the technology universe, fashion for the next big thing. However, the pace of innovation is overwhelming, and it is quite complicated for an average person to figure out “the next big thing”! But today is a very special day. Today Ethereum happens! What does it mean for you? For me?

A meaning

We usually start analyzing any intelligent network from something that makes sense without any technical and scientific stuff. Ethereum’s case is remarkable because it makes possible a bunch of sci-fi things that were impossible before. Here are the three of the most exciting ones from my point of view.

Autonomous Agents

A basic idea behind Ethereum is a smart contract. But how does it look like? Why is it called smart?
A simple example. Let say, you want to make a present to your son on his 18th birthday but you want today a 100% guarantee that it (a gift-giving) will happen no matter what. Ethereum can help you:

  1. You describe what you want: All money locked in a contract could be sent only to an account of my son (you specify it), and only when he reaches 18 years old.
  2. You send this contract to the Ethereum network. The Ethereum network registers this contract and gives you back its account number.
  3. You send money to a given account number. The contract “holds” money and nothing happens until the specified time comes. At the moment your son celebrates his 18th birthday contract enforces a transaction, and money is transferred to your son’s account.

Lets look closer:

  • Once created and confirmed by the Ethereum network a contract code is set in stone.
  • The contract does exactly and precisely what was defined upon creation at any time. It is impossible to change or cancel it. It has an enforcement power.
  • Upon the confirmation the contract begins a life of it own within Ethereum network.

The contract code is turing complete one thus theoretically does not have any limits for the enforcement logic. Any contract could be programmed to be independent from its creator. So I foresee a time than you would say:

“Contract it” the way you now say “Google it”.

In other words smart contracts are autonomous economic agents with a power to enforce decisions. This achievement is hard to overestimate. It is a beginning of the new economic era with the artificially intelligent economic agents. But that is only the beginning.

Intelligent Entities

Any contract could communicate with any contract absolutely autonomously. It means that contracts like atoms could form very complex structures. I suppose that information structures one day will become much more complex than our brains and will create intelligent entities with the properties superior to the biological minds.

Decentralized autonomous organization as a concept coined by Dan / Stan Larimers who invented another brilliant thing BitShares. DAO is an organization fully programmed to be autonomous that does not rely on any human being.

Interesting? Yeap! It is a field where all organizational innovations will happen in the next years. Our economy consists of more than billion of business entities. All of them could be and will be programmed to become autonomous. It is a complex topic that will gain momentum in the next years. BitShares and Dash are already built using some of the principles of self-governance.

From investors perspective autonomous or digital organizations are far more attractive than their analogue competitors. The advantages are the following:

  • Truly transparent: code is open source and all operations are on blockchain.
  • Cost effective: don’t pay taxes, bureaucracy free, don’t need a real estate to operate.
  • Global from a launch.
  • Programmable, or flexible: Changes happen automatically once code is accepted by a network.
  • Secure. No single point of failure. No human mistake. Defined by math.
  • Intelligent. Yeah! They can do everything that you can imagine and even more.

This is an impressive list of advantages. And Ethereum TODAY makes that possible. So in the near future we will see a lot of new corporations comparable to Google and the USA. I am sure that:

Decentralized Autonomous Organization is a real threat to any business or state that exists today. Thus if you invest in the states or central-based organizations you have to face a default risk caused by their inability to compete with a new generation of the digital organizations.

So we in cyber•Fund are not going to invest into any proprietary or centralized businesses without mentioned above properties of the digital organizations.

You have been warned!

I foresee an abundance of the frameworks that will allow to code these organizations easily, and even ready to use app stores where you will be able to acquire a new digital state or a corporation for some ethers. Yes, you will need to convert your dollars, yens, or pounds into ethers in order to create a new digital entity. And an intrinsic value of ethers comes from here.

Programmatic Law

That is my lovely part. I wrote about this law almost a year ago in my book but then the statements were without arguments. Now the situation has changed. The most dramatic paradigm shift in the history of our civilization is about to happen:

The Law as a result of Execution and not vice versa

You could ask: Where is justice here? I think people judge every time when they push the buttons. The next thing you think of is: That is scary. Nobody wants this to happen. Nobody is ready for such a paradigm shift. Why do you think that it will work? People will push the buttons because:

Ethereum makes possible a ~1000x cost reduction per transaction

That definitely has never been before.

Science & Technology

Oh. I know what you are thinking about… It is a boring stuff. Somebody has even tried to reproach Ethereum’s team for being too academic and far away from business. However, one day

The World Bank will review its Doing Business methodology because Ethereum’s science will change the way business is done.

My bet that this will happen in 5 years. But to be honest with Ethereum it is hard to imagine that we will need this kind of thing as Doing Business rating. However without science it is impossible to build such stuff. I will try to explain in simple terms how Ethereum universe works.

Mist

The existing browsers and WWW cannot guarantee safe surfing for you. Ethereum ultimate goal is to build safe and trustless browser. A picture is better than 100 words so here is a concept video:

Light client protocol

Ok. But what if I want my microwave oven to be managed by Ethereum blockchain? Ethereum protocol was designed having in mind IoT. So there is a method for a light node to verify validity of transactions without downloading the whole blockchain.

LCP specification states that it allows light nodes to process about 1KB of data per 2 minutes, and to receive data from the network about the parts that are of concern to them.

Ethereum team announced Raspbery PI Programme. So in a very short time plug&play tools will appear for Arduino, Particle, Tessel, Intel Edison and other open source embedded platforms.

In the same way LCP enables seamless integration for smartphones or browser extensions.

Web3.js

But what about the usual web apps?

There is a cool Javascript API that is the basis for any DApp development.
SPV won’t work for usual web apps. Even in SPV case you need to download every block header. That is why trusted services are necessary for usual applications. These services are treated as “low trust” as they do not store private keys but rely on blockchain data like Blockchain.info does for its wallet users. Though it is not the best solution it makes Ethereum protocol highly compatible with the existing web apps . Bitcoin has already proved that this stuff works.

Solidity

Solidity is the first language which serves like a real medium for human-computer interactions. It is the language of economy.
Difference between Web Services and Smartcontracts

Solidity has evolved fast in the process of Ethereum development. It is subset of Javascript which was invented especially for EVM. IMHO Solidity could be the next big language as it aims to replace the legal paper-based texts of all contracts and laws.

It was designed to be understood by humans and computers. Thus Solidity has a chance to eventually become a medium for communications between a human being and a machine. As a language it could be used everywhere where smart contracts are used: Ethereum, Eris, Counterparty and any future smart contract system.

Here is some info about Solidity:

Ethereum was designed for DApps engineers and if you want to reinvent something here are the links:

Natural Specification Format

A user should understand what a contract will actually do after he pushes a button. Here comes natural specification which aims to translate high level Solidity code to the simple statements like:

After pushing the button “Sign contract” you receive 1000 cyber•Fund Equity tokens. 100 ethers will be withdrawn from your account to be managed by portfolio managers.

This approach allows to audit code of contracts with a certainty that contracts will not be able to lie to people. Thus though NatSpec is a simple thing it solves a bunch of problems in human-machine interactions.

Ethash

It is a proof-of-work mining algorithm used to launch the core Ethereum infrastructure with a high level of security and decentralization.

Decentralization/efficency ratio of mining is an actual problem. Ethereum community seems to be agreed on fact that neither proof-of-work nor proof-of-stake is a silver bullet for the decentralized consensus. Maybe proof-of-importance? So in the future ethash will be definitely changed for something more intelligent.

Nonetheless Ethash seems to be the most exciting proof-of-work algorithm in existence, except, perhaps, Cryptonight. Two years ago any bitcoin clone with Ethash would have received tons of attention.

Here you can find Ethash design rationale.

Ethereum The Protocol

Basically Ethereum exist in two core papers:

Based on these papers any developer is able to build implementation of Ethereum Protocol using any language. Impressive! And that exactly what happens. Go, C++ and Python implementations are already here though officially today’s release includes only Go implementation. Java and Node.js are somewhere around.

By the way it is very impressive that so many developers are working on Ethereum Protocol implementations. In comparison even Bitcoin’s alternative developers community is not so active in terms of multilanguage implementations. That fact makes Ethereum the first polyglot :-). And this decision of EthDev will payoff wonderfully in terms of adoption.

Underneath

There is a lot of complicated stuff underneath the network that makes it work: Contract ABI, Merkle Patricia Trees, Low Level Language, Recursive Length Prefix Encoding, Whisper and more. These all are really beautiful innovations, especially Patricia Trees — fascinating data structure that make Ethereum possible. And all these stuff are run by Turing Complete Virtual Machine called EVM. You can explore details in Ethereum Wiki.

For now a decentralized file storage is something that the platform lacks. EthDev know that and have plans to build and launch something they call Swarm. My personal dream is for Swarm to be implementation of Interplanetary File System. I am a big fan of it.

The Team and Community

I am not a person who is capable of valuating the guys who invented our future. I will put some interviews with them here :

Vitalik Buterin
Stephan Taul
Really exciting talk of Vinay Gupta

The information about the founders team and the dev team is transparent. The teams are really strong.

The forum is not full of activity at that moment. I suppose the reason is that a lot active members have joined the dev team and switched to internal communication channels.

DApps Economy

Ethereum should spur a creation of the next generation DApps. And here they are:

If you want to develop upon Ethereum network but don’t know how there is a consultancy Ursium to help you. Full list of decentralized applications is here. Quite an impressive list of the disruptive projects for a platform that to be launched today, yeah?

I don’t remember so glorious launch before.

Distribution

The distribution is a very important thing. The initial ethers (Ethereum crypto fuel) were distributed during 42 days of Ethereum Genesis Sale.

60,102,216 ethers were sold for Ƀ 31,529. So, according to Genesis Sale terms, Genesis block will include 70,079,184 ethers:

  • 60,102,216 for 9k initial buyers
  • 4,988,484 for early contributors
  • 4,988,484 for long term endowment

Ethereum distribution has Gini index of 0.830. Basically it means inequality of the wealth distribution. There are “oligarchs” (40% of supply is under control of Top-100) from the very beginning, thus the risk of dumping or manipulation (in case of proof-of-stake switch) remains high.

But this risk will dominate the “infancy” stage only. The network supply is going to be inflated by 15,626,576 tokens per year. In the proof-of-work stage these rewards constitute revenue of miners. After network switches to proof-of-stake these rewards could become a very powerful source to support network development and infrastructure. The target supply of ethers in 10 years is 216,367,976.

To sum up, I think that ethers distribution is transparent, fair and nicely balanced to support an explosive growth of the network.

Total Addressable Market

It is the reason why Ethereum is the next big thing.

Taken into consideration the fact that Facebook with 1.5B users and trillions of likes has a cap of $200B, you could only speculate how big the market of Ethereum would be. Almost all economic activities seem to be more profitable if built on Ethereum.

Ethereum is definitely a huge part of the future economy

Valuation

Genesis Sale valuation: $18M (crowdfunding) + 20% (founders and development reserve) = ~$22M.

A lot has happened since 2014, so our expectations are:

  • Frontier: from 3x to 15x pump
  • Homestead: from 10x to 50x pump

I believe in ~$10 trillion capitalization of narrow ether supply and ~$200 trillion capitalization of the equities that would appear thanks to it in 10 years.
Unexpected, even inadequate, right? Lets check the books in 2025.

Remember there is a difference between us. I invested long-term in Bitcoin in April 2011 but most likely you did not. And I was lucky enough to meet Vitalik in person before Genesis Sale ;-) at Inside Bitcoins HK. So, I had more than a year to think about all Ethereum stuff.

Greedy corporations

Of course, something could happen and someone else would profit from/in the era of digital organizations, someone who is able to crush Ethereum.

But a list of potential competitors to Ethereum is surprisingly short. Only 7 corporations have power (money + experience + expertise) to do that: Apple, Google, Facebook, Intel, Microsoft, Samsung, and IBM. Samsung and IBM have already demonstrated an interest in adopting Ethereum’s blockchain for the upcoming Internet of Anything. If any two more corporations will join them, Ethereum will come to stay.

Good to Ethereum it is designed in a way to minimize competition. Even for Google the better option is to “join a dinner”. Indeed, who would want a centralized closed source Ethereum from Google?

Google could certainly build it throwing an army of engineers and screaming that they are doing something even bigger. But it would not work unless they did it on our terms: in a decentralized manner with a fair distribution. Otherwise, Google would lose a (really) honorable badge “Don’t be evil” forever.

However, Google Ethereum is unlikely to happen as the best minds of the planet will keep working on Ethereum. I will do. I believe you will. That is real chance to fix state's despotism and broken internet by the way supported by Google. I believe that is the thing worth living.

Dirty governments

Governments? Hm…

A government in term of Ethereum is just an app.

We are living in very exciting times. It’s hard to believe that a government could be just an app. There is no need to believe me. Start to think about it to prove that it is possible.

Enjoy your travel to the Matrix

If you are a developer there is an interesting thing for you Ethereum Frontier Guide.