WHAT’S THE FUTURE OF THE PUBLIC EXPERIMENT KNOWN AS ETHEREUM?
In the late Middle Ages, Italy was composed of various city-states: small, independent merchant republics dependent on commerce and trade to acquire wealth and power. No centralized political structures represented Italy as a whole, and each city-state boasted their own form of currency. In the banking powerhouse of Florence, it was the florin. In maritime-focused Venice, it was the Ducato. All transactions were carefully recorded through an innovation known as double-entry bookkeeping, allowing city-states to abandon feudalism for early capitalist principles. And through the realization of financial and cultural autonomy, these regions were able to fuel artistic advancement, leading to the birth of the Renaissance.
Today our new version of double-entry bookkeeping is blockchain technology. Using this advancement, anyone with the know-how can declare possession of their own city-state, with the opportunity to create a currency, engage in commerce and construct their own republic — one that’s turned its back on feudalism. It’s an option that’s been available since 2015.
This public experiment, known as Ethereum, is an “open software platform based on blockchain technology that enables developers to build and deploy decentralized applications.” Its cryptocurrency, Ether, is often grouped in with Bitcoin; however, the two couldn’t be more different. Bitcoin is a peer-to-peer electronic cash system; Ethereum is a mother of digital city-states in possession of their own constitution, central bank and market. Ether is merely the financial fuel that keeps it running — its sugar daddy, if you will.
As Ethereum’s founder, Vitalik Buterin, explained during a recent TechCrunch interview, “On Ethereum, you can literally send a bunch of Ether into a computer program and the computer program itself has the unilateral ability to control where the money goes.” He compares this function to that of a vending machine, which also follows specific rules. “You put in two dollars, water comes out. If you don’t put in two dollars, water should not come out. And if you do get water without putting in two dollars, that’s bad.” Buterin argues that, by maintaining and enforcing such rules, smart contracts can protect digital assets — especially with the added security of cryptography.
One common smart contract on Ethereum is known as an Initial Coin Offering, or ICO. Used by entrepreneurs looking to raise funds for a new application they’re eager to build, these contracts resemble agreements made through Kickstarter. For example, you can allow people to purchase tokens, either representing a pre-sell of your product or actual shares in the company. Depending on whether or not you reach your goal, the contract itself can determine where to send money once the deadline is met.
In essence, you can create whatever operations you wish through these self-executing contracts without running the risk of downtime, censorship, fraud or even third-party interference. Once you establish your constitution, it’s time to develop decentralized applications, or Dapps, that can turn a profit. By building these applications on Ethereum’s public blockchain, you’re receiving additional protections from hacking, censorship and fraud, as well as avoiding a central point of failure.
Moreover, in the true fashion of a republic, you can make your organization more democratic through the formation of a Decentralized Autonomous Organization (DAO). These organizations are fully decentralized, independent of central control, and all operating on code managed by AI. By purchasing tokens, members of this DAO can acquire voting rights over that specific domain. And thanks to the blockchain, these votes are completely anonymous, with all operations remaining transparent for members and regulators alike — independent of human intervention.
By creating your own smart contracts and Dapps, you’re essentially joining the trade union that is the Ethereum network, fueled by publicly traded Ether. In fact, these smart contracts execute operations based on payments in Ether. And as long as a Dapp can support itself financially, the contract will continue to perform. No third party can make data changes to your smart contracts, and your Dapps can never be switched off (unless you start getting behind on your Ether payments). However, these smart contracts are only as good as the code they follow, which in turn, is subject to human error. That means, if someone makes a mistake, no one can stop it without completely changing the blockchain itself. Moreover, there is no “forgot password” option on any Ethereum sign-in due to the secure cryptography involved. So, if you forget the password to your Ethereum Wallet, and are unable to retrieve it through a third-party vendor, your application could continue running indefinitely, leaving you without the ability to cash in. There is no central entity to protect or assist you…in theory.
In 2016 a DOA project was hacked due to “human error” in the project’s code. $50 million in Ether was stolen. On the one hand, Ethereum could step in to retrieve the lost Ether, but that would require taking a “hard fork,” meaning they would have to break off of the original blockchain to create another one. This was a controversial option, since blockchain is deemed valuable because of its permanent and unchangeable nature. On the other hand, if they didn’t retrieve the Ether, users could deem the platform unsafe and leave the experiment altogether. After a community vote, Ethereum went with the first option. The result? Two parallel Ethereum blockchains: post-fork and classic. The DAO project was able to access their Ether, but some in the Ethereum community feared that a dangerous precedent had been set, one that could threaten the entire network.
Then again, Ethereum is just an experiment. We don’t know what the final results will be. The creativity encouraged through Dapp creation and smart contracts could trigger a renaissance, or it could lead to a disaster permanently recorded for future generations. Having your organization run by AI that can never be switched off or changed by a third party seems reckless; then again, I suppose it depends on the organization in question. Yes, we place our trust in a vending machine giving us water when we insert money, but when it comes to more complicated or “revolutionary” programs, are we ready to declare “in math we trust forever”?
The city-states created the atmosphere required for one of the greatest periods of art and invention. Perhaps Vitalik has done the same. But I don’t fear the robots so much as I do the humans who’ve set out to control them. And by giving machines a way to make money independently of humans, I’m not convinced this will end well. The fact that Vitalik himself would make a great Bond villain doesn’t help either (he aspires to live forever). Of course, the end of the Italian Renaissance brought with it wars, bloodshed and chaos, so either we’ve learned from history or we’re being incredibly naive… As with most innovations in tech, only time will tell.