Note: reposted from Medium.com (where it’s getting a lot of traction): https://medium.com/business-startup-development-and-more/d609eef3e6cb.
Forget about Crypto-Currency, Here Comes Crypto-Finance
If youâ€™ve been following the Bitcoin movement, youâ€™ve seen it grow, since its inception five years ago, from idealogical experiment to fully-fledged currency with its own ATM machines, billionaire investors and billion dollar marketplace and yes, place on the world stage. Youâ€™ve seen the introduction of bitcoin-mining specific hardware (that costs more than many people can afford). Youâ€™ve seen Silk Road, Overstock, massive heists and massive problems, regulations and crackdowns by various governments and organizations while others embrace, or allowâ€Šâ€”â€Šwhile they look for ways to make money offâ€Šâ€”â€Šor regulate it. Youâ€™ve seen the creation of Bitcoin alternatives from Litecoin to Dogecoin and the ill-fated Coinye, to the recent Icelandic nationalized Auroracoin; in short, youâ€™ve seen incredible growth for this experiment in virtual, decentralized currency but, I believe, you ainâ€™t seen nothing yet.
If Bitcoin is Crypto-currency, Ethereum is Crypto-finance
Ethereumâ€™s four founding members all came from theÂ Bitcoin community.Vitalik Buterin, Ethereumâ€™s 19-year old wunderkind inventor, is a co-founder ofÂ Bitcoin Magazine, as well as a developer for several Bitcoin products. Vitalik and his team are applying the principals and techniques of Bitcoin to a larger sphere, partly by dialling Bitcoin principals back to their basics.
As the Bitcoin movement matured, people saw that it could be used for things beyond currency and value transactions: things like legal contracts of all kinds, application-specific currencies (think giftcards and pre-loaded credit cards) and peer-to-peer gambling. The Bitcoin protocol, however, was not simplistic enough to make these things easy. In hisÂ Ethereum whitepaper, Vitalik uses an internet analogy. The Bitcoin community wanted to use Bitcoin as a TCP equivalent, with the addition features being like HTTP; however, Bitcoin is more like SMTP, the email-specific protocol, with Bitcoin being currency-specific. Ethereum strives to be TCP. It provides a pared down platform/protocol that gives users the ability toÂ codeÂ a multitude of features on top of itâ€Šâ€”â€Šincluding, if desired, digital currencies like Bitcoin. There is a GUI in the works: people wonâ€™t even have to be programmers, or learn the Ethereum-specific language, to code their desired features. The â€œlego of crypto-finance,â€ Ethereum wants to make the creation of â€œcustom currencies, financial derivatives, identity systems and decentralized organizations,â€ among other contractual products the creators have not yet envisioned, possible.
Bitcoin: currency and payments; Ethereum: relationships.
Ok. How does it work?
Ethereum combines a programming language (similar to C++ or Python) and a database. To understand Ethereum, you need to be familiar with many new concepts, as defined below. Read through the ones you donâ€™t understand and by the end, youâ€™ll have a good idea of how Ethereum works.
Blockchain:Â essentially, a databaseâ€Šâ€”â€Štransparent, because itâ€™s distributedâ€Šâ€”â€Šit contains all the transactions executed in a system and is shared across all of the nodes participating in the system. The term originated in the Bitcoin movement.
Centralized vs decentralized networks:
A centralized network is one where data and processing happen at a central supercomputer, with access points coming from connected workstations. A decentralized one has many points where data is stored and/or processed. The internet is a decentralized network. While allÂ distributedÂ networks are decentralized, not all decentralized networks are distributed.
Distributed network:Â a network of computers working together to run a system or program. Distributed systems have no defined major nodes where data storage and processing takes place. Often called â€œpeer-to-peer networks,â€ file sharing systems, like Napster, are distributed. Bitcoin runs on a distributed system, as does Ethereum.
Platform:Â in computer science, a platform is a group of technologies that allow the building of other technologies on top of them. Operating systems like Windows, Linux and Mac OS are platforms that pair with hardware. Ethereum, while a platform, does not (at this point*) pair with hardware. *Although unlikely, the creators have not ruled that out. They are open to changing Ethereumâ€™s parameters, for the â€œgood of the project.â€
Cryptography:Â the study of secure communications and transactions.
Crypto-currency:Â digital currency, based on cryptography. In the case of Bitcoin, Ether and most crypto-currencies, their security and trustability depend on all transactions being publicly viewable, while participants to any given transaction remain anonymous andâ€Šâ€”â€Šthough not impossibleâ€Šâ€”â€Šextremely difficult to trace.
Crypto-currency 2.0:Â coined by and for Ethereum, it refers to the fact that Ethereum upgrades the concept of crypto-currency by creating not a another currencyâ€Šâ€”â€Šthough a currency, called Ether, is part of itâ€Šâ€”â€Što a platform that can be used for creating currencies, contracts and transactions of all kinds. Web 1.0 was basically static web pages while Web 2.0 included dynamic, interactive pages that included animation, user-input forms and flexible layouts, among other things. While crypto-currency is basically digital currency, crypto-currency 2.0 includes contracts, trades, transactions and relationships of all kinds, in addition to currencies.
Ether:Â the currency component of Ethereum. At Ethereumâ€™s inception, one ether equals 0.001 bitcoin (or 1000 ethers = 1 bitcoin). Unlike bitcoin, there is no limit to the number of ethers that can be mined.
Turing complete:Â If a programming language is Turing complete it:
- can run infinitely, with
- each chunk of data being changeable, and capable of causing change to the language, when it interacts with a key part of the language; however,
- the changes to the chunk of data and to the language while the data is interacting with the language, do not affect other chunks of data in the data collection. Lastly,
- these chunks of data can be moved back and forth in the programming language, interacting with the languageâ€™s malleable and forcible part, ad infinitum.
Ethereum is Turing complete.
Trustless:Â as in â€œtrustless blockchainâ€ means that â€œtrustâ€ is not needed because a transaction will not complete until all of itsâ€™ parameters have been met. If the rules of the agreement or trade are baked into the code, the entities involved in the transactions do not need to â€œtrustâ€ each other. Another component of â€œtrustlessâ€ is the transparency of transactions. If, for example, everyone in the room sees A give B ten dollars for a loaf of bread, A does not have to trust that B will deliver the loaf of bread, because B knows that their ability to do business in the community will be compromised if they do not deliver the loaf of bread to A. (If Iâ€™m wrong, please help clarify this concept with a note.)
Contract: â€œthe main building block of Ethereum,â€ a contract is like a small computer program that lives on the Ethereum network. It includes itsâ€™ own code, data storage and ether balance.
â€œYou can use contracts to issue currencies, construct your own escrow contracts or financial derivatives, and even create on-blockchain data stores.â€â€Šâ€”â€Šhttp://ethereum.org
â€œUnlike other cryptocurrencies, which aim to offer a large number of â€˜featuresâ€™, Ethereum intends to take features away, and instead provide its users with near-infinite power through an all-encompassing mechanism known as â€˜contractsâ€™â€â€Šâ€”â€Šhttp://www.ethereum.org/ethereum.html
Smart contact:Â â€œcomputer protocols that facilitate, verify, or enforce the negotiation or performance of aÂ contract, or that obviate the need for a contractual clause. Smart contracts usually also have a user interface and often emulate the logic of contractual clauses. Proponents of smart contracts claim that many kinds of contractual clauses may thus be made partially or fully self-executing, self-enforcing, or both. Smart contracts aim to provide security superior to traditional contract law and to reduce othertransaction costsÂ associated with contractingâ€¦Â Digital rights managementschemes are smart contracts for copyright licenses, as areÂ financial cryptographyÂ schemes for financial contracts.â€â€Šâ€”â€Šhttp://en.wikipedia.org/wiki/Smart_contract
Smart property:Â property whoâ€™s ownership is controlled via a computer algorithm. Itâ€™s a use case of a â€œsmart contractâ€ that applies to ownership of anything from a house or land to company shares or computer access rights.
â€œMaking property smart allows it to be traded with radically less trust,â€ reducing fraud and mediation fees, and facilitating trades that would be impossible without it, due to fees, distance or other communication barriers.
â€œIt allows strangers to loan you money over the internet taking your smart property as collateral, which should make lending more competitive and thus credit cheaper.â€â€Šâ€”â€Šhttps://en.bitcoin.it/wiki/Smart_Property
Protocol:Â a system of rules governing the transfer of data.
Autonomous agent:Â an autonomous agent operates on the behalf of an owner, but without any input from the owner. A smart contract is an autonomous agent, as is, to some extent, an Ethereum contract.
Decentralized autonomous organization (DAO):Â an organization whoâ€™s rules, mandate and mission are encoded into an Ethereum, or Ethereum-like contract; that is, the code lives on a distributed network and is self-enforcing. If Ethereum is a platform for crypto-relationships, aÂ DAOÂ is a complex, multi-entity instance. Iâ€™m particularly enamoured of the idea of a crypto-political-party.
So, Ethereum provides a programming language, similar to C++ or Python, combined with a database, both of which live on a distributed network. This allows users to create self-enforcing financial and legal contracts of all kinds and complexities, without the use of a third-party.
Here is Ethereumâ€™s Github page:Â https://github.com/ethereum.
Iâ€™m not a programmer so thereâ€™s nothing here for me, right?
Well, according to thisÂ Reddit thread, yes, you are right. On the other hand, people laughed at Bitcoin when it first appeared, though now, fewer and fewer are laughing and more and more Silicon Valley investors are getting involved.
When Buterin presented Ethereum at the recentÂ Miami Bitcoin conference, he received a standing ovation, from a packed auditorium, and the question queue took more than an hour to address.
Aside from being an investment opportunity, Ethereum levels business and financial playing fields. Donâ€™t want to support government bailouts for banks who sell shitty mortgages? Donâ€™t want to work for less because your parents arenâ€™t friends with the right people? Donâ€™t want to pay hidden minority taxes? Ethereum takes users out of the lopsided, behemothic existing systems by letting them create their own financial and legal instruments. Donâ€™t want to pay lawyers and government agencies to do business and sell and trade property? Create algorithmically binding contracts with Ethereum. Ethereum can not only make you money, it can save you money.
The UK recently made programming part of theirÂ primary and elementary school system. Kids will start learning to code in kindergarten and it will be mandatory until they are sixteen. The UK is the first country in the world to do this, but others wonâ€™t be far behind. Hyperspace isnâ€™t going away. Since the internet started, more and more products, services, communications and relationships have moved online. Online sales have not even peaked yet.
With the advent of mobile devices, including hardware addons like Square, mobile financial transactions are in infancy. People will use mobile phones as wallets and will choose them over credit cards. (Credit cards tracking your purchases and other rapacious, predatory practicesâ€Šâ€”â€Šletâ€™s not even get into that.) Bitcoin is almost mainstream now. It makes sense to create a new, online, decentralized (and thus, more difficult to game and control) financial system rather than adapting old, corrupt, confidence-bankrupt ones to this virtual world. Last, but not least, Ethereum is excitingâ€Šâ€”â€Šinspiring, even. Itâ€™s the next stage in the financial and relational revolution started by Bitcoin.
How can I get involved?
The easiest way is to buy in when Ethereum goes public. TheyÂ wereÂ going to go public February 1st, 2014, but because people expressed interest in trying their platform before buying into it, they released an alpha client instead, which you can getÂ here.*
* I tried to install it, but couldnâ€™t get past my homebrew errors, on Mac OS Mavericks. @ethereumproject tells me that I donâ€™t have to brew it, and shareâ€™s this pastebin:Â j.mp/1cqYKcP, which I have not yet tried.
IÂ wouldÂ suggest installing it, and learning as much as you can. Even though a GUI is in the works, the more you know, the easier it will be to use. Get on the Ethereum notification email list, or watchÂ http://ethereum.orgÂ for updates, including the release of itsâ€™ GUI.
So Awesome! Where else can I learn more?
- The Ethereum website:Â http://ethereum.org. Join their mailing list to receive updated info as it is published.
- Hereâ€™s the Ethereum whitepaper:http://www.ethereum.org/ethereum.html;
- Forum:Â http://forum.ethereum.org/, and
- Alpha client code:Â https://code.ethereum.org/;
- Welcome to the BeginningÂ forum thread:Â https://bitcointalk.org/index.php?topic=428589.0;
- â€œEthereum,â€ onÂ Bitcoin Magazine:Â http://bitcoinmagazine.com/?s=ethereum. *Bitcoin Magazine is a great place to read about the Bitcoin movement, in general; and,
- Vitalik Buterinâ€™s Ethereum talk from the recentÂ Miami Bitcoin conferenceÂ (video, 28 min.):Â http://cointalk.ca/vitalik-buterin-talks-ethereum-at-btc-miami-2014.
If you have any more resources to share, please add a note.
Thanks, that was great!
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