THIS IS NOT A BLOCKCHAIN:
It is a digital infrastructure for the digital economy & digital democracies
Kelsie Nabben, 30 July 2020
(This article was held in escrow but written on time. Happy *belated* birthday, Ethereum.).
July 30, 2020 marked the 5th birthday of the official launch of the ‘Ethereum’ blockchain network, so it’s time to take stock of the purposes, progress and limitations of this revolutionary technology to understand the significance for people and institutions. Ethereum is not just another blockchain distributed ledger technology rather it is a foundational digital infrastructure for the digital economy and digital democracies.
This $30 billion market cap experiment began as cypherpunk vision. Ethereum is an evolution of the Bitcoin protocol, from a peer-to-peer electronic cash use case, to a ‘world computer’ which is turing complete. What this means is that the Ethereum blockchain is a public, decentralised platform, for anyone to build applications on top of. The turing complete attribute is captured in the ‘Ethereum virtual machine’, meaning that when an input is provided, it processes to an output. Rather than just transacting money, this blockchain runs computational processes that also hold the attributes of public, cryptographically secure and decentralised.
The Ethereum Blockchain is Born — a new digital infrastructure
Ethereum is born out of ‘nerd politics’. Led by the unicorn t-shirt wearing, gentle-lamb figure Vitalik Buterin (who also emerged in a popular meme as “Vitalik Jesus”), the vast, global, open-source Ethereum community of developers and community contributors who don’t take themselves too seriously have transformed the ideological and technical vision for a world computer into an ‘infinite machine’. As the world’s second largest blockchain, Ethereum forms the backbone of numerous institutional use-cases and the centre of the ‘Decentralised Finance’ (DeFi) phenomenon.
Firstly, Ethereum is a digital infrastructure. Digital infrastructure is large-scale, collaborative software systems that offer a platform for coordination of people and societies. The Ethereum protocol is built to scale, with a decentralised, proof-of-stake consensus mechanism.
“Eth2 is a huge undertaking to provide an upgraded, next-generation, highly-scalable and secure, decentralized consensus to Ethereum. There are dozens of teams and hundreds of individuals working each day to make this a reality.”
- Danny Ryan, Eth2 platform launch coordination, Ethereum Foundation
The Digital Economy Evolves
From a nascent idea, this digital infrastructure has progressed into a vast array of economic uses and institutional applications.
Through ‘smart contracts’, which is essentially a piece of software code running on Ethereum and can control digital assets, blockchains are applicable to institutions for economic governance and coordination to increase efficiencies and lower the cost of innovation.
Among interesting implementations on Ethereum are digital tokenization of real world assets, online reputation management, supply chain management and procurement.
Towards Digital Democracies
As we mark this milestone, it appears that Ethereum’s ambitions towards new ways to organise are only just getting started. The proposition of ‘Radical Markets’ to pursue economic growth and resolve political conflict through decentralised, smart-contract automated digital infrastructure based tools, such as ‘quadratic voting’.
TODO: Remaining Considerations for Ethereum
In order for Ethereum, as a digital infrastructure, to spawn decentralised finance digital economies and functionally support digital democracies, there is more to be done.
On a technical level, the open-source community that tirelessly believes in and bolsters this infrastructure is laser focused on solving the challenges of scalability of transaction numbers, along with a cohort of wish-list items, including privacy, security, usability and education.
Among these infrastructural weaknesses in centralised points of failure, such as DeFi liquidity pools that function like centralised exchanges (the DAO exchange hack of 2016 will be eternally burned into Ethereum’s history, as a lesson to us all).
Another critical evolution is the life of Ethereum is the evolution of governance in the form of decentralised autonomous organisations (DAOs). Exploration of both technical and social governance is arguably a new kind of social institution, for new methods of decentralised coordination and new models of managing public goods and governing the commons. Unlike the Bitcoin community, (sorry Bitcoin, you have achieved big things), the Ethereum community has done reasonably well at acknowledging that technology is inherently about people and social organisation.
“We can use some kind of resource-democracy mechanism to vote on the correct value of some fact, and ensure that people are incentivized to provide accurate estimates by depriving everyone whose report does not match the “mainstream view” of the monetary reward.”
— Vitalik Buterin, 2013.
Early manifestations of DAOs, or DAO infrastructure, on Ethereum include Aragon, Augur, Dash and Commons Stack and the Metagovernance pattern library.
Another question for the world computer is how will it be regulated? The regulatory and public policy barriers facing new infrastructures are immense. If digital infrastructures are predicated on code, laws and norms, a key consideration which remains ambiguous is regulation. Etheruem has already navigated a long road, from being banned, to being approved by the U.S. Securities and Exchange Commission as not a security, to launching a cryptocurrency fund with UNICEF, SEC Commissioner Hester Peirce has declared that “cryptocurrency is here to stay and I would like to set up a regulatory framework that works well for crypto”. Yet, the vision of decentralisation may be heading for further penalties, set-backs and confrontation.
Even if you don’t care about digital transformation, governance or the future of society, the price is pumping, and there’s never a better time to pay attention and watch this space.
Happy 5th Birthday Ethereum.
End.
