How Ethereum Found the Potential to Power the Global Economy
Bitcoin’s success has inspired many innovations, with the majority of early blockchain developers using it as a template for variations such as Litecoin.
However, some developers saw beyond Bitcoin to an underlying foundational architecture. One of those is Vitalik Buterin, the founder of Ethereum. For him, blockchain’s full potential could not be attained through Bitcoin’s structure.
From the outset, Ethereum became the blockchain that addresses Bitcoin’s weaknesses.
As hardware demands have increased, desktop CPU mining has become obsolete, followed by the graphical processing unit (GPU) mining that replaced it. Bitcoin mining has become the preserve of Application-Specific Integrated Circuit (ASIC) hardware owners, machines that are not only expensive but also consume a lot of electricity.
The high cost of ASICs puts most mining into the hands of companies backed by venture capital and creates centralization in the Bitcoin ecosystem. For many, this centralization goes against the initial concept of Bitcoin. Conversely, Ethereum uses Ethash, a proof-of-work mining algorithm that limits hardware requirements to GPUs and encourages decentralization.
Another weakness of Bitcoin is slow transaction confirmations on the public ledger. At optimum level, the network is supposed to confirm any transaction in about ten minutes but, as activity has increased and the 1MB block size has filled, delays are becoming longer. It’s now common to wait hours to complete transactions. Ethereum’s block size has no cap, making it possible to maintain confirmation times at about 14 seconds.
The value proposition
All of that’s great, but the most critical feature of Ethereum lies in the fact that it is a platform that supports more than its native cryptocurrency. Bitcoin’s blockchain uses scripting language, which limits its functionality, but Ethereum is Turing-complete language-based, meaning it can execute an infinite number of program loops.
Innovation on Ethereum is powered primarily by smart contracts, a feature that allows developers to encode agreements and programs to self-execute. These applications or DAPPs (decentralized applications) use the Ethereum blockchain as their backend — they use the Ethereum virtual machine (EVM) to execute code and store the application data instead of maintaining their own, centralized servers.
Ethereum is the first blockchain to integrate smart contract capability as well a built-in ability to store third-party data and execute third-party code as a virtual machine.
Running apps on Ethereum also has additional advantages for both the end user and the startup that owns the app.
Ethereum has no single point of failure or attack, and it provides infallible data integrity as no one can make arbitrary changes. And no one can remove an app from the Ethereum blockchain unless they come up with a way to simultaneously shut down over 25,000 nodes around the globe!
The list of startups that are using the platform is constantly increasing and they operate across industries from tech startups to supply management, medical data control and even agribusiness.
Initial coin offerings
Currently, the most popular use of the Ethereum blockchain is the support of initial coin offerings (ICOs). Startups create coins on the platform which they sell for use as utility tokens in their applications and to raise funds for their projects. A recent report by cryptocurrency data provider TokenData puts the amount raised in 2017 by startups through ICOs at over US$5.6 billion.
While the startup gives value to investors in exchange for their money, they don’t have to give up any part of their equity. That leaves them fully in control to execute their vision with little interference.
The ICO method also enables startups to raise funds from the public with little regard for geographical location. In return, the public can invest in early-stage startups, which was previously the preserve of rich angel or venture capital investors. The result is a great vehicle for funding startups — especially open source projects — outside the criteria required by most venture capital funds.
Apart from being a source of capital to startups, ICOs are also a great tool for building a committed customer base before a product launch.
Enterprise Ethereum Alliance
With independent projects utilizing the Ethereum blockchain for different applications, collaboration is critical — especially for building and standardising protocols that allow application interoperability. It is important to provide and maintain common protocols across different applications built by different startups and companies.
It is for this reason that, in March 2017, the non-profit Enterprise Ethereum Alliance (EEA) launched. Its membership includes Fortune 500 companies, startups, academics, blockchain experts and technology vendors. The alliance bridges the gap between corporates, academia and developers to establish a clear path to achieving the full potential of Ethereum for both enterprise and the general public.
Alliance members get technical cooperation, attend meetings to set goals and objectives for the organization, can access speaking or demo-showcasing opportunities at events that EEA organizes, and have their logo placed on the official website.
The list of EEA members includes major brands like JPMorgan, Microsoft and Accenture as well as blockchain startups such as the decentralized exchange Bancor Network, investment firm CoinFund and product authentication platform Seal Network.