Dr Craig Wright’s recent ‘revelation’ that he is Satoshi Nakamoto, the secretive creator of the digital currency Bitcoin, has brought Bitcoin back into the public focus for the first time in a while. Whether its true or not, it doesn’t really change anything in practice other than satisfying the curiosity of a few, and providing a focal point for the hatred of those who believe him a liar. However, it comes at period of time when the importance of blockchain, the distributed ledger system that underpins Bitcoin, is starting to be realized, and will do it no harm in its quest to become the buzzword of 2016.
Bitcoin may be the most famous application for blockchain, but there are others making headway. Ethereum is one of these, gaining significant traction since its initial campaign in 2014. It is now the largest and most well-established, open-ended decentralized software platform, with a total market cap of $747,905,311 at last count. Ethereum provides a digital currency token, known as an Ether, as an incentive to those who work on its peer-to-peer computation network to build out on its application-foundational blockchain technology, in the same way Bitcoin operates. Where the two differ is that Ethereum was developed with a focus on smart contracts - computer code or ‘scripts’ that facilitate, verify, and enforce the negotiation or performance of the terms of a given contract between a number of parties - while Bitcoin was developed to focus on a peer-to-peer digital cash. Put simply, if Bitcoin is like email, Ethereum is like the internet.
Essentially, the objective of Ether is to facilitate and monetize the working of Ethereum to enable developers to build and run distributed applications. The main advantage of the smart contracts it uses is that it takes a lot of the risk out of owning Ether by defining a smart contract that holds the tokens, as opposed to a third party wallet service. Bitcoin does use smart contracts, but this usage is limited to honoring Bitcoin transactions. The emphasis on trust is why Ethereum is so important, particularly in the age of the sharing economy, when recommendation engines are so important.
Ethereum has big ambitions to be an enabler to the decentralized cyber economy, with many applications for services such as Uber. While Ethereum started out as a means to govern only financial application states, it has greatly expanded its remit into the non-financial space. Essentially, according to core developer, Vitali Buterin, it wants to be the world computer - a magic computer in the Cloud that anyone can send and run programs to it, and those programs can talk to each other, and you can trust that you can run those programs. He uses the basic example of setting a reminder for something in five years time. You would create a program to remind you of something automatically in five years and put it on the world computer, paying a transaction fee to do so, and could be guaranteed that this will happen and nothing could prevent it.
Another example of Ethereum in action would be allowing farmers to put their produce up for sale directly to consumers and take payment directly from consumers. Chronicled, a startup using blockchain technology to help authenticate collectible sneakers, has also developed pilot implementations on both Bitcoin and Ethereum blockchains, and said that it preferred the Ethereum framework and coding language to be the most user-friendly and flexible of the two.
This emphasis on trust has a number of advantages. For developers, it means greater cost savings and efficiency in writing new applications. For business users, it means a chance to completely redesign their existing business structure and create new opportunities, based on unbundling central functions and relegating them to decentralized constructs. As Buterin notes, ‘Ethereum helps anyone wishing to develop decentralized applications, encode arbitrarily complex contractual business logic, launch autonomous agents, and manage relationships that will be mediated entirely by the blockchain.’