Ethereum: the first Frontier

Monday 10 August 2015

Ambitious crypto platform Ethereum has gone live. What happens next is anyone’s guess.

Ethereum has been one of the most talked-about and eagerly-anticipated projects in the cryptoworld - possibly the biggest deal in crypto history after bitcoin itself. Last week, it went live with its ‘Frontier’ release. It’s hugely promising, hugely hyped and hugely uncertain where it will go - and that’s saying something for crypto.

What is it?

Ethereum is a blockchain-based way of executing digital contracts - like a decentralised computer that can’t be shut down, isn’t vulnerable to power outages, can’t be hacked and is totally trustworthy and reliable. In the same way that bitcoin allows users to send money without a central authority, Ethereum enables developers to create decentralised applications. Democratic communities that decide on direction through voting; new cryptocurrencies; trustless crowdsales; the sky is the limit. And investors know it.


Ethereum: decentralise just about anything

The brainchild of Wunderkind Vitalik Buterin, Ethereum was first described in late 2013; a fundraiser in summer 2014 collected over 30,000 bitcoins - the third-largest crowdfunding in history, or some $18 million at the time. The Ethereum website apparently tried to manage expectations around the initial release: ‘Frontier is the first release of the Ethereum project, tailored specifically for developers. It’s a command line only interface with a Javascript environment that allows building, testing, deploying and using decentralized applications on the Ethereum blockchain. Exploring the Frontier presents vast opportunities, but also many dangers, and is not for everyone.’

The release

Ethereum was talked about for months before the crowdsale. A year after that it launched its first version. By all accounts, this will have modest functionality. It’s command-line only, and the network apparently has the processing power of a 1999-era mobile phone - so although the language is ‘Turing Complete’ (a fancy way of saying it does anything) it’s not designed for number crunching. It is a very cool concept, but the proof of the pudding is always in the eating so we’re going to have to wait and see what developers choose to do with it - and how long it will take for the network to develop to a point where it can support that.

Ultimately, Ethereum’s future remains a matter of speculation. And, this being crypto, traders have done exactly that. At the crowdsale, Ethers - the ‘coin’ that fuels activity on the network - sold for 2,000 per bitcoin. Before the Frontier launch, proxies like Ethercoin (the real thing wasn’t then trading on exchanges) were changing hands for 100 per bitcoin. In other words, Ether had spiked by 20x in BTC terms and around 10x in fiat terms since last summer. That gave it a market cap of something approaching $200 million, above Litecoin.

The resulting cataclysmic crash was entirely predictable, but if there’s one thing crypto has taught us it’s that price does not equal value. There are issues, as ever. Their burn rate of funds is high, and investors want to see that something is financially as well as technically viable. But I really like the idea of Ethereum. I hope they can make it work.


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