Today, Ether hit $100 (update: it’s $200 now, two weeks later). I’m sure by the time you’re reading this it will be in The Guardian and the New York Times as a curiosity piece. Our market cap will approach ten billion dollars. By all and any standards, this is a success beyond anything dreamt of when the project started, and the money raised will continue to finance technical innovation for years to come. While the impact and worth of a technology cannot be measured by money alone, on this occasion, celebration is appropriate. We have done well.

Bitcoin Ether
MasterTux / Pixabay

For those of you who are new to the Ethereum show, let me explain what has just happened.

Two years ago, I wrote Programmable Blockchains In Context, the Ethereum launch post. It was a huge success, sat on the front page of Hacker News for a day, and really set the conversation and tone around the Ethereum project, without over-promising. I’ve learned a few things about explaining Ethereum now, and it’s not exactly what I would have written with hindsight, but it’s close enough that if you want the full depth chapter-and-verse on this new technology, that’s where you’d go. If you need more depth, the Ethereum Whitepaper by Vitalik Buterin, our leader, is still an absolute marvel of clarity and deep thinking. But assuming you are a more general reader, let me explain briefly what the technology is, so we can talk meaningfully about what $100 Ether means.

The Background

Ethereum is a programmable blockchain. It was created by a small team built by Vitalik Buterin, who was (at the time the project started) famously young — a CEO of a 20 person team with $18m of bitcoin in the “bank.” Many members of that team are remarkable in their own right: Joe Lubin who went from Wall St. to found Consensys Systems, a major New York company building out the blockchain future. Dr. Gavin Wood, of Parity, a truly remarkable computer scientist. Dr. Jutta Steiner, also of Parity. It grew into a large team, made of remarkable people, and I’m just namechecking a few. Over the couple of years the project took, the team grew, fragmented, splintered, reunited, forged ahead. The first year, the year before I joined, is truly the stuff of legends.

We thought our new technology was going to change the world, and now it has.

Anyway, that’s the cultural context. A 20-year-old kid and a bunch of funny-looking villains pull together this remarkable piece of technology which, at the time, we thought was going to change the world, and now it has.

So what does it do, this programmable blockchain that’s worth ten billion dollars? Well, let me explain. A blockchain is a way of arranging a lot of computers together to do the same thing. It’s a bit like Dropbox or Google Docs or any other syncing technology that moves pictures from your phone to your laptop or whatever. The difference is that it’s syncing thousand and thousands of computers. If a few machines drop offline or get hacked, the network does not even notice: the consensus of all the machines which have the same data overwhelms the occasional drop outs. The computers form a choir, and they never forget the chorus.

This blockchain has two remarkable features. The first is the way that it pays for all those computers. On the head end of the blockchain, there is a sort of roulette wheel. Five times a minute, the wheel gets a spin, and one of the computers which is helping to run the blockchain gets a prize of 5 Ether. This award is noted down in the blockchain and synced to all of the computers in the system. The lucky winner can transfer this ether to another person (identified by their cryptographic code address) in exchange for, say, goods, services — or cash.

So this hundred dollars per Ether price that you see, that’s $500 every twelve seconds, $2500 a minute, $3.6 million dollars per day pouring out of cyberspace into the pockets of those lucky enough to have computers helping to run and sync the blockchain — the computer system which stores their winnings is paying for itself by issuing those winnings. It’s a perfect self-generating system, just like Bitcoin was before it. So that’s where the money is coming from, should you be too embarrassed to ask! For historical reasons, they call this process “mining.”

The second property of this programmable blockchain is even more remarkable. Programmability is a funny thing: when a system does a simple job, like Bitcoin (which has more or less the same mining dynamics as I outlined above for Ether) it’s easy to understand, easy to secure. But you add some element of programming to the thing — not just coins are mined and exchanged, but somehow this whole thing is software too? Well, that’s where things get complicated.

Ethereum incorporates Smart Contracts. Smart Contracts are the reason I came back into this kind of work, more than two decades after I’d been exposed to the original ideas on the Cipherpunks mailing list all those years ago. I’d left the field, only dipping back now and again to keep my perspective fresh, but when I heard a smart contract ecosystem was being built, it pulled me back out of my retirement from matters cryptographic. I came running.

A smart contract is a tool for changing the world. We have this mental model of all these computers synced together. Now imagine that rather than syncing a transaction: 5 Ether go to Bob in the reward lottery, or 22 Ether go to Helen from Fred’s account, we do something else. What is this something else? We sync software. I upload a program — needfully small, because it’s going to thousands of other machines — and we secure that syncing process using all the same sync-and-mining approaches taken to cash-only blockchain like Bitcoin’s.

Every machine in the network runs the same small program. It could be something simple, like a loan: I send you some money, and your account automatically pays it back, with interest, a few days later. If you can’t pay, a third party covers your debts, and it’s all locked in at the start — your consent, my consent, and their consent. We all agree to these terms, and it’s locked in using the smart contract. We have achieved programmable money. You might say that this doesn’t sound very complicated or impressive, but just wait and see where this goes.

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