The subject of Ethereum is almost as divisive to the cryptocurrency community as American politics. I say this because like the American two-party system, crypto-supporters seem to be either adamantly for or against the propagation of Ethereum. F. Scott Fitzgerald wrote, “The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.” In this article I will attempt to maintain my ability to function—form coherent arguments—while holding the opposed ideas of Ethereum proponents and Ethereum skeptics. The two-party system we are experiencing with Ethereum is evidence in itself that two dialogues exist each with presumably legitimate points and concerns. What is also true, by virtue of the existence of these two views, is that future events will prove one to be correct and the other to be false.
There are many parts of Ethereum that have not been proven outside of whitepapers and thought experiments. That is not to say that theory does not have any validity in the workings of reality. The roadmap for Ethereum is not built purely on the hypothetical thought and conjecture in the minds of dreaming cryptology nerds. Instead, the knowledge and strategy of Ethereum has been developed through the trials and errors of Bitcoin and tens of other blockchain-based cryptocurrencies. Nonetheless, there are factors such as adoption, acceptance, and timing that are out of the control of developers. These factors may help or hinder Ethereum, but for a blockchain network to establish itself in the crypto-community the general crypto climate, user knowledge, and media attention all contribute to a blockchain’s success or failure.
Concerning developer adoption, Ethereum dissenters tend to point to the lack of mainstream Dapps as a negative indicator. They contend that the only true Dapps seen thus far are Slock.it, Augur and a few others. Of course, there are plenty of other Dapps in development as can be seen here http://dapps.ethercasts.com/. There are nearly 160 in development on ethercasts alone and definitely hundreds more to come in the future. Yet, in many ways critics are right to wonder why Dapps that Buterin and Tual continually refer to, “[as] applications that immediately come to mind,” have not made their way to the forefront. A “decentralized dropbox” is often an example of what could be built on Ethereum. Even as Storj.io has indicated a potential move to Ethereum, from an outsider’s perspective, the amount of software-based Dapps being developed might seem underwhelming.
On the other hand, we have to keep in mind that Ethereum has only just begun. The release of Homestead is less than a week away and many developers, exchanges, and companies are eagerly awaiting its arrival. The recent influx of money and awareness came in anticipation of Ethereum’s potential rather than its current state. It is easy to be skeptical about such potential when there seems to be a lack of tangible support as justification. The use of smart contracts and Dapps are abstract concepts and not easy to quantify. Developers even admit to an uncertainty about just how powerful the Ethereum blockchain could be. Many of the things we think are possible are, for the moment, nonexistent in practice or still in development. Homestead is at least one assurance that all those thought experiments have at least some basis in reality. Frontier, the Ethereum release that openly admitted to being not 100% safe, (with the word “safe” crossed out on ethereum.org), has not had any malfunctions since release. While Homestead has not brought Ethereum out of a working “beta test” stage, Buterin implies that Homestead is the milestone that the Ethereum team comfortable calling stable and safe.
Most Ethereum related skepticism is in the largely unexplored world of Proof-of-Stake (PoS). The PoS system, called Casper, is an attempt to thwart many of the inherent problems of a Proof-of-Work (PoW) blockchain structure. The current idea for Casper chooses “bonded validators” by sampling nodes over a certain value threshold. Bonded validators are simply validators that stake (read: security deposit) a large amount of Ether in order to validate blocks and receive fees in return. Stakers have a high incentive to validate correctly or risk losing part, if not all, of their security deposit. This makes attacking such a system extremely costly for adversarial or malicious entities while keeping the overhead required to form a consensus low. Overhead is a major emphasis in a system that is striving to get block times down to 1 second or less. The real utility of Casper is providing the users economic guarantees on their transactions.
Ultimately, Casper may decide the fate of Ethereum. Luckily, Ethereum is in good hands. As Vlad Zamfir told the Daily Decrypt, it is not as though the Ethereum team is going to submit a hardfork without first putting the whitepaper out for experts to peer-review. Whitepapers and proof-of-concepts for Casper are still in development. If your brain is big enough and you have a masters in cryptology/math/computer science (only partly joking) you may be able to make sense of Vitalik’s post here. The Ethereum team is still working on many of the issues and comparing solutions to many of the new problems that PoS presents. It is obvious why Ethereum will take a lot of flak from skeptics based on the lack of real-world testing regarding PoS. Despite these uncertainties you can see why PoS is an excellent solution for Ethereum. In the Bitcoin system, mining is a large source of income since every 10 minutes 25 bitcoins (~10,000 USD) are released to the miners. Clearly, miners don’t want to give that money up so the Bitcoin PoW has some negative externalities that prevent scalability. In other words, any change that would jeopardize the millions of dollars of mining hardware devoted to Bitcoin would not be truly possible. In effect, Bitcoin is restricted by its miners. Contrarily, the goal of Casper is to pull the focus away from mining and concentrate on the effectiveness of the global, turing-complete Ethereum machine.
The other topic of major contention among the crypto community at large is the presence of competitors in the space. There are few if any arguments that assert Ethereum may somehow be brought down by another turing-complete crypto in the near future. People often compare MaidSafe and Factom to Ethereum using different analogies, but nothing is attempting to infringe on Ethereum more than RootStock and Counterparty. At first glance, Ethereum’s code being ported to a Bitcoin side-chain is a scary thought for Ethereum supporters. Yet, as Vitalik Describes in his blog post “On Bitcoin Maximalism, and Currency and Platform Network Effects,” Bitcoin maximalists have failed to recognize that, “Counterparty-based Ethereum smart contracts cannot manipulate BTC currency units, and the asset that they are instead likely to promote (and indeed already have promoted) is the XCP.” In the same post he goes on to describe why side-chains are sub-optimal for the implementation of an Ethereum-like system. In the same way, Rootstock will experience similar inefficiencies that Bitcoin-based platforms inherently possess. The main argument about larger, more stable hash rates of the RootStock system are theoretically correct, however the high scalability and low latency of Ethereum will easily eclipse any Bitcoin based chain. In summary, these attempts at Ethereum clones have proven to be largely ineffective and hasty thus far.
It is true that Bitcoiners resistant to change (Bitcoin maximalists) often posit that their that Bitcoin is irreplaceable and that Ethereum is therefore destined to fail. Bitcoin maximalists are now describing their coin as “digital gold.” The argument refers to BTC as a digital store of value and therefore relates it to gold. But this analogy is nonsensical being that Bitcoin is literally a currency used to buy and sell goods and services. Actual gold is not normally used in day-to-day transactions as currencies are. (At least not in the last thousand years.) Others contend that the relationship between gold and BTC lies in their similar scarcity as a resource. However, BTC is no more scarce than any fiat. As stated earlier, Bitcoin produces 25 BTC every ten minutes! That is 525,000,000 USD per year at current BTC prices. What makes gold valuable is that there is nothing quite like it. It is a unique, fundamental element on the periodic table. If it had a different composition of protons, neutrons, and electrons it would be a different element altogether. It follows that if BTC had true scarcity and a true uniqueness to it, it would have real intrinsic value. But the value we see Bitcoin at today is arguably more to do with its mass acceptance and the benefits of the economic phenomenon known as the “first-mover advantage.” For these reasons, it is unlikely that Bitcoin maximalists have any real argument that holds water. The idea that Bitcoin could not be replaced by a more advanced technology is absurd. No sailor lost on the open ocean wishes his only option for navigation is his knowledge of the stars and a sextant; we developed GPS years ago. (Note: I am not arguing Ethereum will or will not replace Bitcoin.)
There are many unknowns in Ethereum’s future, but admitting we do not know is not always a bad thing. Will proof of stake prove to be a success? Will developers maintain interest? Will Bitcoin and sidechain projects like RootStock and Counterparty make Ethereum irrelevant? Will Bitcoin successfully fix its political problems or will investors lose faith in the currency? Will China’s market crash and the subsequent capital flight push Bitcoin or other crypto to new highs?
Most of the power of Ethereum has yet to be fully understood. The use cases of blockchain and smart contracts are still in their infancy. The potential of Ethereum rides as much on the users and developers as the cryptography and network structure that make it. For now we can only be certain about what we do know. Ethereum has a solid development team, excellent leadership, true transparency, a clear road-map, exciting developing projects, legitimate incentives, and most importantly a supportive community.
*Note: This article does not reflect the opinions owners and other writers of Sebfor.com. Full disclosure: I am an Ethereum pre-sale investor.