The anonymous founder of Bitcoin, Satoshi Nakamoto, solved the hard problems associated with digital scarcity with a white paper in 2008, and launched Bitcoin in 2009.
After that invention, numerous other projects came in its wake. There are now over 8,000 separate digital assets that CoinMarketCap recognizes.
Of these, Ethereum is the second largest digital asset in the world by market capitalization after Bitcoin, and it enables a big ecosystem of other tokens on top of it. This gives it the only other major network effect in the space.
A number of people have asked for my view on Ethereum, and why I don’t personally invest in it at this time, even though I do invest in Bitcoin.
The short answer is that although I’m bullish on a number of utility protocol use-cases, I am more cautious about betting on the long-term price appreciation of the utility protocol tokens themselves, since there is not necessarily a correlation between the size of the overall ecosystem and token appreciation of any particular protocol.
So, here is my analysis of the Ethereum protocol from an investor (rather than developer) perspective. It was originally published on January 17, 2021, and after feedback from the Ethereum developer community including its founder, I finalized this slightly revised version a week later on January 25, 2021, with additional clarifications and details.
Ethereum 1.0 Overview
Ethereum was proposed by Vitalik Buterin in 2013, crowdfunded in 2014, and went live in 2015.
Buterin, who was about 19 at the time, wanted to create a platform for decentralized applications. As he jokingly describes, the large game maker Blizzard nerfed his game character, setting off a multi-year search for a technological solution to rectify these sorts of terrible injustices:
I happily played World of Warcraft during 2007–2010, but one day Blizzard removed the damage component from my beloved warlock’s Siphon Life spell. I cried myself to sleep, and on that day I realized what horrors centralized services can bring.
–Vitalik Buterin
He describes finding Bitcoin in 2011, and from there, a fire was lit.
Bitcoin uses a blockchain as a savings and payments technology, and the base layer is elegantly simple. It focuses on doing one thing exceptionally well: storing and settling value. Additional layers can be built on top of this base layer, harnessing its ability to store and transmit value for more complex purposes. An example would be the Lightning Network, which extends Bitcoin’s scalability for small payments.
Ethereum, on the other hand, is an attempt by Buterin and other developers to apply blockchain technology to a much broader scale right within the base layer of the protocol. It has marketed itself as a “world computer”, like an app store that is not controlled by any central entity. It’s like a distributed operating system, with a built-in token system, and programmers can use that ecosystem to make decentralized applications or “dapps” for short that often use their own tokens as well.
The underlying technology for Ethereum is based on smart contracts, referring to programmed agreements in the blockchain that trigger when certain events occur. It requires fractions of Ethereum tokens to pay for a smart contract to be executed by miners on the blockchain.
Source: Lyn Alden
No comments:
Post a Comment