May 22, 2017    4 minute read

Beyond Bitcoin: Ethereum and the Blockchain Economy

The Future    May 22, 2017    4 minute read

Beyond Bitcoin: Ethereum and the Blockchain Economy

As the global economy was unravelling in the midst of 2008, an anonymous author under the pen name of Satoshi Nakamoto released a pioneering white paper on Bitcoin, the world’s first digital currency based on a model of decentralised blockchain governance. Those who had the foresight and acumen to understand this technical brief caught a glimpse into a new era of transaction services and business evolution driven by distributed networks such as Ethereum.


The Proof of Concept

In its earliest iteration, the single most important contribution of blockchain technology was the subversion of financial intermediation, whereby the use of a public verified ledger eliminated the need for trusted third parties in credit-related transactions.

Traditionally, banks and other underwriting organisations have leveraged their role as guarantors to charge hefty margins in exchange for resolving payment-based uncertainties. Blockchain technology instead offered this and more: by using a cryptographic hashing system for proof of verification, it eliminated the need for “trust” brokerage, thus enabling electronic transactions between otherwise unwilling parties at a fraction of the cost.

The relative decline in Bitcoin’s price volatility over time, in spite of the lack of a central banking function, has minted its status as an alternative store of value – a sort of “digital gold”.

For early adopters, the currency has also proved an incredibly lucrative investment. Despite this, Bitcoin has largely been unable to gain traction in mainstream markets and overcome the barrier of widespread adoption.

This is due, in part, to its unfavourable stigma within institutional circles, but more importantly, the technical hurdles presented for the average merchant or layman. Relative stagnation over the last few years has drawn new entrants to the crypto space, in an attempt to erode the dominance of its incumbent, Bitcoin.

Rise of Ethereum

Ethereum is an up-and-coming blockchain platform, which seeks to address many of the shortcomings that Bitcoin faced, and indeed provide numerous capabilities which its predecessor was not designed to tackle in the first place.

Despite being commonly discussed in unison, drawing a comparison between two is analogous to conflating “apples” with “oranges”. While Bitcoin was purely designed as a digital currency, Ethereum builds on top of this with a layer of “smart contracts”, allowing for a level of flexibility and customisation that is extremely conducive for business applications such as payments, e-commerce, Internet of Things (IoT) integration, and more.

The ability to embed software code in contracts uploaded to the blockchain (and recall these functions as desired at a later date) further enables end-users to run “distributed applications” directly off of the Ethereum network under a Turing-complete Ethereum Virtual Machine (EVM).

Driving Change

Abstracting away the technical jargon for the moment, what remains abundantly clear is that new blockchain interfaces like Ethereum are going to have a huge impact on the way business are run in the near future.

Successful implementation of the underlying technology will accelerate the trend of decentralisation away from large corporations and towards network models such as peer-to-peer communication and crowd-based financing. The redistribution of incentives will further empower end-users, lowering costs and increasing access for the under-serviced.

Peaking Interest

The rise and potential significance of Ethereum have not gone unnoticed by big businesses. Banks like JP Morgan and BBVA, and technology superpowers such as Microsoft and Intel, have all thrown their support behind the initiative to capitalise on its success (see Ethereum Enterprise Alliance).

Increasing awareness of the platform has also made it a fertile ground for the development of diverse and profound business applications. Golem seeks to use the Ethereum network to create a market for renting and selling spare computer processing power, in effect creating a decentralised global super-computer.

Augur leverages crowdsourced “collective wisdom” in creating decentralised forecasting markets, increasing the availability of prediction data and allowing for the outcome of real-world events to be traded as liquid shares.

What Does the Future Hold?

As with most transformative technologies, early adopters will bear the greatest risk, but also be best placed to benefit as the system gains traction. Individuals and organisations invested in the future should certainly recognise the value that blockchain brings to their businesses.

It seems as though the world is on the precipice of an important institutional shift, and the ways in which stakeholders respond today will very likely define the winners and losers of tomorrow.

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