What’s all the hype about Ethereum?
A non-🤖 description of the blockchain platform and why lots are talking about it
👋 to all the folks curious about systemic change so that more can win in the game of life.
Not a subscriber? Click that pretty pink button to join the crew.
Today’s rule breaking focus is:
What’s all the hype around Ethereum and what is it’s potential to make our world better?
Pro tips:
Set your 🧐 on the images, gifs and parting words if you’ve got newsletter overload.
Download images on your email browser to get the full giffy experience
Opening Spiel
The search term “Ethereum” reached peak popularity last week according to Google Trends.
That trend matches the rise in chitter chatter at my home on this topic.
As I read the dense articles and talked with friends super deep on crypto, I realized that this concept isn’t very accessible.
Unless you speak geek or have someone to patiently explain this to you, it’s hard to understand.
That’s a problem because a major point of this blockchain stuff is to improve accessibility and fairness in our systems. And if the average person can't engage in what’s happening - let alone contribute or benefit as it evolves - then that’s not very accessible.
So, here we are with Jess’ version of what the heck is Ethereum, all the hype right now, and how it can be a powerful tool for good.
Ps. My crypto friends read this over so this post is Verified Geek ;)
Pps. I’m using the term geek in the positive form meaning: “a person regarded as being especially enthusiastic, knowledgeable, and skillful, especially in technical matters.” 🤖💕
What are blockchain, smart contracts and cryptocurrency?
Before we can dive into Ethereum specifically, we need to cover some foundational concepts.
First we start with what is a blockchain? At the most basic level it is a way for people to do trades directly with one another.
Right now, we rely on middlemen to trade. We need Etsy to buy crocheted blankets or a bank to send money or Purolator to let us know our package arrived. These are all trades - or transactions - of money, information, and cute blankets.
In the regular world, all of these middlemen hold the data of the trade that happened.
With a blockchain, that information of the trade is stored on a whack ton of interconnected computers (that’s the blockchain network). Each time a new trade happens, all the computers update their list of trades (that’s called the ledger).
This system functions properly with the help of cryptography. Cryptography makes sure everyone agrees a transaction is valid and rewards the computers for being honest and punishes them for being dishonest.
It is smart contracts that make these trades er… smart. A special feature of the blockchain is that it allows you to add rules around when trades can or can’t happen. That’s called a smart contract.
As an example, I could have a smart contract that if there are two weeks of drought, my insurance company will pay me a sum of money. This can all be automated since the tech can monitor if it doesn’t rain for 14 straight days and then automatically send money to my account. No need to haggle or review my insurance claim with a live person.
Cryptocurrency is the money you use in the blockchain world. When trades on the blockchain require money, that’s where cryptocurrency comes in. Just like we’d use British Pounds to buy a pint in a London pub, a specific type of money (currency) has been created for the virtual blockchain world.
The main difference between the Mexican Peso and Bitcoin or Ether (Ethereum’s currency) is that instead of being created by a central government, it’s generated in this distributed network of computers with mutually agreed upon rules around how much can be made, how they are earned and how they are distributed.
How is Ethereum different from Bitcoin and other blockchains?
All right, now that we’ve completed our crypto 101, let’s move onto Ethereum specifically.
First, let’s compare it to Bitcoin. The pro of Bitcoin is that it is considered a better store of value - meaning that it will retain its value over time, like gold or a Picasso painting. The con is that Bitcoin’s blockchain can be programmed to do only a limited number of things and so it is mainly used for money-based trades.
With Ethereum, on the other hand, you can basically do anything that you can write into code (this is called “Turing complete”). That’s what makes Ethereum blockchain a “platform”. Just like we have iOS and Android platforms, Ethereum acts as that base foundation (hence the word “platform”) for developers to build apps (called “dapps” - for decentralized applications).
There are dapps that are purely financial like getting loans or insurance or transferring funds from one person to another.
There are dapps that mix financial and other actions. For example, you can offer a reward of Ether if an activity is completed, such as doing research or designing a logo.
Finally, there are non-financial dapps like using Ethereum for your personal identification or tracking cacao from farm to store to prove that the chocolate bar is actually fair trade.
The icing on the Ethereum cake is that it’s not just more versatile of a platform, it’s also got the most developers building on it (and 7x the number of Bitcoin developers). Ethereum has been able to attract the most developers because of the vision of the platform and tools available to build on it. More developers building cool things makes it even more of the place to be.
Why are people excited about Ethereum right now?
Okay so this whole blockchain thing has been going on for more than a decade and Ethereum launched in 2015. What’s happening now that’s making this a big deal?
There are a few reasons for this...
First, people are more and more beginning to realize that Ethereum is a versatile blockchain where all these nifty apps can live. People went gaga over Bitcoin and now are starting to see Ethereum has a lot of untapped potential.
Second, the Ethereum platform is expected to make some big changes in the coming year. In the summer, they are expected to make the way that fees for a transaction are calculated more reasonable. This change will also cause there to be less Ether and thus make it more valuable (which investors like). They call this change EIP-1559.
The other big change is expected in December this year where they will switch from proof of work to proof of stake. Proof of what? K. I’ll explain.
Right now, Bitcoin, Ethereum and many other blockchains use a process called proof of work to process each new transaction. When someone wants to make a trade and have it recorded in the ledger, each computer competes for this privilege because they earn a reward (think of this like a transaction fee). The issue is that this competition requires each computer to solve a super hard math puzzle and that takes a lot of energy. Instead, with proof of stake, the computer that processes the transaction is chosen by lottery (so no excessive computer power is needed).
To sum up, in the future, Ethereum is expected to be a more environmentally friendly and valuable blockchain platform that has the building blocks to support some very useful dapps. Just like any asset, when people think it will become more valuable in the future they will want to invest today. And that’s what is happening. People are buying Ether with the belief that it will rise in value in the coming years.
How could blockchain and cryptocurrency make a more equal and sustainable world?
Quick self serving PSA before we get into some systems change stuff...
If you read the news and wonder: “how the heck are we going to get us out of this mess,” then subscribe to Rule Breaker. I cover what’s needed for a more inclusive and sustainable world and what some are doing about it.
Phew - we’ve made it to this point and now we can get into how this technology has the potential to make our systems just that much fairer, accessible and good for our planet.
Let’s look at some examples...
Sustainable gold miners can get rewarded for their efforts. JP Morgan, the largest US bank, is using the Ethereum platform to track gold from the mine to when it is sold. The point of this is to be able to tell which gold came from a sustainable mine. Without Ethereum, that’s really hard to do at scale and to trust the results. Now with the technology validating things at each stage of the process, buyers can be sure that what they are buying is sustainable and this then allows the miners to earn more money.
Citizens can vote for which public goods they want funded. Gitcoin allows people to receive funding for education projects related to web3 (i.e., the whole blockchain thing). The neat bit is that the funding is matched based not on the volume of money but the volume of people who vote. So a project that has one person grant $5 will get less matched funding versus a project with five people granting $1 each. This is a narrow use case today but could you imagine local municipal projects being funded this way? Takes participatory budgeting to a whole new level.
Money can be streamed by the second. Sablier allows you to send a fixed amount of money to someone else on a continual basis (say $1 every second) and the applications are pretty boundless. Think about the wage worker who uses payday loans to make ends meet before the next paycheck. This would be eliminated because they would have real-time payment for the work they’ve done. Now expand that to any financial transaction where we pay for something by time - rental car, lawyer fees, even music streaming. This can present a fairer way to receive funds and a cheaper way to send money because you don’t have the hassle of accounting and processing.
Stepping back from these examples and we let our imagination wander, there are endless ways that blockchain + smart contracts + cryptocurrency can make systems more transparent, accessible, traceable and secure.
The fine print
There is a caveat here with all what is written above. This is early days for this technology. There are still a lot of hurdles to overcome.
Scalability is an issue - right now Ethereum can only process 20 transactions per second while Visa processes over 1,500. There’s still a lot of work being done to turn this into a truly accessible product.
Consumer protection is also an issue - right now there aren’t the traditional safety nets we are used to. You could lose your password to your crypto wallet and then it’s like losing cash on the street. Or, there could be an error in the smart contract and you can’t go back on the issue it caused. Or, major fraud can happen and if you don’t carry personal crypto insurance, you’re SOL.
So, one has to understand that this technology is in the early days and we’ll see more nefarious stuff happen. Pornographic novels were some of the first best sellers after the printing press was invented. Drug deals were the first e-commerce transactions. Today, we see printed material and the internet as essential elements to our lives.
And in my opinion, Ethereum is following the same trend as the printing press and internet. The European Investment Bank trusts the platform to issue €200 million of bonds and Visa is now processing cryptocurrency transactions at over 60 million merchants.
Parting words
There is something to this public blockchain - whether it is Ethereum or some other - that speaks to the recurring theme of decentralization I’ve covered in this newsletter.
Just like Beneplan gives small businesses better access to health benefits and clean energy projects provide Indigenous communities financial autonomy, blockchain brings more control and more power to the individual.
The more the individual has control, the more they can design systems that work for them.
Ethereum will play an influential role in reshaping our systems. The more we all understand this new technology, the more we can get involved in thinking of how to use it for the best possible outcomes.
Resources to go further
~ Learn more about the concepts with…
Blockchain explained at 5 levels of difficulty, starting with a child.
The original Ethereum whitepaper that started it all by Vitalik Buterin, the founder of Ethereum (and Canadian 🍁)
Vitalik Buterin interview at a TechCrunch conference (cool to hear about it straight from the source)
Elon Musk explaining cryptocurrency on SNL
Estimated power consumption by switching to proof-of-stake
~ Check out how the technology is used with...
Profiled list of Ethereum dapps
100+ Ethereum apps you can use right now
How Bitcoin can help inequality
UN article on how blockchain can change lives
~ Learn about how to buy Ether as an investment
Wealthsimple has a product where you can start with just $1
🚨 Disclaimer 🚨
This content is only to share information. It’s definitely and completely not investment advice. Do your own research. Speak to people who are professionals in this space. Make your own informed decisions.
Many thanks to Dan, Will, and Gui for help on this one 💕🤖
If you liked this don’t miss out on what else is coming - gonna talk accessible real estate, up-skilling for the 99% and more.
Basically - let this newsletter be your antidote to our daily reminder of the inequality and warming of our world. 🌈
👾
Jess
SO helpful for beginners! Thank you!!
How can I mine Ethereum on my phone