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Vitalik Buterin And The Ethereum Network

Vitalik Buterin is the co-founder of Ethereum – one of the first – and arguably still the most important – decentralized applications (dapps) on the planet. He is also the creator of the solidity programming language used to write smart contracts for the Ethereum network. 

Vitalik has spoken at many of the biggest events in technology including SXSW, Disrupt, LeWeb, and the MIT Media Lab. He’s been profiled in numerous publications including Forbes, CNET, and the New York Times, and his picture has been featured on the cover of Bitcoin Magazine twice. In 2016, he was named one of the Top 50 Most Influential People in Cryptocurrency by Bitcoin Magazine.

In this conversation we discuss: The early days of Ethereum and how it started out as a centralized project, then became decentralized… but… stayed extremely innovative.

What Is Ethereum?

And then Why Was It Created? Ethereum was born in the mind of a programmer named Vitalik Buterin. He wanted to create a new kind of computer network – one that wasn’t controlled by any central party and was designed to be used for all kinds of applications… not just financial ones. 

Ethereum is based on a blockchain technology that has numerous applications beyond just currencies. Anyone can build on top of Ethereum – it’s an open-source protocol with zero barriers to entry.  What makes Ethereum different from other cryptocurrencies is its “gas” or transaction fees. When you send money to someone using Bitcoin or another cryptocurrency, there’s a fee associated with the transaction… which goes to the miner who processes your transaction. Ethereum doesn’t use a mining mechanism like this. Instead, it uses “Gas.” The idea is that when you are sending money to someone else, you should only have to pay the gas cost for your transaction… and not the miner’s fee. This lowers the barrier to entry for people who want to do transactions using Ethereum… because they don’t have to pay an extra fee for using the network.  This concept of “Gas” has spawned dozens of new cryptocurrencies… including… Zcash, Decred, and EOS.

The Early Days Of Ethereum 

Ethereum was created in 2013 by Vitalik Buterin. It started out as a centralized project – with one individual in charge. Over time, however, the decentralized nature of the project grew… until… it became one of the most innovative and disruptive networks on the planet. In 2014, the DAO (Decentralized Autonomous Organization) was created on top of Ethereum. This is an organization that exists solely to issue its own tokens… which can then be used to fund projects… or purchased by anyone who wants to support the organization. The DAO raised $150 million in just 30-minutes… and… at the peak of its fundraising, had nearly 800,000 people funding its efforts. Needless to say, once the media got wind of what was happening, the funds were frozen and all the ETH from the DAO was returned to its owners. The lesson here is that if you want to use Ethereum for crowdfunding… do it through a regulated entity like an ICO or an STO. Don’t do it yourself directly via a decentralized organization like a DAO.

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Ethereum has evolved in leaps and bounds since its creation. Vitalik Buterin is still very much involved with the project… but… he is not in charge of it. He is a true “Super-Hero” of Crypto… who continues to amaze us with his vision, insight, drive… and… tireless dedication to the success of the network. In this section, I am going to cover many of the things that made Ethereum so revolutionary when it was first created… and how those concepts are now being used by other projects.

These concepts include: Smart Contracts; The Blockchain; ICOs; Masternodes; and Decentralized Autonomous Organizations (DAOs).

Smart Contracts

One of the main reasons why people love Bitcoin is because it provides a censorship-resistant medium for exchanging money. It is difficult to forge bitcoins… and… even if someone tries to reverse a transaction on the blockchain, the community will quickly detect and reject such an attempt. The same cannot be said for banks and traditional payment processors.

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As a result, Bitcoin has evolved into the de-facto currency of the DarkNetMarketplace and the underground world of cyber-blackmail. One thing that most black markets depend on is trusted third-parties like escrow agents, middlemen… and… payment processors like PayPal or Western Union. As soon as you remove these trusted intermediaries from the equation… all kinds of unexpected things start to happen. For example, you can set up a simple “conditional” transaction whereby the seller only gets paid after you’ve received the product. Or, you can have the buyer pay the seller directly… and… have the seller give the money to you (the escrow agent)… and… you give it to the buyer. In this case, neither party will ever see your bank account or any other form of real-world money. All they will see are encrypted messages on the blockchain confirming the transaction. This removes much of the trust between the participants… which… in turn… frees up both of them to work out their own issues without getting dragged into a lawsuit if things go south. Ethereum takes this concept one step further.

Immediately, there’s no need for an escrow agent. With Ethereum, the entire process is completely trustless… and… every participant is free to do business with whomever they choose. This has obvious benefits. For one thing, it allows you to operate in markets where there might be some kind of local ban or regulation against doing business with “total strangers.” Secondly, it eliminates most of the fees that would otherwise be charged by such a trusted third-party. Lastly, it makes it possible to transact with people all over the world with no geographical or currency restrictions. In theory, at least. In reality, there are still plenty of hurdles even with the trustless escrow built into Ethereum. First, it is not yet possible to send and receive ether (the cryptocurrency that powers Ethereum) with complete anonymity. In other words, if you have an ether wallet address, someone could potentially discover your identity by searching through the blockchain for transactions with that address. However, it’s not likely that person will ever find anything… because… in most cases… it’s going to be impossible for him to connect your ether address with your real-world identity.

The Blockchain

The blockchain is more than just a distributed, digital ledger. It is really a public, decentralized database that is continuously being updated and has inherent security features that makes it almost impossible to hack.

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This distributed, immutable ledger is useful… but… it is not the whole answer. Not by a long shot. It’s like saying the steering wheel is the answer to finding your way… when… you really need eyes in the rearview mirror and hands on the wheel. Just because the blockchain can track every single trade between two parties… and… confirm it instantly and completely without any third party involvement, does NOT mean the trade will always get done.

At the very least, both parties must have confidence in each other’s integrity. This brings me to my next point: As wonderful and revolutionary as the blockchain technology is, there are plenty of situations where it is simply not an acceptable solution. The most obvious example would be when one of the parties involved is not honest.

How The Ethereum Blockchain Works

Ethereum enables two types of transactions: “Calls” and “Transfers”. A “Call” transaction is simply a request for someone else (another party) to do something. An example would be a “CALL” for a friend to pay the tab at a restaurant. Another example might be a “CALL” for someone to send a certain amount of ether to your wallet. By the way, calls are free. You can make them at any time and from any address. Calls are used for everything from simple favors to complex transactions that require multiple parties. Calls are recorded as being made… but… they don’t have to be fulfilled. If someone doesn’t respond to your call within a specified period of time, the transaction will expire… and… will not be fulfilled. This is how you can “call” someone to do something… and then… not have to worry about them not doing it. A “Transfer” transaction is very similar to a “Payment” or “Withdrawal” from your bank account. Only, with a transfer transaction, no money actually changes hands. Instead, one party gives something of value (in this case, ether) to another party. The recipient can decide to keep the ether… or… return the ether to the originator.

 Ethereum And ICOs

 Ethereum is used for ICOs because it is the most transparent and the most audited blockchain in existence. If you are thinking about doing an ICO, you should use Ethereum. Not only does it give you access to millions of potential investors… it also allows all of those investors to know exactly what’s going on with your company. With other blockchains, it is possible (and probable) that a lot of the parties involved will try to hide behind the technical complexity of the technology. This can lead to many problems… including… a lack of investor confidence. When it comes to ICOs, transparency is the key to a successful investment. Also, since Ethereum is the most transparent blockchain in existence, it enables you to create what’s called an “ICO contract”. An ICO contract is a self-executing legal document that controls the distribution of your tokens. In other words, it enables you to issue your own cryptocurrency instead of depending on someone else to do it for you. The way this works is, you write up an ICO contract… and then… you “deploy” that contract on the Ethereum blockchain. Once the contract is deployed, anyone can go to it and read it. 

Ethereum Masternodes

Ethereum Masternodes are specialized computers that help secure the network by performing certain functions called “Masternode tasks”. Basically, if you have enough Ether (the cryptocurrency of Ethereum), you can buy your own Masternode and use it to help secure the network. Ethereum Masternodes are extremely valuable. To put it simply: The more Ether you have, the more value your Masternode will have. For example, if you have 1,000 Ether, your Masternode will be worth 10 times more than if you only have 100 Ether. That’s because 1,000 Ether is equivalent to 1/1,000th of one megabyte of data on the blockchain. In other words, 1,000 Ether is like having a 1MB file stored on the blockchain for everyone in the world to download and inspect. Inspecting this file reveals information about your computer, including your IP address, your operating system, your web browser, and your computer’s configuration… as well as… the current state of all your cryptocurrency wallets.

Decentralized Autonomous Organizations (DAOs)

Decentralized Autonomous Organizations (DAOs) are legal entities that run on the Ethereum blockchain. They can do almost anything legal an individual or a corporation can do. They have their own unique set of rules, called “Smart Contracts”, that enable them to operate with no central authority whatsoever. They are like a super-charged, highly-evolved version of a traditional Limited Liability Company (LLC). In fact, many people who create DAOs do so because they want to create an LLC but don’t want to deal with all the paperwork and expense of setting up an actual company in the U.S. By using a DAO, they get all the benefits of a legal entity without any of the overhead or hassle. DAOs have three primary functions: They can issue their own cryptocurrencies; they can run their own ICOs (initial coin offerings) and receive tokens in return for their contributions; and finally, they can function as a crowdfunding platform where people can invest money into projects created by others. Ethereum’s ability to create and deploy “Smart Contracts” makes it uniquely suited to perform all these functions.

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