Cryptocurrency and Ethereum Insights


1. Power is shifting from businessmen to coders.

My book tells the story of Ethereum, the second largest crypto asset by market capitalization. The initial group of eight co-founders consisted of programmers and business people. Within the first few months, tensions mounted between the developers (or “devs”) and the business people. In the end, the developers prevailed.

By contrast, when crypto was barely a thing, Coinbase co-founder Fred Ehrsam said that when he was a programmer at Goldman Sachs, he was basically considered an IT guy. The businessmen stood in front of him, barking orders with one foot on his desk.

Wall Street used to be considered the center of power, but in recent decades it has migrated to Silicon Valley. And with the rise of crypto, it has moved out of Silicon Valley and gone global. News articles report that we regularly see Silicon Valley executives jumping to work in crypto.

I have resources that have gone from nothing to gazillionaires in just a few years, in locations as diverse and unexpected as the Philippines, India and Brazil. These are just programmers who have learned blockchain coding, so they don’t have to work for a corporate entity to make a lot of money, nor do they have to be near the Bay Area. They sit behind their laptop and do it all from home.

2. Power is shifting from centralized players to decentralized organizations.

Bitcoin is notable in that it reached a market cap of approximately $1 trillion without a CEO, board of directors or hiring of employees. All this is possible because of the stimulating design of Bitcoin the asset and Bitcoin the network. People using Bitcoin software enter a contest about every 10 minutes to win the new bitcoins minted by the software. To them, it feels like an opportunity to win money, while the Bitcoin network benefits from additional security as more computers on the network make it harder for a single entity to take over Bitcoin. This approach is newer than hiring an IT department and offering them salaries and stock options.

Bitcoin was the first example of a decentralized organization (meaning business people don’t have to manage it), but my book focuses on Ethereum, a platform for creating any kind of decentralized application: lending protocols, social clubs, exchange protocols, granting organizations , groups of people trying to buy things like a Wu-Tang Clan album, and more. Ethereum is like an App Store for developers to build and upload decentralized apps, all without CEOs, boards or legal contracts.

These groups are called DAOs, which stands for decentralized autonomous organizations. You can think of them as small democracies. Some people only work for DAOs by making proposals to them and then doing the job if a proposal is approved. Many of the DAOs have their own tokens, called governance tokens, which act as a vote on submitted proposals. DAOs can have thousands of members, or they can be small groups of friends who invest in crypto or NFTs together. These DAOs, or small democracies, are a far cry from traditional startups or corporations. The decisions are made collectively and the loot is shared among all token holders.

3. Even when it comes to technology, politics and personalities matter.

A popular tool on Ethereum is software programs called smart contracts. These are automated software programs that (like chatbots) spit out different transactions depending on your input. They have often been described as a financial vending machine.

That may sound like a sterile piece of software, impervious to human influence. A core tension, however, is that the programmers believe they are building what they like to call “trusted technologies,” but time and again the personalities involved (and their clashes) influence the course of events. Even these so-called machines, interacting with wider markets, are subject to manipulation by behind-the-scenes actors.

For example, there was a certain developer who had played a major role in designing Ethereum. He was brilliant, but also arrogant and not shy about pointing out the mistakes of others. After being kicked out of the Ethereum Foundation, he continued his competitive ways and wrote blog posts denouncing the foundation’s software. Years later, he raised about $145 million worth of ether for a new project, but due to a flaw in the wallet he and his team designed to store that money, $90 million of that money was frozen — unusable. Ethereum could have done something to try and get the money back, but after years of ill will among developers, they were not at all inclined to help him.

The crypto and blockchain crowd likes to dream of a world where the trust of flawed people is not necessary and financial transactions can be guaranteed with the right code. But how people treat others can profoundly influence the development of so-called trustless systems.

4. Reputation is more valuable than money.

When I published my book, I was able to break the news about who was behind the biggest theft of ether ever—a sum worth about $11 billion today—because of quirks about how the hacker stole the money. It was tied up in a venture fund called the DAO, and delays were built into any withdrawals. This person had ample time and opportunity to return the money, and before the hack, the suspect contacted the creators to point out the flaws of the decentralized venture capital. These were precisely the flaws that later made it extremely difficult to fix the hack without simply erasing the DAO’s existence, which just proved his concern.

If the suspect had hacked it instead, but came forward and said he would return the money after making his point, then the community would have considered him a hero. Indeed, there are now some security researchers who are famous for identifying faulty code and saving the money before it can be hacked. Plus, because it is visible on the blockchain that the money has been stolen, he couldn’t do much with it.

One of the creators of the DAO discovered the identity of the suspect and said it was a shame for him that he had done nothing to rectify the situation: “He really screwed it up. Reputation is much more valuable than money.”

5. Be critical of your business partners.

My book starts with the main character, Ethereum creator Vitalik Buterin, who has an idea about a new type of blockchain. He wrote a white paper and emailed it to 13 friends in November 2013, the day bitcoin first crossed the $1,000 mark. It was a heady time in bitcoin. Almost overnight, the high price created a number of bitcoin millionaires. When people saw the potential in Ethereum, they realized that it could also turn them into ether millionaires. So the first group of co-founders and colleagues to work on Ethereum was a mix of idealists and opportunists with dollar signs in their eyes.

In the years that followed, Buterin found himself in one crisis after another. He had trouble discovering ulterior motives and struggled to distinguish between opportunists and good people with no selfish intentions. In addition, he had a hard time telling people no, leading to multiple instances where he was drowned out by people with stronger, more greedy personalities. After years of learning, he finally found a group of true friends who were not attached to him because of the way he could help them. He began to understand how not standing up for himself and his principles could harm others and Ethereum.

While Ethereum has managed to make a big impact on the world despite the drama and backstabbing of its early years, Buterin would have saved himself a lot of heartache and stress had he learned early on to set boundaries for himself.

This article originally appeared in Next Big Idea Club magazine and is reprinted with permission.


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