The Infinite Machine

by Camila Russo

The Ethereum network launch was targeted for the (Northern Hemisphere) winter of 2014–15. The Ethereum team would create ether according to the amount raised in the sale when the first block in the Ethereum blockchain was mined. There was a second pool of ether that would be issued for the cofounders and other early team members, which would be 9.9 percent of the amount raised, and a third pool of ether of the same size would be created for the Ethereum Foundation.

The sale documents said that once the Ethereum blockchain launched and the premined ether was issued, miners would generate new ether initially at an annual rate of 26 percent of the amount of ether issued in the crowdsale—the issuance rate isn’t fixed and is capped at 18 million ETH minted per year. That means that the supply of ether would grow over time but at a decreasing rate. The increasing supply means that large holders’ stakes will gradually decline relative to the total supply and ownership will tend to be more decentralized, while a declining growth rate avoids flooding the market with ether and pushing down its price. An uncapped supply for Ethereum also ensures that those supporting the network will always be rewarded with new ether. That’s another difference with Bitcoin, which is designed to have a fixed supply of 21 million.

Bitcoin was about $580 that day, and each bitcoin purchased 2,000 ether, making the cost of 1 ether about $0.29, Ken calculated. Used to thinking in venture capital terms, Ken equated Bitcoin to a later stage, Series D investment, while Ethereum was a seed investment. That meant ether had more room to grow, but also a higher likelihood of failure. Ethereum, with its ability to support all kinds of blockchain applications, also had the potential of being even bigger than Bitcoin, Ken thought.

And just like that, he had parted with half of his perfectly good bitcoin, which were now traveling into some cryptographic maze. “Into the ether!” he couldn’t help thinking. This was one of the scariest moments of his life. There were no charge-backs in blockchain. If he copied the wrong address, or messed up one of the steps, there would be no way of getting his bitcoin back. In the world of crypto, there was no arbiter (that was the whole point), and when the roughly ten minutes it takes to confirm transactions in the Bitcoin network were up, the transfer would be permanent and virtually immutable. He sat back, and just stared at his laptop screen for a while. It was done.

By the end of the sale, people behind those jumbled addresses had bought more than 60 million ether, which at around 30 cents per coin, amounted to $18.3 million. It was a huge success. There had been only five similar crowdsales done by cryptocurrency projects before Ethereum’s Genesis Sale and the second-largest raise had been by Maidsafe for $6 million. It was also a success compared with crowdsales in general. Seven months later, Mihai would publish a blog post that said, “according to Wikipedia, Ethereum is rated as the second-biggest crowdfunded project in the history of the internet—sitting proudly next to the first occupant that raised over $70 mil, but over the course of years, not 42 days.”

The total supply of ETH started out at 72 million as 5.9 million (the stipulated 9.9 percent of the 60 million raised) was created for eighty-three early contributors and an equal amount was issued for the foundation. Vitalik got the biggest share of the contributors’ endowment at about 553,000 ether. Stephan Tual, who was leading communications in London, would later make a big stink with an angry post on Reddit, leaking information about how much specific people had gotten, especially when he didn’t think they’d contributed much to the effort.

While Vitalik hopes there was no manipulation by insiders, and says he didn’t engage in such practices, he says ultimately he has no way of knowing whether some may have done it. As for himself, he barely had enough money to invest as he had spent most of it bootstrapping Ethereum. Incentives for early contributors to participate in the sale and get others to do so, and the unnaturally even chart patterns, point to possible manipulation during the ether sale.

—Never put down to incompetence that which can be adequately explained by self-interest.

“Remember when I told you the Ethereum blockchain, same as Bitcoin, relies on computers to confirm transactions? Well, this would be one of the computers helping in that process. It will receive ether as a reward for putting its computer power toward securing the network.” “This thing will mint cryptocurrencies?” “Yes. I know it looks bad, but I can do better.” For the first time that evening, Paul perked up. Three days later, he came back to meet with Aurel, waving his phone to display a photo of an industrial-style building with smoking chimneys towering over massive brick and concrete blocks.

Solidity,

One of the bigger milestones was cutting the block confirmation time to twelve seconds from sixty seconds. That was a massive improvement from Bitcoin’s ten minutes, but still far from legacy payment systems like Visa and MasterCard, which process several thousands of transactions per second. The plan was for Ethereum to go through five different stages—Olympic, Frontier, Homestead, Metropolis, and Serenity—over the course of the following year. By the time they got to Serenity, the network would have moved from energy intensive and wasteful proof-of-work into a different consensus mechanism called proof of stake, which relies on the number of coins held by each node instead of on computer

They estimated that it should be around 5 p.m. Berlin time when they hit that block number, so most developers would be awake to see it. They settled on block number 1,028,201. Why that specific one, out of all the blocks expected to come in at around 5 p.m.? In true nerd fashion, they picked it because it’s a palindrome and a prime number.

They were holed up in two cramped rooms on the ground floor of a coworking space in Bushwick, the Brooklyn neighborhood for those who think Williamsburg is getting too expensive and gentrified. The dozen or so of them had come from different areas of corporate America, finance, and tech, and were busy building Joe Lubin’s new startup, ConsenSys. The company, which was financed by Joe’s own money, had the goal of building the applications that would run on top of Ethereum’s open source protocol layer. It would do that by investing in startups, incubating companies of its own, advising bigger corporations on how they could incorporate the technology, and generally preaching the Ethereum and decentralization gospel.

He had no idea what he was doing, but he was certain that if he was angry and determined enough to white-knuckle it, he would beat the crisis and come out ahead.

Jeff was on a subway train heading to Bushwick, hoping to get hired. Jeff got the distinct feeling he was about to meet Morpheus. He had seen videos of Joe talking and it gave him the sense he was this powerful and mysterious bald man who knows about the future and holds the key to the door that would get him out of the Matrix.

Ken’s ether holdings suddenly made him a wealthy man, at least on paper. He went to the block explorer and posted his ether wallet address as Gavin had suggested and confirmed it. It was the best investment he had ever made, or even dreamed of making. It didn’t feel real. It had been a huge risk, and he’d gotten his huge return. Gavin emailed back, “Feel free to buy me a beer with your profits:-)”

What Ethereum needed the most was an executive manager. Ethereum leadership at the time was in disarray. Charles and Amir were both gone, and Mihai had also left to start his own company, called Akasha. Joe Lubin was busy running ConsenSys and Anthony Di Iorio was now building the digital wallet Jaxx. The only ones left to run the show were Vitalik, Gavin, and Jeffrey.

But there was tension growing between Gavin and Jeff, who were each building the most used Ethereum client implementations. Communication between the two of them started to break, and their teams became increasingly closed within themselves as they fought for primacy. Rising tribalism and competition were quickly driving them apart.

They decided they would hire a manager for the Berlin office and a director for the Ethereum Foundation. Kelley Becker was brought on to manage operations for EthDev and help Aeron, who was burned out from being pulled in different directions, constantly flying between London, Berlin, and Zug, all of that with the added uncertainty of not knowing when and if he would receive agreed-upon funds (which he did always get, albeit sometimes at the very last minute).

Three board members were also hired. The middle-aged, corporate men didn’t exactly mesh with the typical Ethereum developer. Lars Klawitter held a high-level job at Rolls-Royce, Vadim David Levitin ran business development for Fortune 500 companies, and Wayne Hennessy-Barrett was founder and CEO of 4G Capital, a mobile money fintech business based in Kenya.

With tensions boiling, Ming’s application for executive director came in. After a six-month application process that included several interviews, she stood out to Vitalik among other candidates as someone he could trust, and he advocated for her to be hired. The board members accepted his recommendation, and she took the job offer in March 2015 but, because of Swiss regulation, had to wait until July, just after the launch, to officially start.

The Ethereum Foundation had been managed like an early-stage startup in its first year of existence—and that’s what it was—but the project was growing. The foundation was hiring twenty or so contractors, and it was sitting on several million dollars’ worth of cryptocurrency. It needed to get its act together and start behaving like the serious organization it was becoming. Ming was there to make sure that happened.

The term “house cleaning” is sometimes used in corporations, but for Ming it was quite literal. She went to the house in Zug, which had been largely vacated by then, to start the process. She asked to see the paperwork, expecting to find some sort of semi-organized file system. Instead, she found stacks of financial, legal compliance, audit, and tax documents, which had been stuffed inside kitchen cabinets and piled in loose boxes in the big dining room that had been used as a work space. Some of the information was also stored in hard drives, USBs, and laptops. And then some of it just lived in Vitalik’s head. “It’s fine, I remember down to each number and letter,” he said.

The Ethereum Foundation was in jeopardy of running out of operating funds just months after the network had launched. The price of bitcoin had steadily declined all through the Ethereum crowdsale, from over $600 at the start of fundraising on July 22, 2014, to almost $500 when it ended forty-two days later. The problem was that all of the money received in the crowdsale had been in bitcoin, except for the share of ether the foundation got from the premine.

Some on the team, particularly Gavin and Aeron, were pushing to sell at least part of the bitcoin; that way they could make sure they had enough cash going forward. Others, like Joe, thought bitcoin would recover soon and that they would make more money by keeping the crowdsale funds in the digital currency. In the end, with Charles gone and so many people in charge of making decisions that nobody had the final say, almost none of the bitcoin was exchanged.

During the crowdsale, there was speculation on Reddit that Ethereum was selling its bitcoin and pushing down the price. Vitalik jumped in to clear up those rumors and in an August 14 post said, “Less than 100 [Bitcoin have been] sold by the organization,” and that they planned on keeping their funds in the digital currency going forward. “We will hold BTC primarily because (1) we think it’s more likely to go up than down, (2) it’s easier to pay employees in BTC, and (3) if it does go down hard then that’s ...

A year later, Vitalik would regret that decision. Bitcoin continued to fall through 2014 and dropped below $200 at the start of 2015, which meant that the $18 million in bitcoin that Ethereum raised was worth about half as much when the platform launched. Ether was also falling. It traded at just under $3 when it first got listed on Kraken and Poloniex, some of the first exchanges to support ether

“It is indeed true that the foundation’s finances are limited, and a large part of this was the result of our failure to sell nearly as much of our BTC holdings as we were planning to before the price dropped to $220,” Vitalik wrote in a blog post in September 2015. “As a result, we suffered roughly $9m in lost potential capital, and a hiring schedule that was meant to last over three years ended up lasting a little under two.”

The Ethereum Foundation was spending about 410,000 Swiss francs per month, Vitalik wrote in the blog post, and Ming saw it spent as much as 700,000 Swiss francs in one month. The goal was to cut expenditures to 340,000 Swiss francs starting October, and further cut to 200,000 Swiss francs in the medium term.

The shrinking resources was part of the reason, but the scope of the project had grown well beyond its earliest days, when it was envisioned as a mere improvement of Mastercoin.

At the time, the foundation was holding 200,000 Swiss francs, 1,800 bitcoin ($430,000 at then prices), and 2.7 million ether ($1.7 million at then prices), plus a 490,000 Swiss francs fund reserved for the event they had to use a legal defense, Vitalik wrote, saying he was disclosing those numbers as he wanted the foundation to be “maximally transparent.”

Ming got rid of the big house in Zug and rented a smaller office space almost immediately. She also started the process of winding down and reducing all legal entities under the Ethereum Foundation. These units had popped up wherever there were developers, creating more expenses and confusing paperwork. One of the biggest cuts was the...

Tough decisions like these naturally c...

Most of the time, her intention with her constant clarifications and reminders was to reduce regulatory risk for the foundation down the line.

Taylor Gerring, who was part of the early team in the Zug house and had led the creation of the crowdsale website, was becoming increasingly tired of these exchanges. The relationship between Taylor and Ming deteriorated, and Taylor was finding it increasingly hard to get his proposals reviewed and emails answered. At the end of 2015, his contract wasn’t renewed, which he learned from Ming’s brother-in-law, a Hawaii-based attorney who was doing work for the foundation along with Ming’s sister.

The day she received the letter resulting in the EF’s ability to use its ether, she was so relieved and overjoyed, she fell asleep that night clutching that letter.

As Ming got deeper into the Ethereum files in 2015 and 2016, she started to find there were missing documents and information discrepancies. Separately, hundreds of thousands in cash was not accounted for. Months of teamwork resulted in the return of most of the cash and missing company documents. Access-related security measures were made.

While he wasn’t satisfied and still thought he was owed millions of dollars’ worth of ether, he decided not to pursue further legal action.

It was tedious, stressful, miserable work. Ming brought in lawyers, auditors, and tax specialists to help her wade through the mess, and slowly, things started to fall into place. Still, many of her days ended with a cry on the office couch where she often slept, too.

because Vitalik had three votes, versus their three votes, plus a tiebreaker vote. They started to become concerned that if they ever saw something they disagreed with, they’d effectively have no way to change it, and they would still be held personally liable. Vitalik explained that past developments within the foundation had persuaded him to structure governance that way. Lars understood that Ethereum was Vitalik’s brainchild and that he didn’t want to risk the foundation to be steered in a direction he disagreed with. Still, he didn’t feel it was right to remain on the board if there was nothing for him to do. By the fall, the three “adults in the room” decided to resign.

Meanwhile, Gavin was growing increasingly frustrated by the foundation’s push to reduce disbursements for EthDev, where he led the development team. Tensions further grew after he created a UK limited liability, for-profit company called Ethcore in September 2015, to pursue his own vision for Ethereum development. From conversations he had with Vitalik, Gavin thought Vitalik would eventually join him in this new company, where they would continue to build Ethereum and Ethereum infrastructure together.

EthDev Berlin,

“Gavin, we cannot continue in this manner, paying you and all your employees, having you keep your full title and, in essence, bootstrap a for-profit entity that’s separate from the foundation,” Ming would say over several Skype conversations. “We had an agreement with Vitalik that I would retain an unpaid position in the foundation to consult on platform architecture and lead development for the C++ client,” Gavin said. “He should honor it.” “I just can’t do it, Gav,” Ming insisted. “Please, try to understand. I support you and your new venture; I think you’ll be hugely successful and maybe even more valuable to the community that way. But you can’t do it and stay at the foundation at the same time.” “I’ve done more than anyone, maybe even more than Vitalik, for Ethereum. I basically built it from the ground up,” he said. “And you’re kicking me out of the foundation? Does that seem right?” “We’re not kicking you out. I would like to give you the opportunity to frame your departure your own way,” Ming pleaded. “You write the announcement.” “You’ve got to be kidding me.” Gavin tried to get Vitalik to intervene, but his emails and messages went unanswered. In the end, he accepted he was no longer part of the organization he helped build. Yes, he was angry, but mostly he was sad. Ethereum had been his life for the past three years. It also made him sad that Vitalik hadn’t come to his aid, but he also got it. He knew Vitalik had made the decision to let Ming handle the bureauc...

His good-bye post cited Pink Floyd, “The time is gone, the song is over, Thought I’d [have] something more to say,” and announced he was leaving “with no small amount of sadness,” to start a new venture and make his Web 3 dream a reality.

He was drawing a line in the sand. “You can kick me out of the Ethereum Foundation, but you can’t kick me out of Ethereum.”

Next he moved to San Francisco and rented a basement.

He came across academic papers that talked about decentralized prediction markets but found that nobody had tried to implement them.

Joey loved that he could potentially build a parallel financial system where anyone could create derivatives contracts on essentially anything—from speculations on the price of gold to who would win the US presidential election.

Augur.

These so-called dapps, which would later proliferate, are programs that use blockchain technology to reduce the inefficiencies of centralization and/or to avoid third-party censorship.