The Infinite Machine

by Camila Russo

Ethereum isn’t only a network for its digital currency, ether. It’s meant to be the base layer for developers to build whatever application they can dream of, including issuing their own coin.

Hacker Jude Milhon, better known by her pseudonym St. Jude, combined the words “cypher” (a way to encrypt information) and “cyberpunk” (a science fiction subgenre that depicts high-tech worlds where society has broken down) to christen the emerging group as the “cypherpunks.” For cypherpunks, cryptography would be a tool to effect wider social and political change. Some of them even advocated for crypto-anarchy, a belief that cryptography would enable a world free from corporate or state control.

In 1997, Eric S. Raymond published the essay “The Cathedral and the Bazaar,” comparing two software development models: the cathedral, where code development is restricted to an exclusive group of developers, and the bazaar, where code is public and developed over the internet.

Peer-to-peer networks interconnect equally privileged nodes with each other, allowing users to share and transfer data without the need of a centralized administrative entity. Systems using this architecture are resilient against censorship, attacks, and manipulation. Just like the mythological Hydra, there’s no one head that you can cut off to kill it, and it gets stronger after each attack.

Another issue to address in peer-to-peer, pseudonymous systems was Sybil attacks. Just as coins can be replicated in a digital world, so can identities. This is a problem in a network of equal peers because an attacker could create a large number of pseudonymous identities to gain a disproportionately large influence.

Researchers Cynthia Dwork and Moni Naor made the first break toward solving these problems when they invented the “proof-of-work” concept in 1993. Proof-of-work is aimed at deterring attacks or spam in a network by requiring the users of the service to do some work, so that it would be economically inviable to create useless or malicious data.

When a transaction is executed, it is broadcast to all the computers in the network for them to update their ledgers. Transactions are bunched together to form a block of data, and once that block runs out of space (1 megabyte right now), computers race to solve a complex mathematical puzzle to verify the transactions, seal the block, and record it on their ledgers.

“government is bad because it’s a monopoly more than for any other reason. You can think of the world as a free market anarchy where all the land is legitimately owned by 193 landowners that allow you to live on the land under certain conditions.”

“Turing completeness” is a concept named after mathematician Alan Turing. Turing-complete machines are able to run any computer code. Bitcoin has a scripting language that supports some computation, but Ethereum’s Turing-complete language is designed to support anything a programmer could dream of, and still run in a decentralized way.

“So ETH isn’t just peer-to-peer cash like BTC. It’s also used to run the network itself?”

In Ethereum, there are two types of accounts: externally owned accounts, controlled by people’s private keys and containing no code, and contract accounts, controlled by their code.

Ethereum Virtual Machine,

Web 1 is the internet of the 1990s, before user-generated content, indexed search, and social media platforms. It lived exclusively in desktop computers. Web 2 is the internet as we know it today, with user-generated content, streaming video and music, and location-based services. It thrives on mobile devices. Web 3 was first coined in a 2006 New York Times article referring to a third-generation internet. This new internet is made up of concepts including the “semantic web,” or a web of data that can be processed by machines, artificial intelligence, machine learning, and data mining. When algorithms decide what to recommend someone should purchase on Amazon, that’s a glimpse of Web 3.

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 power.

Rune says the system would have probably been hacked and a total disaster if he had released it as it was, but at the time, he was part of a cohort of Ethereans who believed smart contracts were invincible and unbreakable. “Build unstoppable applications,” the Ethereum.org website would later say. Not only that, but many believed anything was better if it was decentralized. The thinking was, if you picked any business idea and somehow added blockchain technology, it would be an instant success. It didn’t matter if a distributed ledger was actually needed. Decentralization was hailed as a goal in itself, rather than a tool.

“We believe in decentralized, censorship-resistant, permissionless blockchains. We believe in the original vision of Ethereum as a world computer you can’t shut down, running irreversible smart contracts,” the Ethereum Classic website said. “We believe in a strong separation of concerns, where system forks are only possible in order to correct actual platform bugs, not to bail out failed contracts and special interests.”

The whole thing was done over the internet. Startups wrote a white paper, including the technical specification of their project and road map, and put it on a website. Most of the time, that was all these projects had, a website and a white paper. But that was the point of this fundraising mechanism. It opened a new path for early stage, open sourced, decentralized protocols that would usually be shunned by traditional investors to get the necessary funding to build out their projects. They publicized the sale all over Reddit and Twitter, tried to get as much press coverage as possible, and set a date and terms for the sale. They were selling their own digital coins, also known as tokens, in exchange for bitcoin and ether. Because Ethereum’s Turing-complete network and ERC20 token standard made building applications and issuing tokens easy, most ICOs were done on Ethereum.

Vitalik understood that for Ethereum to become a world computer, he would have to work hard toward building a broad and supportive community; that effort would be as important as developing the tech. He constantly traveled to conferences, community meetups, hackathons, and business meetings with CEOs and government officials, wherever they were in the world.

Satoshi Nakamoto has remained anonymous, so there’s no one to idolize for the birth of Bitcoin. But the Ethereum creator is the complete opposite. Not only is his identity known, but he is also a very public figure, publishing Ethereum research, speaking at conferences, posting on Reddit, and responding with increasing sassiness to trolls on Twitter.

Crypto started to look like nothing more than magic internet money, traded on sketchy websites faking their volume, with a stablecoin that may or may not be fully backed by actual dollars as it claimed.

Very few people were making payments and sending cross-border transfers with Bitcoin, and even fewer were using tokens on decentralized applications built on Ethereum. The decentralized ledger technology used by Bitcoin and Ethereum could only process a few transactions per second, and even if it could do more, applications and wallets were still too clunky to attract mainstream adoption. As prices fell, it became clear the main driver for digital asset prices in the previous year was the belief they would go higher. Cryptocurrencies had been mispriced as investors bought up coins before actual users could catch up to the promise of groundbreaking technology.