Posted by: Evan Faggart August 18, 2014
We all know about the radical potential that Bitcoin has to make the world’s monetary system trustless. Bitcoin is already, in itself, completely trustless. There is no central authority that governs over the issuance of Bitcoin or the regulation of its supply. It is scarce; bitcoins cannot be created out of thin air, unlike the fiat currencies we are currently forced by law to use. Even transactions with Bitcoin are trustless. Once a payment is sent, it cannot be retrieved in any way. Therefore, it cannot be double spent. The transaction is confirmed by randomly chosen miners in a matter of minutes. There is no middle man, no bank or credit card company, that you have to put your faith in.
The topic of Bitcoin’s impact on the structure and operation of government has been widely discussed in the Bitcoin community. The main source of government power is its monopoly on money. With the sole authority to issue money create arbitrarily and infinitely, governments can pay for anything they want. They can wage endless wars over politics and natural resources, or they can fund massive welfare states to keep the citizens complacent and subservient. Bitcoin can change all that. By decentralizing the money supply, governments lose their monopoly control over it. Furthermore, the pseudonymous nature of Bitcoin makes it difficult to track, essentially rendering the government’s power of compulsory taxation moot. Consequently, governments would rely on voluntary donations to continue operations, meaning that they actually have to provide value to society. This change in the operation of governments would make them completely voluntary, which many argue would make them completely obsolete.
But Bitcoin cannot fully decentralize all aspects of society, however. Even if it can render violent governments impotent, Bitcoin does not do very much in terms of creating decentralized social structures outside of the realm of money. Here is where Ethereum will fill the gap.
Ethereum is not a crypto-currency, it is not even a monetary system. It isn’t a website, or any kind of social network. Ethereum is a platform. That is all Ethereum is. It is a platform based on smart contracts that allow for the funding and implementation of any type of project. The only limitations are those limits on the imaginations of the people using Ethereum. Simply put, Ethereum is a decentralized development platform that provides a trustless system of contracts and project implementation.
This distributed development platform operates on Ether, the built in unit of payment in the Ethereum network. The Ethers could, of course, end up being a currency. However, the potentialities of Ethereum are so grand that the Ether will likely serve as a means of digitally signing contracts and verifying escrow transactions that release other currencies, like Bitcoin, into the possession of the person who has completed the contracted job.
The main building block of Ethereum is the smart contract, which is a decentralized, trustless contract that exists within the Ethereum network. They are verified by using Ethers to confirm transactions and are limited only by what the developers using this platform can imagine, as was mentioned before. And the things that have so far been imagined are simply stunning! Here is a list of a few things that are possible within the Ethereum network that are listed on the platform’s official website:
- “Create a currency and issue shares.”
- “Contracts, law, and escrow.”
- “Financial instruments and derivatives.”
- “Decentralized organizations (DAOs).”
- “Decentralized voting.”
- “Decentralized data storage.”
These are only a few basic things that are listed on Ethereum’s website. The possibilities are literally endless. The concept is so simple yet elegant; a decentralized system of contracts that can be used to create anything that is desired. However, the development process is extremely complex. This project is the cutting edge of decentralization technology, far outweighing that of the various crypto-currencies, despite their constant growth and improvement.
It is essentially impossible to cover all of the things that can be done on Ethereum, because literally anything that is contract-based can be done. So let us imagine what the operation of a city would look like on the Ethereum network. Imagine that a neighborhood or city has a social contract outlined in a digital format on Ethereum. The contract would guarantee things that normal governments provide today, such as water and electricity. However, this social contract would be completely voluntary, there would be no forced taxation of violent enforcement of the rules, or laws—if they could be called laws under this system. An individual moving into the area would consent to this social contract by sending an Ether to an address that is owned by a company or agency responsible for supplying and maintaining the utility in question, whether it be water, power, sewer, telephone, etc. This transaction would set another transaction in motion, in which the person who has newly confirmed his or her consent to the social contract puts the necessary payment into an escrow service, which would of course operate on Ethereum. The company would then turn on the water, power, etc. in this person’s house.
Once the utility has been turned on, the person confirms the transaction by approving the release of his funds from the escrow account. The process repeats in the next payment cycle. If the utility company turns on the power but the resident does not release the money from escrow, the company simply turns the power off. There is no force involved, everyone is responsible for their actions. Failure to comply with the explicitly agreed upon contract results in a revocation of the services provided under the contract. This scenario seems like a much more peaceful method of conducting society indeed!
Ethereum is still in the development stages at this point, so there are no empirical facts currently available about the efficacy of this system. So all we can do is speculate and theorize, which is what we have been doing above. However, if Ethereum is successfully implemented, the situation described in the previous paragraph could indeed become a reality, along with an infinite set of other social and economic organizations. If it can be imagined, and built based on a system of decentralized contracts—which everything can be, theoretically—then it can be done on Ethereum.
The second part will discuss in potentials, Btc-Etherum and implementations, You can read the second part HERE