Ethereum thinks it can change the world. It’s running out of time to prove it.

[steven36]

The blockchain system has daunting technical problems to fix. But first, its disciples need to figure out how to govern themselves.

 

 

It’s late October. Outside the sprawling Prague Congress Centre, not only is the weather turning, but the cryptocurrency world is crashing down, as it has been for much of this year. Expectations for blockchain systems, sky-high just a year ago, are falling nearly as fast as prices for the coins based on them. But inside, the mood is rather different. Here, Devcon—the annual “family reunion” organized by the Ethereum Foundation—is in full swing, and there’s barely a hint of negativity to be found.

 

On the contrary, there is lots of hugging, unicorn-themed clothing, and a sense of excitement about the future. This crowd doesn’t give a damn about what’s happening outside. Whatever’s going on in here, it’s about much more than magic internet money.

 

Ethereum is already the most famous cryptocurrency after Bitcoin and the third largest in total value. Unlike the others, however, it aims to serve as a general-purpose computing platform that could, its adherents believe, make possible entirely new forms of social organization. The central topic of Devcon is “Ethereum 2.0,” a radical upgrade that would finally allow the network to realize its true power.

 

The nagging truth, though, is that all the positivity in Prague masks daunting questions about Ethereum’s future. The handful of idealistic researchers, developers, and administrators in charge of maintaining its software are under increasing pressure to overcome technical limitations that stymie the network’s growth. At the same time, well-funded competitors have emerged, claiming that their blockchains perform better. Crackdowns by regulators, and a growing understanding of how far most blockchain applications are from ready for prime time, have scared many cryptocurrency investors away: Ethereum’s market value in dollars has fallen more than 90% since its peak last January.

 

The reason Devcon feels so upbeat despite these storm clouds is that the people building Ethereum have something bigger in mind—something world-changing, in fact. Yet to achieve its goal, this ragtag community needs to crack a problem as complicated as any of the toe-curling technical challenges it faces: how to govern itself. It must find a way to organize a scattered global network of contributors and stakeholders without sacrificing “decentralization”—the principle, which any cryptocurrency community strives for, that no one entity or group should be in control.

 

Is this even possible? Other blockchain communities, including Bitcoin, have struggled with infighting and gridlock over the kinds of major software upgrades Ethereum is planning. Whether the community can make Ethereum 2.0 happen isn’t just important for crypto speculators and blockchain nerds: it may just go to the very heart of how society is run.

 

The CryptoKitties effect

To understand the hype around Ethereum, you first need to understand the hype around blockchains in general, and then what makes Ethereum different. (Skip the next four paragraphs if you already know.)

A blockchain is essentially a shared database, stored in multiple copies on computers around the world. These computers are known as “nodes,” and any computer on the internet can become a node in a blockchain network by installing and running specially developed software. What makes a blockchain different from a regular database is that, thanks to the innovative use of cryptography, there is no need for a central authority like a bank or government to maintain it. The nodes run the software, and collectively they make sure every new transaction follows certain rules before adding it to the blockchain.

 

This process, called mining, requires a lot of computing. That makes it very hard to tamper with the blockchain’s record of transactions, since doing so generally depends on controlling most of the network’s mining power, and that would require an enormous expenditure of resources. Hence the ideal blockchain is “decentralized,” i.e., it has lots of independent users so nobody is in control.

 

The first blockchain application was Bitcoin, a system for peer-to-peer payments. Ethereum goes an ambitious step further. Instead of just processing and storing currency transactions, its nodes are supposed to collectively function as a “world computer” on which, using specialized programming languages, people can build applications that are supposed to look and feel much like the ones already on our phones—except no one is in charge of them.

 

These decentralized applications, or “dapps,” might include such things as voting systems, trading markets, or even social networks—imagine a Twitter or Facebook that nobody owns. Being decentralized, they would theoretically be immune to attempts to manipulate them or shut them down. For Ethereum’s most avid believers, these contain the promise of an entirely new kind of democratic society in which it is much harder to concentrate wealth and power, hide corruption, and exert shady, behind-the-scenes influence.

 

A year ago—practically centuries in crypto time—investors were pouring billions of dollars into promising projects building dapps. They invested via initial coin offerings, in which blockchain company founders raise money, crowdfunding-style, by selling digital tokens. Prices for coins, including Ether, Ethereum’s own crypto-token, were soaring. Many of their fans believed blockchains and cryptocurrencies were going to swiftly displace traditional financial intermediaries, upend monopolistic internet companies, and decentralize the web.

 

Then came CryptoKitties.

 

 

 

 

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