Understanding Ethereum

ethtrade.
org
UNDERSTANDING
ETHEREUM
One of the most prominent next-generation block-
chain platforms, Ethereum has energized a global
development community and reimagined how de-
centralized technology can be applied to new digi-
tal challenges. This report features an overview of
its expanding community and evolving open-source
technology.
REPORT
Understanding Ethereum
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Table of Contents
What is Ethereum? ........................ 1 Platform Functions &
Vision ....................................................... 1
Use Cases ........................................... 23
Project Origins ....................................... 2 Smart Contracts .................................... 23
Key Milestones ....................................... 3 DAOs ...................................................... 23
Dapps ...................................................... 24
Building Blocks ................................ 8
Linguistics & Scripting ........................... 8
Technical Improvements
Transactions ........................................... 9
(Challenges) ...................................... 25
The Ethereum Blockchain .................... 9 Scripting ................................................. 25
Block Size ........................................... 10 The Price of Gas ..................................... 25
Blockchain Size .................................. 10 Mining Centralization ............................ 26
Block Times ........................................ 10 Turing Completeness ............................ 27
Consensus Algorithm ............................ 11
Transaction Validators ...................... 12 Ethereum 2.0 (Solutions) ........... 28
The Ethereum Virtual Machine............. 12
Proof-of-Stake ........................................ 28
Solidity ................................................ 13
Casper ..................................................... 29
Supporting Protocols ............................ 13
State Channels ....................................... 29
Whisper .............................................. 13
Sharding .................................................. 30
Swarm ................................................ 14
Development Timeline .......................... 30
Oracles ................................................ 14
Mist ..................................................... 14
Technical Infrastructure
& Key Players ................................... 32
Supply, Trading & Availability 15
Developer Leads ................................... 32
Overview ................................................ 15
The Ethereum Foundation .................. 33
Inflation Rate .................................... 15
Decentralized Projects .......................... 33
Gas ...................................................... 15
The DAO ............................................ 33
Economic Structures ......................... 16
Other DAOs ....................................... 34
Trading ................................................... 16
Augur ................................................. 34
Price .................................................... 16
Startups .................................................. 36
Market Dynamics ............................. 17
China .................................................. 18
Adoption ................................................ 20 Conclusion ........................................ 43
Node Distribution ............................. 22
Developer Activity ............................. 22 Appendix: Getting Started With
Ethereum ........................................... 44
Writing Solidity ...................................... 44

What is Ethereum?
The next Internet. First introduced in 2014, ethereum can be

seen as both a realization of this future, and
Its a phrase thats often used when discuss- a recognition of the limitations of the bitcoin
ing bitcoin, the decentralized digital curren- network, the first widely used public block-
cy, and the blockchain, its distributed global chain. In his keynote announcement for the
ledger. Yet, the phrase is perhaps misleading project, creator and inventor Vitalik Buterin
in its simplicity. described ethereum in such terms, arguing
that bitcoin was not designed to serve as the
While commonly referred to as a singular blockchains answer to the Transmission Con-
construct, the Internet is rather a web of trol Protocol (TCP) or Internet Protocol (IP),
protocols and rule sets that combine to pow- the code that forms the basic communication
er complex communications, collaboration language of the Internet.
and business processes.
Buterin wrote:
When viewed similarly, the blockchain, or
the public, permissionless blockchain proto- Bitcoin was designed to be a [Simple Mail
cols, could be seen as a more primitive ver- Transfer Protocol] SMTP. Its a protocol
sion of what could become a mature Internet that is very good at one particular task. It
of Value. Such a public utility could one day is good for transferring money, but it was
provide a similarly layered architecture to not designed as a foundational layer for
expand the Internet of Information, or the any kind of protocols to be built on top.
Internet as we know it today, to deliver all In remarks, Buterin spoke of the need for a
manner of financial and non-financial transac- technology that was more expansive, and that
tional services. replicated the functionality of Turing-com-
If the Internet decentralized access to infor- plete programming languages in a way that
mation, thereby increasing access to commu- would be so powerful as to describe any
nication tools, the vision for the blockchain is blockchain application that could possibly be
that it would decentralize, and reduce barri- built.
ers to establishing trust and transacting in the Ethereum does not have features, it just
digital world. has a programming language, he said.

Vision
Ambitious in scope at a time when
Ethereum is perhaps best viewed as an many blockchain platforms were
attempt to apply learnings from bitcoins slightly modified versions of bit-
decentralized, global cryptographic network coin, ethereum would seek to
to challenges beyond value exchange. Rather enable innovations in four areas:
than disintermediate third parties in e-com-
merce, it envisioned how removing other Currency issuance. Buterin
traditional arbitrators of trust could enable a positioned ethereum as a
new wave of application development. platform that would enable
thousands of digital curren-
Ethereums business problem, as articulat- cies to operate on the same
ed by former ethereum CCO Stephan Tual, is network, with the goal being
that most Internet services are centralized. an economic democracy that
would enable more efficient
You trust your bank to keep your mon-
funding of philanthropic and
ey safe. The same is true of Facebook
other difficult-to-finance soci-
when you upload a picture of your kids
etal goods.
or you push a document to Dropbox. As
a developer you need to submit your ap- Decentralized autonomous
plication to an app store and risk having organizations. Buterin en-
it removed. Tual explains. visioned how new forms of
digital entities could be built
Ethereum seeks to enable the creation of
to manage shared resources
similar Internet services while restoring the
under a set of terms and con-
control of personal data and funds to users.
ditions enshrined in code and
empowered by the collective
decisions of stakeholders.
Smart contracts. New con-
tracts, he said, could be built
that instead of being enforce-
able through a legal system,
would programmatically
enforce themselves.
Smart property. The defini-
tion of property would ex-
pand with the idea that cryp-
tographic, blockchain-based
tokens could serve as repre-
sentations of realworld assets,
like museum passes or tickets.

Project Origins coin, a user could control his or her assets

simply by controlling the associated private
On a more anthropological level, ethereum keys. However, with a colored bitcoin repre-
can be seen as an outgrowth of an ideolog- senting an asset such as an ounce of gold,
ical subset of the bitcoin community that a user might control the private key to that
sought to build additional functionality onto asset without controlling the gold itself. With
the network without creating a wholly new this in mind, the ethereum team set out to
blockchain. build its own blockchain and a new program-
ming language, designing it from scratch to
Given that the bitcoin blockchain can secure- create a world computer, the computation-
ly arrange and record transactions of bit- al power of which could be accessed in real
coins, they posited, there should be no rea- time by an open market of users.
son that these bitcoins cant be modified or
otherwise made to represent other assets. Programs could be run on the ethereum
blockchain, with transactions serving to
Rather than simply sending and receiving mediate interactions between these pro-
money, this community wanted to use bit- grams. As CTO Gavin Woods yellow paper
coins to represent commodities, derivatives explained, anything that can be represented
or even deeds to real estate, in a sense, any- by a computer would be admissible on ethe-
thing for which a secure, fixed unit of code reum.
could function as a digital asset. But, the
problem was that certain beneficial features While the ethereum project would come
that worked with bitcoin proved difficult to under fire from critics throughout its early
translate to bitcoins that represented other development lifecycle, as of the time of writ-
assets. ing, the technology has arguably provided
ample evidence that it is moving toward its
With a native blockchain currency like bit- ambitious aims.

Key Milestones
JANUARY 2014 Ethereum inventor Vitalik Buterin an-
nounces the project at The North American Bitcoin Con-
ference.
JULY 2014 The Ethereum Foundation begins selling
ether tokens in a 42-day public sale. In total, it sells
60,102,216 ETH for 31,591 BTC, worth $18,439,086 at
that time.
JULY 2015 Ethereum launches Frontier, a com-
mand-line version of the platform for developer testing.
AUGUST 2015 Kraken becomes the first major digital
currency exchange to list ethers for sale. Major exchang-
es including Coinbase and Gemini follow suit.
JANUARY 2016 Eleven major banks Barclays, BMO
Financial Group, Credit Suisse, Commonwealth Bank
of Australia, HSBC, Natixis, Royal Bank of Scotland, TD
Bank, UBS, UniCredit and Wells Fargo announce a trial
of a permissioned version of the platform.
JANUARY 2016 The first ethereum startups begin to
raise funding for projects as diverse as a decentralized
stock market and developer tool suites.
MARCH 2016 Ethereum releases Homestead, the first
production- ready version of its blockchain platform.
MARCH 2016 The total value of all ethers on the ethe-
reum network passes $1bn.
MAY 2016 The DAO becomes the largest decentralized
autonomous organization, collecting more than $160m
worth of ethers to be invested in other projects.
JUNE 2016 The DAO collapses after an unknown at-
tacker exploits a flaw in the projects code. The event
forces ethereums development community to consider
protocol-level code changes to rescue customer funds.

Building Blocks
As with the Internet, Ethereum similarly Linguistics & Scripting

isnt just one thing, but rather a sum of
many different parts. In computer science, a scripting language is
A non-exhaustive list of components includes a programing language that supports scripts,
a cryptographic token and address system, a or programs designed for run-time environ-
network of validators (miners), a consensus ments that execute tasks and reduce the
algorithm, a blockchain ledger, the ethereum need for human operators. Because of this,
Virtual Machine, a set of programing languag- scripting languages tend to be best utilized
es and complex economic structures. for experiments and rapid prototyping.
The following section attempts to highlight Bitcoin has an intentionally rudimentary

these specific components and illuminate scripting language, and theres a reason for
the functionality each provides to the larger this. From its inception, bitcoins developers
ethereum network have prioritized the ability to push transfers
of bitcoin via the bitcoin network over all oth-
er applications.
While there have been discussions about
adding a more powerful scripting language to
facilitate easier application development, the
view of the bitcoin development community
has largely been that it is more important to
prioritize censorship resistance and network
security over adding functionalities to the
code.
Ethereum, by contrast, aims to be Tur-
ing-complete. This means that, if a system
has unlimited resources, memory, compu-
tational power and storage, then infinite
loops can be executed. In other words, the
logic and functionality that may be embed-

ded in ethereum transactions is only practi- Ethereum, by contrast, uses a more famil-
cally limited by the availability of the proto- iar method. It stores the current state of
cols native currency. its network, including a full list of accounts
and their associated balances. Rather than
However, this functionality comes at the confirming that UTXOs used in a transaction
cost of security. Powerful scripting allows are valid, ethereum determines whether the
for greater function, but the additional tools sender has a sufficient balance, much like a
also create new potential attack vectors. (See bank verifying whether a check will clear.
Challenges.)
This design feature becomes important when
transactions include contracts as recipients.
Transactions If the transaction recipient is a contract, then
that contracts code will execute, changing
The most notable difference between the two both the state of that contract and potentially
blockchains is that ethereum blocks contain triggering other contracts to execute code as
both a transaction list and the most recent well.
state of the ledger of these transactions.
This is a necessary feature to manage two
types of accounts:
The Ethereum Blockchain
Externally owned accounts (EOAs). Defined Both ethereum and bitcoin operate global
as the basic form of account, EOAs interact transaction ledgers that today achieve re-
with and generate updates on the ethereum mote and distributed validation through the
blockchain. use of a Proof-of-Work (PoW) protocol, a
design in which participants expend signifi-
Contracts. Contracts programmatically ex- cant energy to identify unique pieces of data
ecute when they receive instructions in the that can then be easily verified by the wider
form of a transaction from an EOA. Contracts network.
can push or pull funds, and request these
actions from other contracts, calling on the This data is used to generate blocks, or cer-
code to perform dynamic actions. tain finite quantities of transaction data,
which serve as a reference for all other net-
Ethereum notably does not use transaction work participants. The resulting blockchain
inputs or outputs, which deviates from the is able to provide a history of the network
unspent transaction outputs (UTXO) model at each of these intervals, creating a shared
bitcoin popularized. truth as it relates to events.
In bitcoins model, each newly minted bitcoin Blocks in both bitcoin and ethereum are
becomes an unspent transaction output with today similar, containing information such
an owner who retains the right to consume as the block number (denoting how many
that bitcoin at a later time. During a bitcoin blocks have passed since the initial block)
transaction, these UTXOs become the inputs and the difficulty (a metric that denotes how
that are consumed in the transaction. When challenging it is to complete the work needed
these bitcoins are spent, or pushed, to anoth- to create a block).
er user, a brand new UTXO is created.
On the bitcoin network, the transaction script

is stateless, meaning there is no state pri- work need to store.

or to execution of the script, and an update
to this state is not saved after its execution. The need to track and store all these trans-
Contracts on ethereum are considered actions, in turn, requires resources from the
stateful, meaning that they are aware about network of computers running the block-
past information stored on the network and, chain. As of May 2016, the size of the ethere-
if instructed via smart contract, can be pro- um blockchain has grown to approximately
grammed to take actions in the future. When 17 GB.
peers, or members of the ethereum network, While this is still dwarfed by the bitcoin net-
receive a block of data, they then run all works blockchain size, which stood at a little
transactions to verify a mathematical figure under 69 GB at that time, its worth pointing
representing the system state at that time. If out that the bitcoin network is over eight
the nodes can validate this data, they accept years old, while at 17 GB, ethereum has been
the block for inclusion on the blockchain. operating for just nine months.
At an average growth rate of around 1 GB
Block Size per month, ethereums blockchain is growing
more slowly than bitcoins, which is expand-
On the bitcoin blockchain, blocks are limited ing in size at approximately 3 GB per month.
in size to 1 MB. This not only creates a cap on However, ethereum has gained significant
the amount of transactions that can be pro- traction since its genesis block, and as the
cessed per second (currently its seven), but it network becomes more popular, that month-
also has turned into a major point of conten- ly growth rate could accelerate.
tion within the bitcoin community as it seeks While this could a become a concern, ethere-
to increase this limitation. um is currently seeking to migrate to a new
Ethereum has no such limit on the size of its consensus algorithm that aims to alleviate
blocks. Because ethereum executes scripts this issue [See Proof-of-Stake].
and contracts, this is a necessity, as limiting
the size of a block would not only stunt the
concept of Turing-completeness, but limit the Block Times
amount of storage a contract could use to
execute. During its design phase, the ethereum team
was also keen to address what they per-
Rather than limit the size of its blocks, ethere- ceived as issues or limitations in the oper-
um employs a mechanism which makes con- ation of the bitcoin blockchain. One issue
tracts more and more expensive to execute that attracted attention was the time it takes
the larger they are in size. [See Gas section] transactions on the network to settle against
the blockchain.
Blockchain Size Bitcoins blockchain adds new blocks rough-

ly every 10 minutes, which means that a
As on the bitcoin network, the more trans- transaction is generally not confirmed on
actions that are executed on ethereum, the the ledger until this time. In practice, actual
more information all the peers on the net- confirmations may take longer, as those who
use the protocol generally wait for six confir-

mations, or six blocks, before considering a by San Francisco startup Ripple, is designed
transaction settled. to update its state every three to six seconds.
Ethereum has set its target on 12-second
Bitcoin and ethereum are not the only block- block times, though current block times are
chains, or ledger structures, that use consen- closer to 14 seconds.
sus methods. Various protocols have various
block times. The Ripple protocol, developed
Ethereum Average BlockTime Chart

source: etherscan.io
Consensus Algorithm one cannot trust someone who has the po-
tential motivation to lie, and one cannot trust
For any distributed computing system to the integrity of a given communication if it
properly function, there needs to be a mech- has first passed through an intermediary.
anism by which the entire network can come Bitcoin solves this problem through creat-
to agreement on its state, or how its token ing a chain of proof of work. The miners on
supply is divided among registered address- the blockchain expend energy to solve a
es on the network. complicated mathematical equation in a bid
Bitcoin uses what is referred to as Nakamo- to receive rewards when they find the next
to consensus. Truly the pivotal innovation block.
behind bitcoin, Nakamotos invention solved Since the next block always follows from the
a longstanding computer science problem previous block (meaning you start the equa-
known as Byzantine Fault Tolerance, or the tion from the point of the block), miners rush
Byzantine Generals Problem, the idea that to verify that the block is valid so they can

quickly turn to finding the next block and individual miners known as mining pools.
claim the reward.
To mitigate this consolidation, ethereum
It is the incentive compatibility, and also im- mining was set up so that it could only be
mutable nature of entries in the blockchain, conducted with graphics processing units
that provides a solution to the Byzantine (GPUs). The network is permissionless,
Generals problem. meaning that anyone who purchases a
graphics card and elects to run an ethereum
Although there are plans in the future to mi- client can begin processing transactions.
grate the network to a different protocol in
the years ahead, at the time of writing, ethe- However, if the intended switch to a new
reum uses a similar PoW protocol known as proofof- stake consensus protocol is com-
Ethash. Ethash differs from bitcoins Naka- pleted mining may no longer be needed in
moto-style algorithm in a number of ways, the near future. [See Challenges section]
the most familiar of which is that it uses
different cryptographic primitive for its hash-
ing function, known as SHA-3, rather than The Ethereum Virtual
SHA-256.
Machine
While the differences are nuanced, Ethash
is designed to make ethereum both resis- The ethereum protocol is designed to do
tant to the high-powered mining chips that far more than process peer-to-peer trans-
currently dominate the bitcoin industry, and actions. It is designed to execute complex
more accessible to light client implementa- code, where the functionality is only limited
tions that allow users to use ethereum with- by the imagination of its developers and
out needing to first download the ethereum available resources.
blockchain to their device
As such, a system is needed to interpret in-
structions, and on ethereum, this task is han-
dled by ethereum virtual machines (EVMs).
Transaction Validators Smart contracts are facilitated and enforced
through EVMs, which implement and exe-
Ethereum also differs from bitcoin in its
cute instructions written in any of a variety
transaction validation, both as it stands to-
of languages via a bytecode.
day, and as the network intends to function
as it implements key changes in the future. A bytecode, also called a portable code, is
a type of instruction set created to be exe-
In 2009, the first bitcoin users were able to
cuted by a software interpreter. Just like the
run mining software on home computers,
example of an if-then argument in a Mic-
using CPU power. As bitcoins became more
rosoft Excel spreadsheet (albeit with often
valuable, a race for hashing power began,
much greater degrees of complexity), EVMs
leading innovators to develop more and
interpret the bytecode, evaluate the transac-
more powerful mining equipment.
tion states and execute the code to deliver
Today, the majority of bitcoin mining is done predictable outcomes.
in data centers, largely by VC-backed com-
EVMs in particular deliver this through a
panies that control the production cycle of
Turing- complete scripting language al-
equipment and collaborative collections of

lowing at least in theory, for infinitely com- could end up having real-world applications.
plex contracts.
For example, the Internet of Things (IoT),
the vision for connecting devices and appli-
ances to the Internet, will require a massive
Solidity amount of machine- to-machine communica-
tion, infrastructure and contract execution. A
Ethereum would be incomplete without
language like Solidity could play a key role in
a native programing language and that
enabling these devices to talk to one anoth-
language is Solidity. Solidity is the code that
er.
makes it possible to run contracts or pro-
grams in a distributed manner.
To describe Solidity crudely, it closely resem- Supporting Technologies
bles the browser-based JavaScript language,
but for executing ethereum contracts. In In addition to the main ethereum blockchain
contrast to an object-oriented language protocol, there are also supporting technol-
like JavaScript (which combines variables, ogies in development that seek to help the
functions and data to run certain human-op- network, and components built on the net-
erated commands), Solidity is contract- ori- work, run more efficiently.
ented. Its run-time environment tasks are
automated, and its objects are bundled For example, whole new protocols are being
together to avoid the need for manual com- constructed that aim to increase the func-
mands. tionality of distributed applications, while
tools are evolving to allow these programs to
Solidity is often described as ethereums harness data from multiple blockchains.
scripting language, but it is actually a com-
piled language, not a scripting language. It While there may be little that unites the fol-
compiles instructions into bytecode so that lowing concepts on the surface, all are aimed
they can then be read by the network. This is at making ethereum more flexible for devel-
a critical feature given that contracts are not opers and users.
wholly complied and independent programs,
but rather partially compiled programs that
depend on EVMs to run. Whisper
Solidity is also designed to express agree- A communications protocol and tool set that
ments that encode relationships and ar- allows applications built on the ethereum
guments that exist in real life. It therefore protocol to talk to each other, Whisper com-
includes more concepts than an object-ori- bines aspects of a distributed hash table and
ented language. Identity, ownership and a pointto- point communications system.
protections form a core part of the program-
ing grammar, which doesnt have a parallel Whisper is best explained in practice as it can
in JavaScript. be used to help facilitate exchange by record-
ing buy or sell offers, allow for the creation of
As the language matures and adds more general chat room-like apps or even provide
libraries and users, it has the potential to dark communications between parties who
create massive and powerful constructs that dont know anything about each other.

With Whisper, you can imagine an ethereum then statements they also need to know
application for whistleblowers who want to how to ascertain the accuracy of given inputs
communicate to a journalist where theyve to those if-then statements.
stored a trove of data, but dont want their
identity to be linked to that data. If its raining in New York City, and there are
multiple reliable sources that can confirm it
is raining, how does ethereum weed through
potentially fraudulent sources to identify the
Swarm veracity of the input?
SwarmHash or Swarm is a peer-to-peer file Here, there is a need for a construct that
sharing system designed to efficiently store communicates outside realities to smart
and retrieve data needed for use in ethere- contracts.
um applications and contracts. The easiest
analogy to draw would be that Swarm is In ethereum, these are called oracles. While
essentially BitTorrent for ethereum. a number of projects are building their own
private oracle systems [See Augur], there
As we will discuss later, storing data directly have been some attempts to create plat-
on the ethereum blockchain is expensive form-agnostic systems for verifying inputs to
[See Price of Gas]. While contract code will multiple blockchains.
have to be stored on the chain, reference
data needed for contract execution should Though there are currently a limited number
not. For instance, if a simple contract were to of data sources that can be cryptographically
say deliver an e-card with pictures, the pho- proven it isnt hard to imagine a future in
tos would take up a lot of space. which smart technologies and the Internet of
Things could allow all sorts of external data
Perhaps a school would want to send out an to be incorporated into contracts.
album with photos of its latest graduating
class. Such an application, if run on ethere-
um, might require a contract that is 1 KB, but Mist
be designed to deliver 1 GB of data. Storing
and transacting that 1 KB of code might cost If ethereum is to be the new TCP/IP, the
users a few cents, whereas storing the album project needed a new version of browser, a
itself could cost more. usable frontend technology with which users
By instead storing the album remotely, and explore the applications and offerings that
accessing the file via a BitTorrent-like system, utilize ethereum.
this would allow ethereum applications to Styled as a decentralized application discov-
deliver the instructions, with the files to be ery tool, Mist is meant to serve as a wallet
transferred via Swarm, not the ethereum for smart contracts that features a graphical
blockchain directly. interface and allows users to dynamically set
transaction fees and manage custom tokens.
Oracles At the time of writing, Mist is still in beta and

is under heavy development.
For smart contracts to execute properly, they
need not just be a well designed series of if

Supply, Trading
& Availability
Another important component of the ethe- For example, in bitcoin, the limit of all bit-
reum network, and one that has attracted coins that will ever exist is currently set at
the interest of investors is ether (ETH). ETH 21m BTC, a cap that would require a consen-
is a unit of account and store of value on sus of participants to change. Ethereum, by
the ethereum blockchain, equivalent to comparison, has no hard limit on how much
bitcoins (BTC) on the bitcoin network. of its token will exist in the future.
Ether, while having an economic value as a Rather, its development team sought to use
scarce commodity, is not meant to serve as its token system in a way that would en-
an alternative currency like bitcoin. Rather, courage access by introducing 18m ethers
it has been positioned as a system resource per year through mining. This steady rate
that powers the creations of those seeking to of inflation, they reasoned, would then de-
use the platform. crease over time as the overall token supply
increased.
If bitcoins value is derived from the securi-
ty of the network and its scarcity, ether has New participants in the system will be able
value because it is needed to execute scripts to purchase new ETH or mine for new ETH
and contracts on the ethereum network. whether they are living in the year 2015 or
2115, developer Joseph Lubin wrote in his
For that reason, ether has been called the introduction of the issuance model.
digital oil to bitcoins digital gold.
Inflation Rate Gas

If ether served as a way to enable access to
The ethereum network includes a mecha- ethereums world computer and ensure its
nism for releasing new ethers into the sys- functionality, an economic structure was also
tem over time. Of note for investors familiar needed to limit access.
with bitcoin and other digital currencies,
is that there is a difference of approach in In order to complement ether and better
ethereum. explain its function of its token, ethereum
introduced the concept of Gas, a throttling

mechanism that determines, in real time, As stated above, this issue is by no means
how much ether each contract costs. unique to ethereum given that a finite piece
of data that can be exchanged via a block-
Gas has a fixed value, currently set at 10 chain has no natural legal equivalent or defi-
szabo, with one ether being made up of 1m nition. While global regulators have sought
szabo. The longer it takes for the contract to to label all cryptographic, blockchain-based
run, and the more systematic resources it tokens virtual currencies, the term doesnt
requires, the more fuel is needed to execute quite capture how innovators in the ecosys-
the contract. tem perhaps want their technology to be
Running contracts based on the Gas throttle, used or understood.
or ether limit, is a market-based solution that
simultaneously limits the potential for hack-
ers to spam the network and eliminates the Trading
need to set a fixed size for new transaction
blocks. So, what does the ethereum market look like
in practice? Given that ethereum is a public
utility, answers to this question are readily
Economic Structures available through data analysis.
In the following section, well examine the
Still, ether was created for more than execut- current state of the ethereum project, how
ing transactions. its marketplace is developing and the prog-
While bitcoin had succeeded in proliferat- ress being made by the core development
ing naturally over time through mining, the team.
ethereum community sought to find a way to
jumpstart this process and incentivize a base
of evangelists who could help the network Price
grow. To reach a critical mass of developers,
ethereums team used ether as an incentiv- While there may be no true value of any
ization method to bring the project to life. digital asset, the ethereum market provides
clarity as to what users and traders believe
In July 2014, ethers became directly available is the value of ether, a metric that could also
for purchase on Ethereum.org, and more be argued is indicative of overall confidence
than $18m was raised through the effort. in the project.
A point of contention that has emerged As an investment, ether has shown similar
centers on the legality of the initial sale. At growth as bitcoin the digital currency. At the
time of publication, no action has been tak- time of ethereums initial crowdsale, users
en against any of the individuals or groups were able to purchase 2,000 ETH with 1 BTC,
involved; nor has any action been taken which was trading for just over $600 at the
against other blockchain development teams time. ETH has since seen its price rise and
that have used this approach to community fall. Of particular note is that speculators
building. seem to be attracted to coordinating action
Nonetheless, the legal complexities involved around major project releases [See Devel-
have been acknowledged by its developers. opment Timeline].

As the above graph shows, enthusiasm for blockchain shows which entities are the
ether is reflected in its recent price, and it most active in transacting ether.
has arguably been on an upward trajectory.
During this observation period, 699,900
transactions (representing 14m ETH) took
place. In total, 14% of these transactions
Market Dynamics were conducted on exchanges.
An analysis of the networks blockchain By comparison, transactions sent between
shows that trading is today driving the ma- contracts (including those that are part of
jority of volume, though how much could be decentralized applications) accounted for
defined as speculative is uncertain. 6.39% of the transaction total and 12% of
volume.
Data from CoinDesk Research shows approx-
imately 750,000 ETH (about $10.8m at then The remainder were conducted by mining
prices) was being traded on digital currency pools and other unknown entities
exchanges daily in May, with this activity
representing 50% of daily ether transactions. Still, such downward movements have been
At time of publication this figure increased to slight compared to ETHs overall price ap-
5.8m ETH (or $81.2m), with this activity rep- preciation. At the time of the crowdsale, the
resenting 66% of daily ether transactions. price of 1 ETH was roughly $0.30. Compared
to its value of $14.30 at time of publication,
A deep dive into the data from blocks this represents a 4,666% increase in value.
1,468,000 to 1,568,000 on the ethereum

The data shows that trading is still the dom-

inant use of ether, and that decentralized Ethereum Exchanges by USD Volume:
applications, while beginning to come online,
still account for only a small part of the net- June 2016
works activity today.
1. Poloniex (ETH/BTC) $50,769,621
2. Kraken (ETH/BTC) $14,425,770
China 3. Bitfinex (ETH/BTC) $10,656,583
Analysis of the outflows of this capital re- 4. Bitfinex (ETH/USD) $7,326,959
veals just under 80% of ether is traded for
BTC, with the remaining trades denominated 5. Yunbi (ETH/CNY) $2,086,474
in USD, EUR and CNY. This figure was down 6. BTC-e (ETH/BTC) $1,814,588
from 90% just one month earlier.
7. GDAX (ETH/BTC) $1,426,082
So far, trading is concentrating on a small
number of exchanges, with Poloniex and 8. BTC-e (ETH/USD) $1,181,723
Kraken emerging as the market leaders.
9. GDAX (ETH/USD) $911,669
Perhaps most notable aspect of the ethe-
10. Bittrex (ETH/BTC) $709,726
reum market, however, is how it has devel-
oped comparatively to bitcoins.

As of June 2016, CoinDesk Research data

indicates 94.35% of bitcoin trades are for
the BTC/CNY trading pair, with fee-free,
Chinabased exchanges OKCoin and Huo-
bi holding a more than 90% market share
based on the strength of this market de-
mand.
By contrast, ETH/CNY trades account for just
roughly 2% of the overall ether market. This
near 90% differential indicates the price of
ether could grow should ethereum attract
the attention of this already active part of
the global blockchain community.
At present, more than 90% of bitcoin volume
is being driven by Huobi and OKCoin, and
at press time, neither had voiced plans to
support ether.
Representatives from both exchanges told
CoinDesk Research they are watching ethe-
reums development with interest.

Adoption doubled since January of the same year.

A chart on the number of transactions per
Beyond the speculative use of Ethereums day also displays steady movement to the
token, there are metrics that suggest the upperrighthand corner of the graph, even
platform is being adopted by an increasing while volume remains more inconsistent and
number of application creators and users. closely tied to intervals of high price volatili-
The number of Ethereum transactions, for ty.
example, has been steadily rising, hitting Other positive indicators include the rising
roughly 40,000 transactions per day as of number of unique addresses and the in-
June 2016. creasing network difficulty, which indicate
Overall, transaction figures have roughly more users are joining the network and
more miners are securing the network.


Node Distribution developer community. But, as for assessing

the state of this community in practice, some
Perhaps one of the strongest indicators of quantitative metrics are available. For exam-
support for the ethereum network is the ple, ethereum and bitcoins official GitHub
number of computers running versions of pages shed light on developer activity by list-
the ethereum client and its full blockchain ing figures such as the number of commits,
history. or changes to software files, and the num-
ber of contributors enrolled in the project
As of mid-2016, ethereum had 5,384 nodes through the platform. Overall activity in the
connected to its network, a figure that was two development communities also appears
just shy of the 5,757 observed on the older comparable via GitHub data, though ethe-
bitcoin network. reum perhaps experiences more downtime
due to its smaller number of contributors.
There is also an observable relationship be-
Yet another useful metric is the number of
tween the geographical distribution of both
forks, or copies of the repository developers
networks, with the majority of nodes being
can use to experiment with potential chang-
hosted in the US and Germany.
es. Here, bitcoin displays a clear advantage,
perhaps due to the length of the projects de-
velopment. Over 6,000 forks have been add-
Developer Activity ed to the bitcoin GitHub since 2009, while
525 forks have been made to the ethereum
To date, one of ethereums biggest success
network since 2014.
stories has been the perceived strength of its

Platform Functions
and Use Cases
While the architecture of the network is to which different floors.

certainly impressive, its whats built on
these intricate components that truly illus- Smart contacts can be thought of as if-then
trates ethereums potential. formulas in an Excel spreadsheet. They dont
function similarly to contracts between peo-
Far from simple wallet and exchange construc- ple, but rather fire and forget predeter-
tions, ethereum has so far enabled the cre- mined outcomes, waiting for the inputs to be
ation of a wholly unique lexicon of concepts. presented in order to deliver those outcomes.
These range from simple programs that aim to
replace traditional financial contracts to more To call a contract and modify the state of the
complex constructions that could come to address, a payment of ether must be sent
challenge investment firms and corporations. along with the call, which then executes a
method to adjust the required fields.
Ethereums blockchain lets users rely on the
Smart Contracts inputs. While blockchains dont guarantee
that all entries will be true, the immutable
The basic building blocks of programs writ- and permanent nature of the entries into
ten for the ethereum platform are called the data structure forces those entering data
smart contracts, and more complex struc- into the environment to put their reputation
tures on the network are best considered on the line with each entry. Users can never
elaborate collections of these tools. take back what is said or entered.
As an example of the type of functionality In this way, ethereum can be viewed as an incen-
smart contracts achieve, it may be best to tive structure that users can lean on to assume
consider it as a kind of modern elevator truth. With this assumption of truth, they can
management system. You could almost think start to build these contracts or situationally de-
of the elevators as running a smart con- pendant outcomes on top of the networks data.
tracting system on a private blockchain.
Individuals who approach the elevator bank
will each push a button for a different floor, DAOs
and the management system organizes an
efficient ordering of which elevators will go While smart contracts on their own are
interesting, it is the idea of large numbers of

contracts working in unison that showcases

the breadth and potential impact of ethere- Vitalik Buterin has summed up the
ums technology. differences between these con-
Combined, smart contracts can be made to cepts in the following terms:
form what have been been called DAAs or Smart contracts
DAOs, acronyms for distributed autonomous Versions of the technology that
agents and distributed autonomous organi- are single-purpose and ephem-
zations. eral, so they are created for a
specific task and can disappear
at the end. A financial contract is
Dapps a good example here.
Here again, its important to note that the Autonomous agents

larger purpose of the ethereum network More long-term focused smart
is to serve as a platform for the creation of contracts, Buterin envisions a
distributed applications (dapps). series of contracts forming an
internal AI that can be charged
Dapps can be comprised of single DAO or with decision-making.
even a series of DAOs that work together
to create an application. This could result in DAOs
something close to an application you may Described as a long-term con-
already be familiar with, like a Microsoft tract between many people,
Outlook or Angry Birds, but the point is not DAOs are closer to historical
that these apps be made to provide a certain business structures, allowing
functionality. users to join, exercise voting
power and even eventually exit
Rather, what makes a dapp is that it is im- such collaborations. DAOs are
plemented on the ethereum network, not designed to hold onto assets
locally on a computer or phone, or even on and use a kind of voting system
a single companys server. At time of publi- to manage their distribution.
cation, CoinDesk Research has found there
are more than 230 dapps in various stages of There can be many different
development, a figure that spans the spec- types of DAOs. The more basic
trum to includes those at the concept, demo ones live entirely on the block-
and live stages. chain, but more advanced ones
might have some of their data
Further, analysis shows that dapps can cur- stored on other decentralized
rently be broken down into four categories: networks or across a number of
servers.
1. Smart contract services, utilities &
analytics
2. Gambling and games
3. Information validation & oracle
services
4. Registry and corporate governance.

Technical
Improvements
(Challenges)
While the work that has been done to date bugs per 1,000 lines of code. Compare that
is without a doubt impressive, there is still to Microsofts one bug per 2,000 lines of
much to be done to improve ethereum. code, and you have an idea of the extent to
which the project may need to make im-
In the following sections, we review some of provements long term.
the planned improvements and larger chal-
lenges facing the networks development While not all contracts will be as buggy as the
team ahead of this goal. one that was reviewed, the state of the solid-
ity compiler is something that will need to be
addressed before ethereum can scale.
Scripting Imagine gears in a Rolex only working right
with each other 90% of time. Youd spend a
Ethereums programming language remains
lot of time readjusting the time as it slipped
a work in progress.
out of sync.
Solidity is a brand-new concept in comput-
Such an issue could develop with ethereums
er programing, and script-based systems
smart contract modules, except they may
remain largely untested. Further, the lan-
not just fail to keep proper time, they may
guages compiler is buggy, and there arent
stop working, suffer from security issues or
repositories and public libraries yet.
potentially execute improper contract out-
This makes creating functional smart con- comes.
tracts on ethereum difficult. Each module
has to be as perfectly crafted as each gear in
a Rolex. If the modules dont interact exactly The Price of Gas
as designed, the system breaks down.
The economics of the platform are also in
One independent review of the ethereum early stages. To borrow a phrase from West-
code exposed the extent of what is becom- ern politics, on ethereum, the cost of gas is
ing a more widely acknowledged problem too damn high.
outside the networks development com-
munity, estimating there are potentially 100 As an example, it cost $250,000 to pro-

cess 1 GB of ethereum transaction data in As recently as March 2016, however, one

May. At that time, the contract would cost mining entity, dwarfpool, had amassed 48%
640,000,000,000 gas, or about 17,500 ETH, at of the networks hashrate, leading to con-
$14 per ETH. cerns about centralization and the possibil-
ity that one entity could gain control of the
To be fair, most contracts will be far small- network.
er than 1 GB, and users would likely not
want to store 1 GB of reference data on the Such an attack would find the entity chang-
ethereum blockchain when they could use a ing the ethereum ledger at will and forcing
protocol like Swarm Hash. But storage and its version of the blockchain to be consid-
resources are still very expensive. ered valid, thereby undermining trust in the
network.
A look at the network shows that its transac-
Mining tion validators have consolidated into a small
number of entities and pools. However, this
Centralization As discussed above, ethereum
is due to the functionality of its existing PoW
also sought to implement an architecture
protocol, which as we covered previously, is
that would alleviate issues that have contrib-
designed to be replaced.
uted to the centralization of mining power
on the bitcoin network, enabling a wider vari- Ultimately, it is a move toward PoS [See
ety of users to be incentivized to boost the Proofof- Stake] that the developers see as
platform as a whole. a critical way to restore what was an original
Hashrate distribution of mining pools

value proposition of decentralized block- Ethereum, however, has an accompany-

chain networks, that anyone could partic- ing economic system of ether and gas that
ipate simply by running a program on a makes it, at least at the moment, prohibitive-
computer. ly expensive to use. It creates an economic
limit on the Turing-completeness simply by
making storage space so expensive.
Turing Completeness In some ways, ethereum can never really
be a true Turing machine at some point, a
As discussed above, ethereum is purportedly
limit to computational power is hit, even if it
Turing-complete, but in reality, the system
grows to where the limiting factor or bottle-
is limited by memory, computation power,
neck is available electricity.
storage on the network and economic costs.
But for ethereum to achieve its vision, it only
The more complex the instruction set, the
needs to reach a point of economic equilibri-
more messages that have to be passed back
um where it is practically Turing complete,
and forth within the system, the more del-
and limited by the economics of how much it
egates and code calls required by the con-
costs to use.
tract, the higher the cost. The gas system
ensures this.

Ethereum 2.0
(Solutions)
Blockchain technology has ushered in a Proof-of-Stake Transition

new age in distributed computing. There is
a powerful belief that distributing formerly One of the proposed improvements to ethe-
centralized systems will be massively bene- reums current design involves a unique
ficial, both in removing the potential abuse technical feat that would find the network
and making them more fault tolerant. turning off its Proof-of-Work (PoW) transac-
But, distributed systems are inherently less tion validation mechanism and replacing it
efficient than centralized systems. They are with one based on Proofof- Stake (PoS).
generally also slower, more costly and more PoW is a powerful consensus algorithm
complicated. because it allows the system to prove that
This must be the case, as when data is cen- work was actually done to mine a block. PoS
trally stored, controlled systems do not need validation on the other hand, doesnt use
consensus layers. There is no computational a mining process. Holders of the networks
power that needs to be spent to align the tokens own stakes in the network based on
state of a centralized database across a percentage of ownership, and vote to vali-
broad system. date and include blocks in the blockchain.
This challenge is one that faces all public But, there are problems with PoS systems
blockchains, and ethereum offers no specific today. Should powerful forces gain the ma-
or special solution to this dilemma, at least jority of ethers on the network, PoS could
today. ensure these actors continue to have an out-
sized influence on the network. This would
Yet, there are ideas being developed to create a new upper class reminiscent of the
attack this issue. From sharding and state landed gentry, a term that refers to a British
channels to changes in the consensus algo- social class able to support its lavish lifestyle
rithm, serious efforts are underway to find purely from rental income.
solutions that could allow ethereum to mas-
sively scale. But, there are benefits as well. If joining the
network can be simplified, requiring only
that the user download a program and hold
a balance of ether, barriers to entry in the

form of costly equipment can be all but elim- Since there is no mining, and little resource
inated. is used to validate transactions, it becomes
comparably easier to try and solve several
One of the architects working on this migra- versions of the blockchain at the same time.
tion is Vlad Zamfir, and he is candid about
the technical challenges of the current Eth- Caspers solution to this involves bonding.
ash protocol, which he said doesnt scale. Validators must post value in the form of
ETH into a smart contract that monitors
Put more simply, he said: Everything about their validation process. By putting value on
ethereum is going to have to change. the line, the incentive to cheat and vali-
date multiple chains is eliminated by mak-
ing it more costly to lose the bonded value
Casper pledged than it would be to gain a reward
through cheating.
Zamfir has so far spent 11 months research-
ing, studying and testing out concepts to Casper is being built to monitor the nodes
enable the eventual transition to PoS con- and detect dishonest actions. When Casper
sensus. In August 2015, he made public a recognizes a cheater, it executes the con-
proposal for a new consensus algorithm tract to permanently confiscate the posted
that would be known as Casper, the name a bond, and bans the node from becoming a
nod to the fact that it is an adaptation of its validator in the future.
existing GHOST mechanism, which replaces
There will be several key benefits to this sys-
miners with validators.
tem, according to Zamfir:
These nodes estimate (based on what they
A focus on CPU power rather than GPU
can observe of the network) how the net-
power, making the network more egal-
work state should look were they to verify
itarian
all contracts, transactions and changes in
Better support for lightweight clients
the ledger that have occurred since the last
The capacity for more transactions per
point of consensus. They then broadcast that
second
guess to each other and evaluate what other
The possibility of even faster block
nodes are broadcasting to them.
times.
As nodes recognize each others guesses, or
votes, they begin to coalesce around a single
network state. When the nodes are in agree-
State Channels
ment to some mathematical level, the net- One partial solution, which doesnt actually
work reaches consensus, and then records scale the core protocol but does effective-
are updated in all nodes, including those that ly arrive at an improvement, involves state
are not validators, and those validators who channels. Put simply, state channels are
have not yet reached the same conclusion. a method of conducting transactions that
One dilemma that has emerged has been could occur off of the main blockchain. This
termed the nothing at stake problem, is a critical component that would be needed
whereby PoS validators have nothing to to scale the ethereum protocol.
lose by voting for more than one blockchain If state changes can be moved off of the
history, which in turn precludes consensus.

ethereum blockchain, significant scaling be- ronment, implementing this architecture

comes possible. It does, however, have to be becomes more difficult, albeit comparably
done carefully to ensure that it doesnt add beneficial.
risk to the networks participants.
The successful sharding of the ethereum da-
This requires some system that would lock tabase would allow for multiple blockchains
the blockchain state by form of contract. to exist within the same network so that
In other words, in order to protect the par- businesses, individuals or entities could run
ticipants in the off-chain transaction, both the equivalent of a public or private block-
parties must be able to sign off on the valid- chain (with distinct transaction validators),
ity of the transaction itself. The participants but on a platform that leverages the security
then must submit back the state created in and functionality of a public platform.
the channel to the main blockchain, and the
main blockchain must accept it as an update By sharding the network into smaller chunks,
that necessarily amends and overrides the the network state can be split, too. Each
previously reported state from the channel. account will be its own shard, which will only
be able to send or call transactions within
This would unlock the value that is being the limitations of this environment.
kept off-blockchain and allow it to move back
on blockchain, with the computational re- At the top level of the protocol, there wont
quirement for the state change having taken be any major change, but underneath there
place off-chain and without creating a sys- could be a world of difference. Instead of
temic burden. the top layer of the network having to pro-
cess each transaction and each contract, the
State channels could become a powerful smaller shards can be processed and then
solution to scaling, and have benefits in sent back to the top layer of the protocol.
other areas as well. For example, it could be There, the state of the entire ledger would
seen as a way to provide heightened priva- be updated with the processed information.
cy. In the case of disputes, parties can end
contracts without revealing what might have Until this takes place, ethereum truly cannot
taken place. be a practical platform because it is extreme-
ly inefficient. But, by distributing the compu-
tational load among the shards, ethereum
may yet become suitable for enterprise-level
Sharding applications.
Still, there is another solution being devel-
oped known as sharding that has, at the
time of the report, yet to be introduced in a Development Timeline
public blockchain.
Ethereum has differed from other open-
In a sense, sharding attempts to leverage source blockchain projects in that it present-
the insights of traditional database sharding, ed a detailed overview of its long-term road-
wherein portions of the full database are map early on in its development cycle.
held on separate servers as a way to spread
out the load and improve performance. First unveiled in March 2015, ethereums
timeline included four release steps, each with
When applied to a public blockchain envi- its own outline for what development changes

would be needed to implement that vision. tion of ethereums development team and its
decision-making abilities.
In the following section, we review those
steps:
Metropolis
Frontier At time of writing, the next major release of
ethereum will be Metropolis. Though no set
Described as the ethereum network in its date for the transition has been announced,
barest form, it was 19 months after the ethereum has always been a developer-led
projects initial debut that the genesis block effort, and developer-led efforts dont neces-
in Frontier was generated on 30th July, 2015. sarily stick to timelines. Metropolis will be the
Frontier was the first version of ethereum, fully-featured version of the product, aimed
one described by the organization as a beta at non-technical users, and will be the first
release aimed at developers who wanted to official non-beta version. It will also include
experiment with the projects tools. It offered the first fully functional version of the Mist
basic command-line capabilities, and provid- browser, providing a graphical user interface
ed users the ability to mine ether and upload atop the client. This version is expected to
and execute contracts. This was the tool to bring fundamental back-end improvements
stand up key components of the ecosystem and upgrades to Solidity. In many ways, Me-
such as exchanges and dapp development tropolis will represent ethereum version 1.0.
projects.
Serenity
Homestead
It wont be until Serenity that we reach what
At time of writing, the most recent milestone the community is calling ethereum 2.0, a
cleared by the ethereum team, Homestead version of the platform thats ready to scale.
was described as the first production ver- Serenity will see major and fundamental
sion of the network. Released on 14th changes in the way that ethereum functions
March, 2016, Homestead still features a com- as a platform and protocol. The first of these
mand-line interface, but was framed as the changes will be a migration away from the
first commercial iteration of the technology. consensus algorithm currently underlying
Homestead was automatically introduced the ethereum blockchain. Ethereum will
at block number 1,150,000 on the ethereum fork from a bitcoin-like PoW mining process
blockchain. Perhaps most notable about the to one whereby holders of ethers validate
launch was that it required the ethereum the state of the network through a voting
community to undergo the hard fork, a pro- mechanism. In addition to the switch to PoS
cess by which a change was made to the net- consensus, Serenity also plans to introduce
works consensus algorithm that invalidated scaling solutions including sharding and
a past rule, rendering nodes incompatible state channels to the ethereum protocol.
unless they upgraded. The feat further came
at a time of deep contention within the
bitcoin community about its ability to make
such a shift, and was widely seen as a valida-

Technical
Infrastructure
& Key Players
The infrastructure of the ethereum project A major difference is that while bitcoin cre-
in many ways mirrors a core ethos of the ator Satoshi Nakamoto abandoned the proj-
project itself by being broadly distributed. ect at an early stage, ethereum has arguably
been fueled by the active involvement of its
Ethereum is a massive undertaking, led pri- creator, Vitalik Buterin, and the development
marily by its developers, but relying on dis- team can be seen as having a comparably
tributed efforts of a diverse community. more defined structure.
Two of the more often cited core developers
Developer Leads include Gavin Wood (formerly the projects
lead C++ developer) and Jeffrey Wilcke (its
While ethereum may not have an anony- lead Go developer). Other prominent de-
mous creator at the heart of its origin story, velopers include several employed by the
there is certainly no shortage of mystery Ethereum Foundation. These are director of
about the project. technology Taylor Gerring; JS client develop-
er Martin Becze; lead dapp developer Fabi-
Members of the ethereum community tend an Vogelsteller; Mist developer Alex Van de
to be elusive when discussing its early his- Sande; and Swarm developer Viktor Tron.
tory, though its an open secret that there
have been changes to its membership. The In some cases, the Ethereum Foundation
original thread introducing the project on provides a mediating role in managing de-
the Bitcoin Talk online forum, for example, velopment needs. For instance, when Wood
has been modified since its original publish- departed in early 2016 to focus on a new
ing, with the full list including the names of startup project, Christian Reitwiessner, the
developers and architects who have since creator of the Solidity language, was appoint-
moved on to other, unrelated projects. ed by the organization as his successor in
managing C++ development.
Some of the prominent members, it should
be noted, have stayed in the ecosystem after Development of ethereums main code, howev-
leaving positions with the Ethereum Founda- er, remains a community driven effort, and as
tion, a development that is fueling growth in such, gaining a sense of the composition of the
its nascent startup community. projects development community is difficult.

All that said, there are clear leaders in the ects are inspiring developers, overcoming
community like Buterin himself, who while challenges in the wild, inspiring research
holding no official power over a number of papers, grabbing global headlines and oper-
implementations, clearly have influence, not ating without the backing of a conventional
assigned, but earned through thought lead- corporate structure.
ership and continued effort.
In the following section, we explore some
early and notable examples.
The Ethereum Foundation
The leading organization behind the ethe- The DAO
reum project, the Ethereum Foundation
(Stiftung Ethereum) was established as a The most prominent ethereum project yet
non-for profit company in June 2014 in Zug, launched, The DAO was a DAO designed
Switzerland. Zug, a small city of 24,000 peo- to collect ether investments and distribute
ple, has made a concerted effort to help those funds to projects voted on by an open
drive its local economy by taking a progres- community of donors and members.
sive stance toward such projects. In its short lifespan, The DAO amassed up-
The Ethereum Foundation is the entity which wards of $160m denominated in ether, and
issued the initial ether sale, and it was cre- saw a number of proposals put forth for
ated to oversee this process, manage fund- voting, though none were passed. The DAO
ing for development and pay back debt the quickly emerged as a magnet for academic
effort had incurred through legal bills in the criticism about how DAOs should be de-
run-up to its launch. signed and their participants incentivized.
The non-profit has an ongoing effort to orga- At time of publication, however, the project
nize and coordinate the community, manag- had effectively collapsed following an inci-
ing accounts on Meetup, YouTube, Twitter, dent in which an attacker was able to exploit
Q&A forum Stack Exchange and Facebook. a functionality in The DAOs code. Called a
While the Ethereum Foundation has very recursive call exploit, the attacker effective-
little actual formal influence on many of the ly requested funds from The DAO repeat-
projects in the space, there is a high degree edly, and the contract approved these fund
of cross-over between those who work at requests without first checking the balance.
the Foundation and those involved in other At time of publication, ethereum developers
prominent projects. were considering a number of possible solu-
tions to the loss of customer funds. These
included a hard fork, or alterations to ethe-
Decentralized Projects reums code that would effectively reverse
the hack, and a soft fork, which would enact
While just halfway through its planned roll- code preventing the stolen funds from being
out, ethereum has already seen a number of redeemed.
projects emerge that are seeking to bring its
core concepts to life. While live, approximately 10m DAO tokens
changed hands daily on the ethereum net-
Far from just theory, ethereum-based proj- work.

Other DAOs Augur

At time of publication, a number of smaller Positioned as the first open-source, decen-
DAOs have raised funds in ether or are in tralized prediction market, Augur seeks to
early stages of development, and trends in enable its global users to bet on the out-
this market were beginning to take shape. come of future events, with the goal of en-
couraging collective forecasting.
Digix, a DAO meant to create a gold-tracking
asset for ethereum, raised $5.5m in March in The development team aims to use the
a crowdsale. MakerDAO, likewise, intends to decentralized nature of blockchains to avoid
launch a stablecoin with a fixed value that issues that have historically plagued predic-
can enable a credit-based monetary system tions markets, with centralized management
on the network. seen as a point of failure that allowed earlier
efforts to be shuttered by global govern-
This formation, in which a team of devel- ments.
opers raises money to deliver code that
can then be managed by a diversity of Augur is rare among ethereum projects as
participants, seems most common among it intends to leverage multiple blockchain
entrepreneurs seeking to launch products technologies as well as the bitcoin currency
or exchanges centered on ether trading or to facilitate its operations and thus provides
investing. a compelling example of how future projects
could leverage similar designs.
Other notable projects that dont quite fit
into this framework include Golem Project,
which is building technology that would
allow users to trade the idle time of their
computers, and Augur, a decentralized pre-
diction market.
How Augur Uses the
Ethereum Blockchain
Augur uses ethereum to remove
the need for users to trust counter-
parties, reduce costs and make the
platform resilient against central
points of failure. The platform auto-
mates the custodianship of funds as
well as the trading and settlement
of these funds through smart con-
tracts on ethereum, and by virtue of
its design, allows all of it to be done
with minimal trust.

How Augur Works

Augur requires a lot of ethereum calls. Its not uncommon for a
user to automatically make hundreds of RPC calls; or messages
sent between the user and ethereum nodes, during an instance
of using Augur. These calls are free, although they consume
bandwidth and time.
Lets take the following example:
An Augur user wants to bet that a Republican nomination for the
US presidency will be named the partys nominee. On 11th April, the
candidate had received 30% of the vote necessary for the nomination
and ETH was valued at $15.
A user would make a bet on this future outcome, paying $0.30 per
share in ETH, that it will come to pass. If this user bought 1,000
contracts, and his nominee was victorious, he or she would receive a
payout of $300.
How does this work?
STEP 1:
An Augur user submits a bid or ask order. Orders are executed
if another trader will match or offer better terms. Augurs mid-
dleware handles the various serialization, networking and for-
matting tasks required to communicate the order from the web
application to Augurs ethereum smart contract, and sends a
success/failure confirmation back to the user interface.
STEP 2:
The market reaches its end date. Augur users collectively report
what happened to the blockchain using a commit and reveal
encryption scheme that keeps reporters from knowing how oth-
ers voted.
STEP 3:
Traders in possession of prediction market shares receive (or
dont receive) automated payouts according to the outcome de-
termined by Augurs reporting system. This functionality is facili-
tated through Augurs middleware and smart contract system on
the ethereum blockchain.

Startups Akasha >
Though in its early stages, the first wave of ethereum Backfeed >
projects is being observed with interest by venture
capital firms with an expertise in the blockchain do- BlockApps >
main, with some receiving seed-level investments to
develop more mature business strategies. Colony >
While a positive indicator, it remains to be seen what
role venture firms will play in the development of the ConsenSys >
ethereum startup ecosystem as whole, given that the
platform was meant to encourage the launch of com- Ether.camp >
munal projects incorporating the new governance
structures its design and technology make possible. Ethcore >
One early trend is that more traditional startups in
the ecosystem are seeking to position their platforms Otonomous >
as enablers of ethereum DAOs and decentralized
projects either through ancillary services or special- Plex.ai >
ized technologies. This differs from the historic rollout
of the bitcoin network, as many startups sought to Provenance >
develop key infrastructure (exchanges and wallets)
intended to be used directly by consumers. Slock.it >
Here are some of the more notable companies to yet
emerge: String >

Akasha Backfeed
Headquarters: Zug, Switzerland Headquarters: Tel Aviv, Israel
Venture Funding: N/A Venture Funding: N/A
Investors: N/A Investors: N/A
Number of Employees: 3 Number of Employees: 8
Founded by Bitcoin Magazine and Backfeed seeks to launch a social
ethereum co-founder Mihai Alisie, operating system for decentralized
the Akasha Project is using ethe- organizations on top of the ethe-
reum and the Inter-Planetary File reum network. Its core product is a
System (IPFS) to explore how block- unique consensus protocol that en-
chain-based systems could play a visions how bitcoins mining system
role in eliminating censorship on might be reimagined to empower
the Internet. and incentivize a new wave of col-
laborative, digital projects.
The project is envisioned as a de-
centralized version of the blogging Notable milestones:
platform in which users would
publish, vote for and share content MAY 2015 Backfeed is founded by
distributed on a large, distributed Matan Field, the founder of decen-
network of servers. A beta version tralized, blockchain-based rideshar-
is expected to be launched in Q3 or ing startup LaZooz.
Q4 2016. JANUARY 2016 Backfeed Magazine
Notable milestones: officially launches. The proof-of-
concept is designed to implement
MAY 2016 Akasha unveils its aspects of the startups governance
product on World Press Freedom and incentivization tools for content
Day, opening signups for its alpha curation.
release.

BlockApps Colony
Headquarters: New York, USA Headquarters: London, UK
Venture Funding: Seed Venture Funding: 150k seed
(Undisclosed)
Investors: Undisclosed
Number of Employees: 8
Number of Employees: 12
Positioned as a platform for online
BlockApps aims to enable enter- freelancers, Colony intends to dis-
prise businesses to launch private, rupt the $4.4bn freelancer market
consortium or public blockchain currently occupied by talent mar-
applications through a full-stack ketplaces such as Upwork Global.
blockchain infrastructure solution.
Colony foresees a future wherein
The companys signature offerings more skilled professionals operate
are STRATO, a single-node block- as freelancers without full-time
chain instance that uses a RESTful benefits, and it seeks to help these
API to serve as a developer sandbox individuals better leverage their
for ethereum applications, and Bloc, reputation as a means to build
a web application software devel- value in their work and earn more
opment kit that supports ethereum frequent employment
smart contracts.
Notable milestones:
Notable milestones:
MAY 2016 Colony is awarded the
FEBRUARY 2016 BlockApps is $10,000 grand prize in a startup
named the first public partner of competition at CoinDesks flagship
opensource tech giant Red Hat, conference, Consensus.
joining its OpenShift Blockchain
Initiative.
MARCH 2016 BlockApps becomes
the first certified offering on Mi-
crosofts Blockchain-as-a-Service
(BaaS) offering in its Azure cloud
computing platform.

ConsenSys Ether.camp
Headquarters: New York, USA Headquarters: New York, USA
Venture Funding: N/A Venture Funding: Seed
(Undisclosed)
Investors: N/A
Number of Employees: 80+
Number of Employees: 1-10
Founded by ethereum co-founder
Joseph Lubin, Consensus Systems A company that grew out of Con-
(Consensys) is a decentralized appli- senSys hub-and-spoke develop-
cations studio that offers developer ment model, Ether.camp primarily
tools for users seeking to launch ap- offers technology tools, including
plications on the Ethereum network. an integrated development environ-
Employing a unique hub-and-spoke ment that serves as a sandbox for
business model, ConsenSys func- developers.
tions as a collaborative collective
of entrepreneurs seeking to design On the technology front, Ether.
and commercialize their works. The camp provides a studio for smart
organization has also created core contract prototyping as well as a
technology used by the community. Java implementation of the ethere-
This includes the Haskell and Java um protocol.
ethereum clients, the Truffle JavaS- Elsewhere, Ether.camp provides
cript-based development framework network transparency tools similar
for ethereum, a lightweight wallet to that of bitcoin industry startup
and a persona management system. Blockchain, enabling users to both
Notable milestones: gain insight into publicly available
data about ethereum and track con-
OCTOBER 2015 ConsenSys is the first tracts on the network.
technology to be included as part of Mi-
crosofts BaaS offering, a development Notable milestones:
sandbox for enterprise businesses. OCTOBER 2015 Ether.camp is
APRIL 2016 The startup partners among the first projects to have its
with green energy startup LO3 on an technology made available in Micro-
effort called TransActive Grid that fa- soft Azure.
cilitates the sale of renewable energy.
APRIL 2016 Insurance giant John
Hancock begins working with Consen-
Sys on blockchain proofs-of-concept.

Ethcore Otonomous
Headquarters: Mittweida, Germany Headquarters: Singapore
Venture Funding: $750k Venture Funding: Undisclosed
Investors: Blockchain Capital, Investors: Undisclosed
Fenbushi Capital Number of Employees: 12+
Number of Employees: 11-50 Otonomous is focused on enabling
startups to form and manage their
Led by ethereum co-founder and firms on the blockchain in ways that
former project CTO Gavin Wood, model traditional corporate struc-
Ethcore develops software solutions tures.
for enterprise businesses and finan-
cial institutions that want to leverage Startups will be able to use Oton-
the networks technology as well as omous tools to set up a company,
the firms subject expertise. allocate tokens representing owner-
ship, create vesting schedules and
The startup offers a premium ethe- track and manage the distribution
reum client called Parity, which of those shares via cap table man-
processes blocks on the network agement software connected to the
performing tasks including database blockchain.
population, EVM code execution,
proof-of-work verification, receipt Notable milestones:
verification and transaction signa-
ture checking. N/A Otonomous is still in stealth
mode with plans to launch publicly
It further intends to embark on the in the coming months.
creation of application-level librar-
ies for developers, while adding IoT
features to its Parity roadmap.
Notable milestones:
JANUARY 2016 Ethcore begins work-
ing with French bank BNP Paribas to
explore use cases of blockchain technol-
ogy.
APRIL 2016 Ethcore releases version
1.0 of its Parity client, the first compo-
nent of its blockchain technology suite.

Plex.ai Provenance
Headquarters: Ontario, Canada Headquarters: London, UK
Venture Funding: N/A Venture Funding: $65k+
Investors: N/A Investors: Everledger
Number of Employees: 4 Number of Employees: 5
Co-founded by a former Deloitte Supply chain startup Provenance is
consultant, Plex.ai aims to use leveraging the ethereum blockchain
artificial intelligence, ethereum and to deliver services that aim to pro-
machine learning to create a plat- vide transparency and visibility into
form that would enable auto insur- the global shipment of goods.
ance providers to obtain remote
driving data from customers. A Provenance uses ethereum as a
stealth-mode company, Plex.ai has way to authenticate data in instanc-
been accepted into Velocity, a start- es where trust in that information
up incubator led by the University could be a key driver of value. For
of Waterloo. example, it is working with the local
fishing industry in Indonesia to cre-
Notable milestones: ate ways for these professionals to
authenticate catches.
N/A Plex.ai is still in stealth mode.
Notable milestones:
SEPTEMBER 2015 Everledger wins
30,000 at a FinTech competition
hosted by BBVA.
DECEMBER 2015 Allianz France, a
subsidiary of insurance giant Alli-
anz, begins working with Everledger
on blockchain proofs-of-concept
and use cases.

Slock.it String (formerly Koinify)

Headquarters: Mittweida, Germany Headquarters: Mountain View,
Venture Funding: N/A California, USA
Investors: N/A Venture Funding: $1.4m
Number of Employees: 1-10 Investors: Amino Capital, FBS Capi-
tal, IDG Capital Partners, Zhen Fund
Focused on using ethereums tech-
nology for applications in the Inter- Number of Employees: 11-50
net of Things (IoT) and founded by
Stephan Tual, Slock. it has created String is seeking to lead the devel-
a compact computer optimized to opment of an alternative financial
participate on the ethereum net- environment for ethereum applica-
work, which can interact with a tion developers that functions as an
hardware lock. alternative to major stock exchang-
es.
The aim is to secure physical assets
with the lock, ranging from apart- Formerly a startup centered on
ments to bikes. helping decentralized applications
raise money through token sales,
These will then be rentable by their String pivoted in 2015 to focus on
owners to others via the ethereum developing code for a synthetic
blockchain. The computer will regis- asset market called the Mirror Asset
ter the unlocking and locking of the System, which will use smart con-
device on the blockchain, triggering tracts and blockchain technology to
payments between participants. replicate existing financial assets.
Notable milestones: Notable milestones:
MARCH 2016 Slock.it partnered with SEPTEMBER 2014 Koinify raises
German power company RWE to en- $1.2m for decentralized application
vision how ethereum smart contracts crowdfunding platform, with inves-
could be used to both authenticate and tors including IDG and zPark Ven-
manage the payment process for users tures.
of electric vehicle charging stations.
NOVEMBER 2015 Koinify relaunch-
MAY 2016 Slock.it played a role in es as String, detailing its vision and
authoring the code for the fast-growing announcing its advisory board.
distributed autonomous organization,
TheDAO.

Conclusion
So, how do we parse this idea of a world This release remains, in all likelihood, a ways
computer? Is this the future of contracts, off. In the meantime, there is a significant
digital applications, value exchange and risk of fatigue in the community as there is
more? already a great deal of focus, and a seeming
desire, for ethereum to be used as a fully
Bitcoin exposed the world to the idea of trus- deployable and scalable network today.
tless data structures, and gave us a glimpse
of the future. Surely, ethereum is giving us a At time of publication, ethereums develop-
better view. Iteratively, it is a fantastic step ment community is effectively at a cross-
forward, but it isnt there yet. roads. With millions in investor funds com-
promised in The DAO attack, all eyes remain
The switch from PoW to PoS could come to on its core developers.
greatly reduce the computational load of the
network, and distributed storage solutions The team faces a difficult choice. Whether
and state channels could greatly expand its they decide to negate the valid transaction in
capabilities. But right now, these solutions a bid to rescue investor funds or choose not
are still in development, and as such, they to intervene on philosophical grounds, the
may not come to their intended fruition. decision will have ramifications. Ethereum is
now writing blockchain case law in real time.
This realization should not be seen as a
fatal issue, as there is no need to have every Can ethereum navigate this potential fork in
interaction in the world take place on the the road and the challenges ahead? While
ethereum protocol. But, in its current state, the future is always uncertain, the real ques-
ethereum is not a scalable platform. tion is whether, in ethereums case, it will be
truly ethereal, or if its technology can adapt
Ethereum today may be best viewed as a to the needs of the real world.
proof-of-concept that was designed to serve
as a stepping stone for what would become
an ethereum 2.0 with the release of Serenity.
At that point, we may finally see a scalable
iteration of the network.

Appendix: Getting
Started With
Ethereum
To begin using ethereum, users need a Pyethapp. A Python implementation that
piece of software called a client that can includes mining and virtual machine ca-
run contracts and communicate with other pabilities. This has been subcontracted to
computers using those protocols. a team at Brainbot, led by Heiko Hees.
There are multiple clients written in different Ruby-Ethereum. A version written in
languages, which helps to broaden support the Ruby web application programming
for the network. Having multiple teams language
implement the protocols also helps to make
them more reliable and robust. There are
several clients that run on top of the wallet, Writing Solidity
offering additional features, the more nota-
ble of which are outlined below: Most contracts written in Solidity will be
intended (like gears in an engine) to interact
Cpp ethereum. Led by Christian Reitwi-
with other contracts, meaning coders must
essner, cpp ethereum is a C++ client.
be very careful in their constructions so that
Ethereumjs-lib. An implementation in objects, or scripts, interact the correct way.
javascript.
In a sense, ethereum contracts can be per-
Ethereum (J). A Java version. ceived as needing to operate as automated
production facilities. Components need to
EthereumH. A version written in the Has- move along assembly lines linearly, and lots
kell programming language. of other functions can be employed to cut,
Go-ethereum. Written in Googles Go lan- bend, fill, punch, paint, label and otherwise
guage, this is currently the most popular work on building the intended final product.
ethereum client. Commonly called geth, Every part of the assembly line has to be in
it includes a mining component while al- sync, or the final product will not work as
lowing users the ability to create contracts intended.
and transfer funds between addresses If you are not comfortable working in com-
Parity. A low-footprint version written in a mand line, there is a simple tutorial on
language called Rust, spawned by Mozilla. http://ethtrade. org/ token that will help you

create a token. There are also step-by-step list of resources for dapp developers that will
instructions in how to implement a contract be most useful for those with some pro-
via that token. gramming background. These include tools,
code examples, development environments
Once youre more familiar, Christian Reit- and technical references.
wiessner has elaborated on the developing
social ethics and best practices of smart con- ConsenSys If you are new to programming
tract development in public presentations. and the ethereum blockchain, you might find
this Intro to Programming Smart Contracts
by ethereum startup ConsenSys useful. It
How to Learn Solidity introduces basic concepts in dapp devel-
opment, and walks the reader through one
To begin with, having a solid basis in JavaS- possible dapp development workflow.
cript will be extremely helpful in learning
Ledger Labs Another Intro to Dapp De-
Solidity. But, whether you know JavaScript or
velopment tutorial is available from Can-
not, here is a list of resources you can use to
ada-based blockchain consultancy Ledger
learn more about coding in Solidity:
Labs. While a work in progress, it currently
Solidity Documentation The most compre- walks the reader through installing Geth,
hensive resource for Solidity, this tutorial is running a local node, a basic contract design
geared toward people familiar with program- and a more advanced auction contract ex-
ming, but who may not have experience with ample.
ethereum or blockchain technology in gener-
If you are completely new to programming,
al.
you might find that you need to first learn
Ether.fund This online resource maintains the basic concepts involved in any coding.
a list of example Solidity contracts that can
Online interactive platform Codeacademy
be a useful resource for developing your
has free interactive tutorials that will teach
own contracts or understanding how dif-
you the basics of JavaScript, the language on
ferent methods of creating contracts work.
which Solidity is based. While the details and
Ethereum
syntax will be different, many of the basic
Github Wiki A community-maintained wiki concepts you will learn are applicable in
for the technology, this resource contains a Solidity.
ERIC BONDI JEY SHIN JACK WOOD MICHAEL

Chief Executive Business Developer, Chief FRENDOWSKI
Officer. development of IDE, Blockchain Head of Trading
manager. expert. Department.

ETHTRADE, LTD
Unit 3, Room 2207-9 Tower Two,Lippo Centre,
89 Queensway, Admiralty, Hong Kong
www.ethtrade.org

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ethtrade.

Ethtrade 2016. All Rights Reserved. 2

Ethtrade 2016. All Rights Reserved. 3

The next Internet. First introduced in 2014, ethereum can be

Ethtrade 2016. All Rights Reserved. 4

Ethtrade 2016. All Rights Reserved. 5

Project Origins coin, a user could control his or her assets

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As with the Internet, Ethereum similarly Linguistics & Scripting

The following section attempts to highlight Bitcoin has an intentionally rudimentary

Ethtrade 2016. All Rights Reserved. 8

Ethtrade 2016. All Rights Reserved. 9

is stateless, meaning there is no state pri- work need to store.

Blockchain Size Bitcoins blockchain adds new blocks rough-

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Ethereum Average BlockTime Chart

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Oracles At the time of writing, Mist is still in beta and

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Inflation Rate Gas

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The data shows that trading is still the dom-

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As of June 2016, CoinDesk Research data

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Adoption doubled since January of the same year.

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Node Distribution developer community. But, as for assessing

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While the architecture of the network is to which different floors.

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contracts working in unison that showcases

Here again, its important to note that the Autonomous agents

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cess 1 GB of ethereum transaction data in As recently as March 2016, however, one

Hashrate distribution of mining pools

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value proposition of decentralized block- Ethereum, however, has an accompany-

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Blockchain technology has ushered in a Proof-of-Stake Transition

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ethereum blockchain, significant scaling be- ronment, implementing this architecture

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Other DAOs Augur

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How Augur Works

How does this work?

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Startups Akasha >

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