This blog is the sixth extract from our upcoming eBook, “A Short History of Bitcoin Myths”. Register your interest, and we'll send you an invitation to download your complimentary copy as soon as it becomes available. You can also read other extracts over here:
Part 1: A Short History of Bitcoin Myths
Part 2: The Genesis of Bitcoin
Part 3: Myth I - Crypto Anarchy
Part 6: Myth IV - Ethereum is a New and Improved Bitcoin
Part 9: The Rebirth of Bitcoin
Around 2016, the Ethereum project and its token saw a monumental rise to stardom. At present many believe Ethereum to be a uniquely valuable blockchain project, even holding the potential to eclipse Bitcoin. Ethereum-advocates provide compelling visions that describe the project as a ‘decentralised world computer’, a ‘supercomputer network’, and an inter-operable blockchain.
Could Ethereum be all that and a cup of tea? Let’s dig into the project’s history and the shape it's taken since, and you can decide for yourself.
At a time when Bitcoin Core developers resisted fulfilling the Original Bitcoin protocol’s full promise on the BTC network, Vitalik Buterin, a Russian-Canadian programmer and Bitcoin writer decided to go it his own way. In late 2013, a 19-year old Buterin published a whitepaper that described a new and adapted version of Bitcoin, called Ethereum.
Ethereum would focus on tokenisation (the creation of new cryptocurrencies and programs on top of a single blockchain), smart contracts and other features he deemed essential for the developer community.
“Ethereum is a platform and a programming language that makes it possible for any developer to build and publish next-generation distributed applications.
Ethereum can be used to codify, decentralise, secure and trade just about anything: voting, domain names, financial exchanges, crowdfunding, company governance, contracts and agreements of most kinds, intellectual property, and even smart property thanks to hardware integration.
Ethereum borrows the concept of decentralised consensus that makes bitcoin so resilient, yet makes it trivial to build on its foundation.”
By 2016, Ethereum hosted numerous other tokens on top of its blockchain. It had become known as an inter-operable blockchain and a software development hub. The Ethereum community kept growing and funds kept rolling into the project as more tokens launched on top of the network. During this period, a German company utilised Ethereum’s platform to run a crowdfunding venture on top of Ethereum, raising capital to launch an investment fund called the DAO (decentralised autonomous organisation). By 15 May 2016, the DAO had raised more than USD $100 million winning the world’s attention for being one of the largest public fundraisers in history.
Though the success story was short-lived (the project got hacked a month later due to faultily coded smart contracts, causing numerous controversies), the tale of raising business capital from the public sparked thousands of entrepreneurs to create their own projects on Ethereum. Public investors had also gotten a taste of something they liked. Where national regulations exclude the largest proportion of the public from participating in corporate fundraisers, Initial Coin Offerings (ICO’s), as they became known, welcomed everyone to wager their cash on the success of a new business venture.
By May 2017, the promise of vast returns on cryptocurrency investments had turned into a market frenzy. Despite regulators’ attempts to intervene on several occasions, the ICO market kept topping new records until the very end of the 2018/2019 cryptocurrency bull market, with the price of the Ethereum token hitting an all-time high of more than $1,300 in January 2018 - a whopping 1,292 percentage increase from the previous January.
It’s now June 2019 and cryptocurrency markets have convincingly recovered from the bear market. The price of Bitcoin (BTC) has embarked on a dizzying climb, and along with it, the market price of Ethereum and ERC-20 coins (Ethereum hosted tokens).
This time around, a staggering 192,871 Ethereum-based projects (source: Wikipedia, June 14, 2019) are offering unregistered investors the chance to fund the development of the Ethereum Supercomputer Network. In return for their high-risk investment, participants are promised vast fortunes.
The chance to invest in a groundbreaking technology that’s about to transform the world. No application process required and no investment limits applied - what a wonderful opportunity!
But is it really?
Let me cut to the chase.
Anyone with a bit of coding knowledge can launch their own Ethereum-based token and a related ICO in less than 20 minutes (some tutorials promise it will take less than 4 minutes!) if they wished.
No coding knowledge? No problem! There’s an application and a tutorial for that scenario as well!
In the traditional investment industry, value investors go through the painstaking process of valuation: assessing a company’s financial statements, asset valuation, the quality of leadership, and the economic sector. The valuation digs into data such as the business’s ability to sustainably generate cash, quality of earnings, the calibre of leadership, management, and experience, and the risks that are inherent to that industry. A high risk/reward ratio might be lucrative to those who can stomach the uncertainty, but certainly “not for widows and orphans”.
When it comes to the cryptocurrency sector where anyone can create a token and launch a fundraiser, there’s zero historical data to consider, proof of product development is usually absent, and its founders rarely have a track record for investors to evaluate. In many cases, ICO’s raise funds based on no more than the persuasiveness of a whitepaper’s promise.
While I’m not saying that every single Ethereum-based token is just air, the lack of qualifying criteria for launching an ICO, the absence of accountability of ICO founders, and Ethereum’s reputation as supercomputer network, makes it an excellent lure for scam artists and really anyone who can dream up a business idea.
The proof is in the post-ICO survival rate:
Only 44 per cent of cryptocurrency projects survive 4-months past ICO-stage (source: Boston College Carroll School of Management).
In December 2018, the CFTC (U.S. Commodity Futures Trading Commission) asked for public feedback (“Request for Input) on different questions about Ethereum, ranging from its technology to how it’s used. Dr Craig S Wright, self-proclaimed founder of Bitcoin and presently the Bitcoin Satoshi Vision project, responded to the request, including the following in his statement:
“Ethereum is a poorly designed copy of bitcoin designed with the purpose of completing the promise of smart contracts and scripting that were delivered within bitcoin but which were hobbled by the core developers of bitcoin who sought to enable anonymous transactions to exist within the system.”
When asked about the claim that Ethereum tokens provide access to the power of a type of ‘supercomputing mechanism’ in an interview, Wright doesn’t beat around the bush:
“There is no such thing as a token for a supercomputing mechanism. That’s a scam and a lie. There isn’t one. There is not one token that gives you a single compute cycle for less than a million times the cost of something now. You would actually be more efficient to buy a Raspberry Pi than you would be to buy a thousand compute cycles on Ethereum.”
We’ve been here before and we’ll arrive at this point again. The Ethereum Supercomputer Network is little more than a new and revised version of Penny stocks, Pink Sheet, and Ponzi scams.
The Original Bitcoin Protocol has the utility to encompass all that Ethereum can do - and more. So much more! Although developers have purposefully throttled and undermined its full capacity over the years, Bitcoin’s full potential is presently being unleashed through the restoration of the original protocol under the guidance of the Bitcoin SV (BSV) community.
While BSV’s cash utility has the potential to transform financial accounting on all levels, it’sbut the tip of the iceberg. As an immutable and fully-transparent data communications network, Bitcoin can serve as infrastructure for an unimaginable number and variety of applications.
To illustrate the potential inherent in the Original Bitcoin protocol, Jimmy Nguyen (nChain, Founding President of the Bitcoin Association and Bitcoin SV advocate) points to the flood of new applications and creativity that has been sparked by the restoration of the protocol under BSV:
“The great thing that the recent lifting of the op_return data size limit has revealed is the explosion of creativity that even we could not have predicted. If you had kept that data size limit small, no one would be thinking about putting Instagram on chain on Bitcoin and how it could be monetised, or that it could lead to fascinating new use cases (like this Bitcoin-based browser). The Bitcoin SV mission and Craig Wright's mission, in particular, is to create the infrastructure (the base layer, the protocol, the plumbing) to enable a whole new world of uses.”