Review of Ethereum (ETH)


Andrew Rosenbaum
Senior Content Specialist
Andrew Rosenbaum has been a financial journalist for more than 15 years. He has worked for Euromoney, Institutional Investor, Time magazine, MSN Money and the Wall Street Journal before joining… Read more

Ethereum is two things.

  • One: It is a cryptocurrency called Ether which you can buy on the exchanges just like any other. Ethereum runs Ether on the blockchain, the distributed network on which each block is verified separately using mathematical algorithms. The blockchain is ‘trustless’; it provides absolute proof of transactions.
  • Two: Ethereum is a decentralized platform that runs applications, also on the blockchain, and as a result these applications are also trustless. They perform exactly as programmed without any possibility of downtime, interference of hacking, fraud or forgery of transactions. These apps are called smart contracts. As the Ethereum website notes: “On a blockchain, anyone can set up a node that replicates the necessary data for all nodes to reach an agreement and be compensated by users and app developers. This allows user data to remain private and apps to be decentralized like the Internet was supposed to work.”

The concept of Ethereum was first brought to the fore by Vitalik Buterin in 2013. Buterin, a developer, created a group of technicians around the concept who made it happen in  July 2015. Since then, the Ethereum token has risen sharply in value, reaching about $1350 at this writing.

In 2016, a dispute arose around a set of smart contracts called the Decentralized Autonomous Organisation, from which money was stolen. The dispute led to a split among the Ethereum developers, and the issue was only resolved when a group launched their own currency, Ethereum Classic, now at about $30 (there was a so-called ‘hard fork’ in which all the owners of Ethereum received a certain amount of Ethereum Classic).

But the original Ethereum continues to grow as more and more new companies are created which use the smart contract concept. According to a report from Deloitte, smart contract VC-related deals totaled $116 million in Q1 of 2016, more than twice as much as the prior three quarters combined and accounting for 86 percent of total blockchain venture funding.  

Companies choose to work with smart contracts because they are almost risk-free, fast in execution and they automate tasks which otherwise would have had to be performed manually.

The result is that they are being integrated into major companies around the world.

An Ethereum-based organization has raised over $150 million to experiment with and develop smart contract-driven applications, the Deloitte report says. The Post-Trade Distributed Ledger Group, an organization launched to explore post-trade applications on the blockchain, has 37 financial institutions as members. Five global banks are building proof-of-concept systems with a trade finance and supply chain platform that uses smart contracts. Barclays Corporate Bank plans to leverage a smart contract bill-of-lading platform to help its clients reduce supply chain management costs. And even the State of Delaware plans to use smart contracts for its administration.

But there is another element to the success of Ethereum. The Ethereum token has given rise to an international standard, the ERC20 token. New companies use the ERC20 token, give it their own name, and link it to a smart contract which then is the basis for an Initial Coin Offering (ICO). The vast majority of ICOs today use ERC20 tokens, and, while there is no formal statistic, experts estimate that about $2 billion has been raised using them.

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