ETHEREUM EXPLAINED BY VITALIK BUTERIN

ETHEREUM EXPLAINED BY VITALIK BUTERIN


okay so back back when bitcoin was originally created in 2009 Satoshi was who was really testing two things at once so the first part is there is this idea of Bitcoin the decentralized currency it’s a form of money that exists purely online and you could transfer it from anyone to anyone in the around the world instantly it was pretty much no fees you can transfer money from Kyrgyzstan to Guatemala just as easily just as quickly and just as cheaply as you can to your own neighbor and there as we have seen there are a lot of people interested in that in that innovation Bitcoin form of money has attracted a pool of a ten billion dollars of wealth over the past five years it is being accepted by over 50 thousand merchants worldwide and there we have companies like bitpay and coinbase that are injured that are trying very hard and I would say succeeding at getting Bitcoin adopted by increasingly large segments of the population and as Ryan said I think we’re only getting started but at the same time there’s also the other side of Bitcoin which is Bitcoin the blockchain so big Bitcoin the technology is this global trust free appear decentralized database it’s this database that anyone can add things to but no one key but you can’t remove anything from and it just so would now it just so happens that currency is the is the first app now these two technologies by necessity have to be married together because in order to have the decentralized database you need to have security in order to have security you need to have incentives and you need to have a currency so so really Satoshi had to take these two concepts which are really quite different and test them both at the same time now this the second side of Bitcoin the Bitcoin blockchain is something that I think has been seeing a bit less attention maybe in the first few years but interest is also picking up so here are some of the first applications of Bitcoin not as a form of money but Bitcoin as a form of distributed consensus so first one is a named coin named coin is essentially a distributed DNS system for those who do not know what a DNS system is when you go to google.com how how does your computer know which server to talk to so the answer is is that there exists this the system which Maps Google the name google.com to the server’s IP address so your computer actually first queries this domain name system and it asks hey what server is google.com and the sir and the server answers and that’s and that’s how your you’re able to talk to talk to Google server without having to memorize everyone’s IP address second second part escrow transactions so we a lot of people here I’m sure I’ve heard of the concept of multi set of multi-sig so the idea here is that you send money to say three P’s three people at once in such a way that you need two of those people to unlock the funds so what are some practical applications of that one practical application might be say consumer protection so for example if you want if I’m a merchant and I’m selling some product to you the consumer the simplest way to do that for it would be for you to just pay me and for me to send the product but what if you don’t know me and I’m not necessarily trustworthy so then what you would do is we would both agree on an arbitrator and we would and you would send the money to or two of three multi-sig between yourself myself in the arbitrator I would send the product and then at some point normally you would confirm confirm that you received the product and and the two of us together would would release the funds now if one of us disappears or one of us turns out to be dishonest then the arbitrator can stick can step in and work with the other person to recover the funds so this is essentially bitcoins alter alternative to PayPal chargeback system now then we have this concept of colored coins colored coin the idea behind colored coins I would say saw its first beginnings in 2012 so the idea there is okay you have a blockchain and you have a currency on it but what if you can put other currency on the watching as well so the idea there is this is to say I suppose that I am a goldish or I might be countable I’m ammaji metals or some some larger company and I and I wants to issue gold on the blockchain so what would I do I would take say ten bitcoins and I would and I would say each each one of these these bitcoins is also worth ten ounces of gold and and I would say it’s each one and that’s each one of these specific bitcoins and then you can actually track their specific bitcoins through the blockchain and you can treat them as sort of their own currency living and living inside the Bitcoin system and then if someone at some future point in time returns one of these colored gold coins to me then I will return to them in ten ounces of gold now then so now you have the system where you have lots of different currencies on the Bitcoin blockchain what’s the next step well let’s have a decentralized exchange between the currencies so as it turns out that this is this is actually somewhat hard to implement so it has to so the research behind it has actually taken some time to develop and we are actually seeing a lot of interesting protocols around that over the last six months now after that there’s also some other interesting ideas there’s this concept of smart property so the idea there might be what it what if you had or say a museum pass and and in the idea there was that you would issue a currency was just where that currency has one unit and if you own that unit then you can use you can use your phone and you can and you can sign a message with the private with the private key that owns that that would all currency token and then that sort of works that works as a museum pass you can use it to get into a museum if you want to if you want to sell the museum pass then you just transfer the coin to someone else and now and now they can sign it with their with their phone and they can get and they can gain access another ideas smart contracts so the idea there is that instead of having contracts that are in four that are enforced by the legal system you have contracts that in session we enforce themselves so one idea here might be a financial contract so suppose that I might want to report $1,000 worth of Bitcoin into this financial contract and then some what some other counterparty would put in $1,000 into the financial contract and then what one month later I would get $1,000 worth of Bitcoin back and the idea is what if you can have this contract in force itself so in that in that way I can essentially have a thousand dollars worth worth of value without without volatility risk on the on the blockchain without having to rely on it on any kind of centralized issuer finally there’s this idea of decentralized autonomous organizations so the idea of a Dao or as other terms you might have heard include decentralized autonomous corporations or decentralized autonomous companies decentralized autonomous communities India there is to have either a company an organization perhaps could be a company it could be something like WikiLeaks it could be something like ICANN the Internet Corporation for Assigned Names and numbers that sort of which is the organization that actually manages the IP address allocation and DNS registration and so forth what if you could have these organizations live entirely on the cloud so these organizations would still control resources but those resources would be controlled by us by a smart contract that that never expires it just keeps on updating itself so unformed so these are essentially some of the applications and there are thousands more than we haven’t even thought of now here’s just some detail about how colored coins works so you would have some issuers acquires that that’s some subset of bitcoins have have a certain color and then if you send if you send a transaction where the inputs have have a certain color then the outputs have the same color now if the inputs have mixed colors then you might have some special rules applying and then you would just trace the transactions back through the Bitcoin blockchain to determine what color they are so you could see they’re a simple diagram is that you might have color you might have green coins blue coins and red coins perhaps representing us doverton dollars gold stocks in a company whatever else and you could simply trace them through the transaction graph and figure and figure out exactly who owns the coins of each color at any given time now another more advanced idea is this concept of a meta coin so the idea behind a metal coin is this is this idea that we should treat médicos as B we should treat Bitcoin as this low level protocol like a sort of tcp/ip on the internet and then we should build other protocols on top so this other protocol would use Bitcoin just as a data layer it would put data into the Bitcoin into Bitcoin transactions and then you could see that there would be a completely separate meta corn protocol that would scan through the transaction to determine what the balances are so what are the advantages pretty theoretically pretty much no limits you could have decentralized exchange you could have savings accounts you could have advanced smart contracts you could have peer-to-peer Satoshi dice theoretically there is pretty much no limits to what can be done with this kind of paradigm however the problem problem is is that there have been there are a lot of we a lot of people think that you can that you can just implement all this stuff on top of Bitcoin but in reality there are actually serious we serious scalability issues to doing so and as I’ll explain these scalability issues are actually the reason why people have been so people have been so frustrated trying to implement this stuff a colored coins project has been worked working hard for the pet for the last 18 months and they’ve been trying to come up with extremely clever color transfer rules and to try and make things more efficient but so so the fundamental issue here is this concept of simplified payment verification so in Bitcoin as it turns out you do not need to download the entire blockchain to have a secure of a coin client you can just look for specific transactions and now Bitcoin has this mechanism called a Merkel tree that you can use where you can prove that a certain transaction exists in the Bitcoin blockchain but only download a small part of the data that you of the entire data set so the idea there is that you can’t Act is that nobody can actually Forge any part of the Merkel tree because the different the differences sort of keep on cascading upwards and eventually there’s some kind of inconsistency problem is however if you do it if you try now with Bitcoin simplified payment verification is nice and easy lots of Ikhwan clients use it it’s great with colored coins it’s actually hard because you have to trace every single transact every single transaction back all the way back through the back through the blockchain and I couldn’t you have you might need to do hundreds or thousands of simple high payment verification requests with meta coins it’s pretty much impossible every node has to process everything so here is where aetherium comes in so if your so what we’ve said was the theorem is that yes this idea that we should have HTTP on top of tcp/ip is wonderful that’s the way the internet protocol works that’s the way every other protocol works that’s that’s the way cryptocurrency protocols should work but bitcoin fundamentally was never designed to be a TC a tcp/ip bitcoin was more more designs to be an SMTP smtp being the protocol for email it’s a protocol that is that is very good at one particular test Bitcoin is very good is very good for transferring money but it was not designed as a foundational layer for other for any kind of protocols to be built on top so aetherium is there for its own blockchain so aetherium Boros from ripple this concept that we should separate the state from the transaction list so you do not need to download every single every single transaction that never happens in order to determine what the current state is and here is the fundamental part it has its own built-in programming language so the idea there is that if you look at a lot of the recent innovation in some of these so-called next-generation coins what some ones I’ve been saying is okay we want people want people to be able to do decentralized exchange on the blockchain here’s the transactions type from the centralized exchange we want people to be able to do a peer-to-peer gambling there’s a transaction type for that we want people to be able to have savings wallets or the transaction type for that we want people to be able to do escrow there’s a transaction type for that so that is that is fundamentally the wrong way to go about doing things just imagine if your computer actually had 30 hardware modules you would it would have a hardware module for solitaire a hardware module for internet internet explorer a hardware ma module for it’s for chrome hardware module for a for Photoshop that’s what that’s not the way we do things you know back in 1930 in the 1930s Alan – Alan Turing came up came up with this this concept of Turing complete programming languages where instead of having instead of specializing for each individual application you come up with a programming language and then that programming language is so powerful that you can build any application on top that can conceivably be built this is the reason why computers are so powerful today this is the reason why web browsers are so powerful today once we after we came out with JavaScript around – around 2000 you know the internet just blew up the inventors of Java scripts never intended for somebody to write Gmail on top of JavaScript or for somebody to write Facebook on top of JavaScript or for somebody to write Bitcoin wallets on top of JavaScript but javascript this programming language in of the internet browser it was a foundation for innovation and that’s why 13 years later we are still innovating today and that’s what I hope to bring to the world of cryptocurrency so what is a contract so aetherium instead of having lots of features tries to be simple it says if he really we do not have features we have just the programming language so everything that you want to implement through aetherium you would have to implement as a contract so a contract is like this automated agents that lives inside the blockchain and it has a certain amount of and it has some script scripting code built in and it can store it can store ether it can it can store currents you can store currency units and you activate a contract by sending a transaction to it so the idea is is that you can send money into contracts and you can send messages to messages to cut to contracts in order to make to make them carry out certain computations order or perhaps to authorize withdrawals or it’s or to make votes in a decentralized organization or even to make sure answers in an internal currency so out of this one built out of this one building block this one this one single Lego Blago brick of crypto see you can make pretty much anything soap aetherium script is the language this is the current scripting language that we that we have is a language it’s somewhat similar to Bitcoin script but it’s some also more powerful so we have a stack we have some operations we have but the difference is with Bitcoin is that we have memory entries and also we have this concept of storage so BIC won’t this is the other fundamental limitation of Bitcoin scripting language the kwid scripting language is binary a transaction is either spent or it’s not spent that is fundamentally extremely limiting because you cannot have if you look at something like a decentralized organization or a financial contract of any kind of complexity you cannot reduce it to this concept of is this expired or is it’s not expired so here we have contracts can have pretty much an unlimited number of number of states so you could have a contract to be at stage one at stage two at stage three you could have a contract store an entire write an entire balance sheet so right so now how about we’ll talk about a few examples of what you can do with aetherium that perhaps might be difficult to do with Bitcoin first of all named coin so here is name coin in five lines of code so what is a so this name coin this is a 60 million dollar million dollar cryptocurrency you can implement the most basic version of name point in five lines of code so this is the contract so the idea here is that four is basically it’s using contract storage so the contract the so a transaction it needs to have two data inputs the first data input is what name you want to register and the sec and the second one is what you want to register it with so that second one thing might be an address it might be some kind of might be a public key so then if some if it’s already registered then you do nothing although other otherwise you register it and that’s all it is so here’s here’s another interest the other interesting thing about aetherium is that we can work together with protocols that are not just financial so for example a nurse’s aide there’s this idea of bit message MIT message is purely peer-to-peer Oh open-source decentralized replacement for email but one of the huge problems with big messages is usability aspect because in in email you could send to some to some nice and easy email like Vitalik and etherial etherium zorg now here in was bit message there is no there are no email addresses there are these long 34 character bit message addresses nobody’s gonna remember a bit message address people don’t even want to want a bit message addresses what if you could register a bit message address inside of this namecoin contract with something nice and simple like if it’s allocated theorems org and then if i if somebody wants to send money to me their dear wallet can just look up my they can enter Vitalik at aetherium org and their clients can just look up my actual bit message address inside of this namecoin contract create your own currency now creating now a lot of people are saying like we have way too many currencies now why do we have so why do we have so many currencies now I actually think this might this is extremely powerful in a way that not many people realize here’s here’s the deal in the in the past ten ten thousand years one of one of the major political dynamics has been this concept of centralization and decentralization we all understand the benefits of the central of decentralized system will understand the idea the idea of localized markets of individuals acting independently but at the same but at the same time we understand that centralization hasn’t has has its benefits like there is and that one particular benefit there is this concept of public goods so there are a lot of things like science like scientific research like like prevent like protecting the environment like like fighting disease all these applications that are extremely valuable but their what their value is so is extremely widely distributed so that each individual would only benefit an insect and insignificant amount from each from each particular action Mart pure markets have have no way of paying for this centralized and centralized institutions do simply because they are so large that they can act that they can absorb enough of the benefit for it to be worth it for them for them to do these things so this is why we have large corporations this is why we you this is why we often we have large governments and this is why we have large nonprofits now currencies are actually a very interesting thing because creating your own current currency is actually Lee for the first time that we have something which is simultaneous we decentralized and it can find these public goods you could have a currency such that 20% say 20% of the issuance goes to P goes to people who who do mathematical research and then if people want to support mathematical research they can accept the currency that’s no car that doesn’t actually cost to them it’s not like they’re donating they’re not losing money but at the same time the more merch the more merchants the more people accept this currency the currency just naturally gained naturally gains value and people were people working on these on math problems just yet this this extra phantom value out of nowhere you could have currency is funded if that funds medical research you could have you could have currencies that are that try to find environmental applications so the idea here is that one let’s not have one currency let’s let’s have thousands of currencies and we can have this form of this sort of economic democracy through a currency system so aetherium is a platform that makes that makes it a thousand times easier to bootstrap your own decentralized currency because you can just make it as a contract hedging contracts we talked about this a bit I put in 1000 dollars you put in 1000 dollars worth of worth of cryptocurrencies or worth of Bitcoin worth of either and then a month later I get $1,000 back and you get the rest so what’s the value proposition for you you get to spend you get to speculate in favor of if they’re added to X leverage and the value proposition for me is I get secured I get security I don’t have to deal with volatility risk so this so we’ve seen for a lot of applications that are trying to say oh let’s help if people want to have US dollars on the blockchain what’s having let’s have an issuer and that issuer will issue their own currency in that currency can be redeemed for US dollars yes that is one way of doing it but you have to trust an issuer so here’s another way of do yet you would you would have a contract that listens to a Bloomberg price feed of what the you of what the value of ether in u.s. dollars is and then it automatically gives me back a constant value you know a constant value of ether a theorems internal currency but but a constant constant value measured in US dollars so here this is not trust free but this is massively reduced trust because instead of trusting an issuer all you have to trust as a price feed and you can trust like nine out of nine hundred eighteen price feeds if you want you can do for voting forwards you can do proof of proof of stake voting there are lots of ways that you can mitigate any kind of problems here decentralized autonomous organizations so what if you could have a company who is organizational bylaws instead of being enforced in the legal system are enforced what are we on the blockchain so the organization might have some capital it might have a million dollar words were a million dollars worth of ether but then you wouldn’t yeah or might even have a million the organ is a this contract might even have a million a million dollars stuck in a in a in a hedging contract so this is the other nice thing about aetherium contracts can use contracts so the idea here is that you would need two thirds of an organization’s member members in order to agree to do anything and that’s pretty much the only rule you can even have self-modifying code you can have a rule that says you need to you need the support of two-thirds of an organization’s members in order to change the rules of the organization sure and some just don’t more and more here some other interesting applications savings wallets so we talked about multi signature escrow here are some the etherium potentially offers um massively expanded versions of multisig ask or you could you withdraw limits crop insurance what is crop insurance you could have a hedging khajit you could have a financial contract off of the weather peer-to-peer gambling so you could do a peer-to-peer Satoshi dice on the blockchain the centralized exchange data storage decentralized Dropbox you can you could have a decentralized Dropbox implementation let’s anyone participate you will be able to earn money by renting out your hard drive mesh networking reputation systems you can use big big you can expand this idea of name point and turn it into an entire reputation system into a decentralized so into an entire decentralized social network and perhaps maybe even Skynet yes sure okay so I’ll repeat it yes okay so I’ll talk a bit about the about the funding model so we will have a fundraiser for two months starting February starting February 1st it will be available at funds aetherium org so will be so the idea is that part of the initial issuance will be one one thousand easier for one Bitcoin or up to two thousand ether for one Bitcoin if you get in or way to compensate for the increased risk so the issuance model is that we will fund rate suppose that we hand out X ether through the fund raiser then then there will be about zero point about 0.5 X will be pre mind and then 0.4 X after that will be mines per year forever so it’s it’s this hybrid of master core of the master coin and ripple model and the pure bit the pure Bitcoin mining model and even to a slight extents the info the inflationary model so the answer is in terms of in terms of the portion of the pre mine that has already been allocated that is vested for one year so if if any of the if any of the founders though we’ve leave the project then within the within one year then then or if and then the other founders have the right half the right during the first year to cancel the to cancel their allocation in which case that will simply be this redistributed handed back to the etherium organization as a long-term reserve and then did you have the site where the second part right sold right so will the big so at the start the Bitcoin is going is going to be centrally managed we will have will have a transparent accounting system so the big one will go towards de Ville mint it will go toward heavy security research it will go toward developing applications toward working with broad projects like bit message and toward developing things like things like incubators so we we will have models and we all release very detailed documents on how we’re going to do that over the next few days and eventually we hope to turn the etherium organization itself into a Dao okay okay I’ll yeah I will I will be just uh standing over there outside so if anyone was that’s watching for free

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