Before it was “Facebook,” Mark Zuckerberg’s social network was known as “The Facebook.” At one point in time, the “Anaheim Ducks” were the Walt Disney Company’s “Mighty Ducks.” Not even “Snapchat” remains – now rechristened as “Snap.” Over time, names must evolve to meet the needs of organizations and communities. Virtual currency is no exception.
It’s ironic that the cryptocurrency community revolves around consensus, and yet we haven’t standardized our own vocabulary. Gaps in nomenclature are filled with various terms because oftentimes, it’s easier to convey what something does than what it is. Depth of understanding is ultimately constrained by the lack of common terms. In turn, this inhibits collaboration, imagination, and innovation. With all the talk of scaling blockchains and improving algorithms, we must realize that one of the greatest barriers to adoption remains our own ambiguous terminology.
Two of the most problematic terms in the cryptocurrency community are “smart contract” and “initial coin offering.” Here, we will examine the usage of these terms and provide appropriate alternatives.
EDCCs versus “Smart Contracts”
In the cryptocurrency community, the phrase “smart contract” has arisen to describe code that functions on a blockchain. Unfortunately, this widely used term is a bit of a misnomer. Let’s break it down.
What is a smart contract?
The term “contract” could be easily replaced with “object” or “code.” However, “contract” implies some legal standing. At its core, the purpose of the code on a blockchain is to establish a relationship between two parties and provide a set of parameters for their interaction. Although this is remarkably vague, “contract” actually seems quite apt.
At ETHNews, we are more concerned by the five-letter descriptor that precedes contract.
The adjective “smart” implies intellectual achievement and suggests the dynamic nature of an underlying tool. “Smart” may suggest to users that code invokes artificial intelligence or big data. But, in practice, a “smart contract” is notable for its automated features – not for its responsiveness to the outside world.
The elements of decentralization and automation are key aspects of “smart contracts,” but neither is reflected in adjective “smart.”
ETHNews prefers the term “EDCC,” short for “executable distributed code contract.”
An EDCC is a programmable object on a blockchain that provides instructions for a transaction (or transactions) that occur between two or more parties. EDCCs contain code and may store data, distribute tokens, or interact with other contracts. Although the parameters of an EDCC are defined by its creator, the EDCC’s automated execution and accompanying service(s) are supported by a blockchain’s network. EDCCs exist and remain executable as long as the network itself exists. However, in some cases, an EDCC can be programmed to self-destruct.
Until our terminology enters the popular vernacular, ETHNews will continue to make reference to both EDCCs and “smart contracts,” but we implore readers to be the change that we need in the cryptocurrency world.
Be smart, adopt EDCC.
Token Offerings versus ICOs
“Initial coin offering” is a cute and quirky crypto-invention. In fact, it’s understandable that “ICO” has gained linguistic traction because it fits within an existing English framework. If you mention an “ICO” to a non-crypto person, the acronym may quickly elicit a comparison to its equivalent in the stock market, an “IPO.” Unfortunately, that’s exactly why the term is problematic. Its continued use is naïve at best, and at worst, “ICO” could spell legal trouble down the road.
Over the last year, it has become evident that many projects are painting themselves into a regulatory corner through their terminology. In the words of Ripple Chief Executive Officer Brad Garlinghouse, “If it talks like a duck and walks like a duck, the SEC will say it's a duck.”
Clearly, ICOs need to stop their quacking because many of them are not ducks! Frequently, a digital asset is not a security, so it makes little sense to attract the SEC’s regulatory scrutiny.
By marketing a project as an “ICO,” executives and developers risk unintentionally misleading consumers. Folks who invest in ICOs may mistakenly believe that a coin or token represents a percentage of ownership or a share.
Unless the relevant digital asset expressly represents fractional ownership of assets owned and profits made by a company, there is no reason to continue calling a crowdfunding mechanism an “ICO.”
Meet Token Offering
At ETHNews, we suggest that companies and consumers denote cryptocurrency crowdfunding mechanisms as “token offerings.” These are sometimes referred to as “token sales.”
In any case, this revised terminology avoids the legal entrapments of “ICO” and better captures the purpose of many blockchain-based digital assets.
Of course, this is an evolving space. These terms may require revision as the cryptocurrency community grows and matures. For now, EDCCs and token offerings best convey to industry insiders and newcomers the digital and economic systems that exist. Adopting and spreading this terminology should help reduce confusion and enable appropriate regulatory engagement as the blockchain ecosystem continues its ascent.