When the brainchild of Ethereum, Vitalik Buterin, sent his Bitcoin Magazine co-creator, Mihai Alisie, the Ethereum whitepaper through an email he released only to a select few, he had described it as the “next generation cryptocurrency and decentralized application platform.” As Alisie read the whitepaper, he said that Ethereum felt different from anything else he’d seen before. He felt the same rush he did as when he first understood the implications of Bitcoin. “This time with thousands of new multi-dimensional rabbit holes to explore.”
Since that autumn of 2013, after the first release of the whitepaper, Ethereum has blossomed into a technology that has moved beyond a mere project and has transformed into a whole ecosystem, complete with its own moving parts and communities. Ethereum, the decentralized, blockchain-based distributed computing platform, can be familiarized by its smart contract technology and ability to streamline and decentralize online applications. Simply put, it’s a technology made by the people, for the people.
Creators of the internet space have always envisioned a digital utopian world with boundless opportunities. Those working within the Ethereum universe are looking into new solutions and moving away from our internet’s current centralized model, and looking into decentralizing the internet thereby creating an ecosystem with unlimited potential. 2016 was a momentous year for this ground-breaking technology and ETHNews examines Ethereum’s transformation over the past year, recounting many of the contributing factors and events that lead us to where it is now.
Ethereum Foundation and Tech
2016 started off with the Ethereum Foundation’s new leadership of Ming Chan as she began polishing their operations on multiple fronts, in preparation for the Foundation’s future. Ethereum’s first development stage, Frontier, came to a close and Homestead was deployed. Gavin Wood, co-founder of Ethereum, left the Foundation despite still being an active member of the Ethereum community. Moving on to create Ethcore Ltd., Wood is still a prominent figurehead within the ecosystem and his name often appears in tech updates and bug fixes.
With the Homestead deployment, developers began working on the rapidly progressing “light client” function, an initiative to allow for resource-constrained devices, such as phones and watches, to process and store the blockchain. This was a move that would eventually prime Ethereum for future mainstream use. Around this time, Ether, the cryptocurrency fuel of Ethereum, moved ahead of Ripple on the coin market cap and became the second leading cryptocurrency on the market. This focused additional attention on Ether and more exchanges began accepting it.
Around March 2016, Homestead saw its first ever hard fork which was enacted to tweak minor issues and create a more stable release of the network. Following the hard fork, more tech updates and releases came about: Solidity, the Casper/Serenity protocols, Geth clients; and smart contracts saw new updates and work on each respective facets of the platform. Microsoft also revealed their partnership with Ethereum by adding it to its Windows platform for developers - a big step to further outside Ethereum tech adoption.
In April, Ming Chan announced the second annual Ethereum event, Devcon, which was slated to run in the middle of September in Shanghai. In partnership with Wanxiang Blockchain Labs, the event would take place during the International Blockchain Week and include Demo Day, an event exclusively for startups to showcase their projects and receive funding. The second annual Ethereum event reveal was welcomed by many affluent CEOs, entrepreneurs, and developers who all flocked to the Ethereum forum in anticipation of this meeting that would join together the greatest minds and thought provokers in Ethereum. As the days traveled on, Microsoft became the premier sponsor for the event, now titled Devcon2. More exchanges and wallets began accepting Ether on their platforms, and Ethereum was becoming a top performer (just under Bitcoin) in the crypto-market.
It wasn’t until around June 2016, that Ethereum saw a major structural shift in its ecosystem.
The DAO (Decentralized Autonomous Organization) became a hot topic in mid-2016. After raising about $150 million in the span of one month, it became the first and largest crowdfunded project in the Ethereum universe. With over 11,000 anonymous stakeholders, the DAO was quickly rising up, becoming the hottest trend in the crypto industry.
However, mounting excitement over the DAO would come crashing down that June 17, 2016. Vitalik Buterin released the following news on the Ethereum blog:
“An attack has been found and exploited in the DAO, and the attacker is currently in the process of draining the ether contained in the DAO into a child DAO. The attack is a recursive calling vulnerability, where an attacker called the “split” function, and then calls the split function recursively inside of the split, thereby collecting ether many times over in a single transaction.”
The Ethereum community had to act before the attacker(s) drained all of the funds of the DAO altogether. Lead designer of the Ethereum Foundation, Alex Van de Sande, along with a group of developers referred to as the “Robin Hood” group joined together to counter the new attack. Commonly referred to as the “White Hat Attack,” the Robin Hood group found the curator of a proposal (that could adequately execute their counteroffensive “attack”) and began using a similar method as the attacker’s to drain the Ether funds into a split proposal (otherwise known as a child DAO) to prevent the original perpetrator from continuing to drain funds from the main DAO. This White Hat attack resulted in the recovery of 7.2 million ETH.
Use the Fork
After heavy debate, the most vocal majority of the Ethereum community decided that a hard fork was needed to fix the protocol, and basically voided the original theft. Even though the majority consensus was to fork the protocol, many others within the community felt betrayed. They clung to their beliefs of “code is law” and felt that the fork was a “bail out”.
The consensus of the Ethereum community was that the older pre-forked Ethereum chain would die out after they forked the protocol, but the subgroup that emerged proved otherwise. Two chains stayed on as those within the Ethereum colony who disagreed with the fork continued to work on the older chain, joining together to form their own community called Ethereum Classic.
As talk of the DAO started to decline, the prominent U.S. Bitcoin exchange, Coinbase, began to accept the buying and selling of Ether.
In July, Taylor Gerring of the Ethereum Foundation released an update that detailed further developments in Mist, revealed Nick Johnson’s ENS (Ethereum Name Service) project, updates on light client protocols, announced IPFS and Raiden partnerships, and Swarm’s PoC2 testing phase. With the mounting anticipation of Devcon2 just a few short months away, the community was at a precipice of excitement as the Foundation announced that the Devcon2 site went live.
Even with the sting of the DAO conundrum, it awakened those serious about Ethereum’s success to the insurmountable importance of creating secure code and writing more sophisticated smart contracts. Around this time, Martin Holst Swende joined the Ethereum Foundation as its full-time security lead to conduct application security testing and source code audits, as well as other security duties. Discussions about switching from ‘proof of work’ to the ‘proof of stake’ concept started to take shape and had been something that was already proposed since the release of Ethereum’s first stage with Frontier. Vitalik Buterin released Ethereum’s Mauve Paper, which detailed Casper and how Ethereum would work with the proof of stake protocol.
The arrival of the highly anticipated Devcon2 came at a time when the community needed a reprieve from the clear divide and clashing of ideologies of the hard fork and separate chains. Developers, entrepreneurs, CEOs, major global corporations, and banks from all over the world joined together at the Hyatt on the Bund in Shanghai to reveal new projects and tech proposals. Startups were scheduled to showcase their product on Demo Day:
“Co-hosted by Wanxiang Blockchain Labs and ChainB, one of China’s leading blockchain news agencies, Demo Day will consist of presentations by some of the most accomplished blockchain-enabled companies in the world.”
Amongst all the blockchain startups that entered on Demo Day, an Ethereum-based identity management platform, uPort, won the competition. Rouven Heck, uPort co-founder stated:
“We are very excited about the great feedback for uPort over the last days at DevCon2. Winning the demo day event is a great endorsement from the community that we are building something valuable for the ecosystem. We are looking forward to integrating with some of the exciting projects we have seen over the last days.”
Bigger announcements and projects were revealed during Devcon2 and those just entering the industry were fervid over Ethereum and the possibilities to come.
Big Trouble in Little Shanghai
However, Ethereum hasn’t always been without its naysayers or those who would like to see it fail. During the Devcon2 event in Shanghai, as developers and Ethereum enthusiasts were gearing up for an exciting week, they had no idea a threat to the network would occur. The Ethereum protocol suffered a DOS attack that caused an out of memory error to occur within Go-based Ethereum 1.4.11 clients, (known as Geth), halting the mining of further blocks. This attack also contained a message in German which translates to “Go Home.” The Foundation gathered and warded the attack with their own message, “From Shanghai, with love (1.4.12).”
While the Foundation countered the original DOS onslaught that took place during Devcon2, subsequent smaller attacks started barraging the network. After dealing with these multiple denial-of-service offensives, Vitalik Buterin suggested an EIP150 hard fork will likely be needed to repair the network, with a second fork after to shrink the size of the blockchain state. Just before 6:30 a.m. PST on Oct. 18, 2016, the network reached block 2463000, executing the first of two hard forks successfully.
After the successful first hard fork, Ethereum co-founder Jeffrey Wilcke stated, “after many hours of coding, testing, more coding, reviews, and discussions, we can finally announce the next hard fork's block number.” Then on November 22, 2016, on mainnet block number 2,675,000, the second fork called Spurious Dragon occurred. This hard fork implemented EIP 155: Replay attack protection, EIP 160: EXP cost increase, EIP 161: State trie clearing, and EIP 170: Contract code size limit. The Spurious Dragon fork would allow Ethereum to run faster, smoother, and more securely. This is when the Foundation also announced that they would be changing their testnet from Morden to Ropsten.
After the Spurious Dragon completion, Vitalik Buterin released an update on the Ethereum blog in December.
“This week marks the completion of our fourth hard fork, Spurious Dragon, and the subsequent state clearing process, the final steps in the two-hard-fork solution to the recent Ethereum denial of service attacks that slowed down the network in September and October. Gas limits are in the process of being increased to 4 million as the network returns to normal, and will be increased further as additional optimizations to clients are finished to allow quicker reading of state data.”
In his blog, Buterin went over improvements to Solidity tools (Ethereum’s programming language), the release of the Geth light client, Parity, proof of stake, sharding, crypto-economics, and other external developments of Ethereum. As Buterin ran down the list of augmentations to come, he mentioned the next stage of Ethereum’s development, Metropolis.
“Metropolis is the next major planned hardfork for Ethereum. While Metropolis is not quite as ambitious as Serenity and will not include proof of stake, sharding or any other similarly large sweeping changes to how Ethereum works, it is expected to include a series of small improvements to the protocol, which are altogether much more substantial than Homestead.”
With December coming to a close, Ethereum proponents will anxiously await the arrival of Metropolis. Until then, Ethereum is still taking a seat in other sectors outside of the decentralized technology spaces.
Ethereum Entering Traditional Industries
As with any burgeoning technology, Ethereum has moved beyond its place within the Foundation and has garnered support for practical use by both ETH and ETC camps. Due to the ever-expanding Ethereum universe, many different traditional industries are seeing how Ethereum and the blockchain can revolutionize each sector. The following are just a few small examples of how Ethereum can reignite innovation in each industry.
Big banks seem to be the top players paying attention to blockchain growth. Since the first consortium, R3CEV, was formed in January, consisting of 50 of the largest banks, subsequent consortia have also formed With all of these consortia exploring and running their own Proofs of Concept, the blockchain is becoming more widely known and accepted - even heralded as the newest tech to revolutionize the payments, investment, insurance, accounting, and trade industries by streamlining encumbered traditional methods. Jacob Farber of R3CEV at the Money 20/20 event in Las Vegas stated that there are, “75 global financial institutions already working with blockchain technology- either creating their own blockchain, permissioned ledgers or working with the existing blockchain platforms already in use.”
Blockchain tech has been permeating the insurance industry with its ability to automatically execute functions that normally require an intermediary. A recent report conducted by Juniper Research, a mobile online and digital market research company, estimates:
“The insurance industry will reach almost $235 billion globally by 2021, up 34% y-o-y from an estimated $175 billion this year.”
Juniper predicts that the blockchain will fast-track the insurers’ experience by utilizing smart contracts and smart policies that automate customer circumstances. Startups working with blockchain-based insurance may currently be in the conceptual phase, trying to work out relationships with other carriers, brokers, reinsurers, and more in order to announce their projects in 2017.
Today, the majority of patients’ medical records are either held in paper format or within one central server of one healthcare company. This presents a problem for patients with numerous preexisting conditions that need to transfer over to a different healthcare provider because documentation could get lost or disrupted within their central server. If patients are visiting another state or city and have to receive medical care, that medical facility may not have any record of the patient. In this case, the medical facility would not be aware of the patient’s conditions or medical allergies. Because of all these obstacles within the healthcare system, startups in blockchain technology such as Brontech, Gem, and others, are looking to streamline communication and establish a better platform for healthcare professionals by utilizing the blockchain.
Platforms such as Ujo and Peertracks are using Ethereum to give absolute creative control over artists’ work to the artists by avoiding the overhead of music platforms like Soundcloud, ReverbNation, and Spotify. SingularDTV is an Ethereum-based content distribution and management platform that promises to allow digital artists and creators the ability to monetize and protect their creations.
The gaming platform, Beyond the Void, is a real-time strategy space game that uses Ethereum to allow gamers to conquer planets and blast opponents across the universe. This is an amazing contribution to the developing decentralized gaming industry. Firstblood, a decentralized Ethereum-based eSports platform allows players to fund and challenge each other to win rewards. Etherplay functions as an Ethereum-based arcade where gamers compete for top scores and rewards. Finally, Virtue Poker will allow people to play online poker, without any risk of cheating, and without any central servers operating to hold funds or know the cards being dealt.
Social networks are also seeing an Ethereum overhaul. Akasha is a social media network, created by Mihai Alisie, which will allow for users to publish, share, and vote for work that’s published on the platform. Akasha’s goal is to function as a decentralized alternative to services like Medium and WordPress. Unlike Medium and Wordpress, Akasha plans to give users monetary incentives to create rich content by granting curators monetary rewards in Ether.
As seen with the popular ICO (Initial Coin Offering), the blockchain and Ethereum industries have completely revolutionized the investments industry. An ICO has become a popular way for cryptocurrency and blockchain entrepreneurs to raise funds for a new project or concept. This type of venture capital model, a hybrid between an initial public offering and crowdfunding, has been used to finance many different projects. However, as state and federal regulators have not enacted disclosure regulations that are specific to ICOs, there is little protection for investors. In order to maintain investor confidence, ICO issuers must proactively self-regulate and engage in responsible disclosure practices until a regulatory framework is in place. This leads to the legal reformations that have occurred this past year.
2016 Blockchain Legal Review
Since Bitcoin’s inception in 2009, regulations in the crypto-space seem to travel at a snail’s pace in relation to how quickly the industry is growing. As more developments transpire, and more eyes are turning onto cryptocurrencies and blockchain tech, the legal sector is finally starting to take notice. Due to emerging efforts to impose regulation this past year, 2017 seems to be the year for even more legal reformation. Here are the few legal developments we have already seen in 2016.
The North Carolina Money Transmitters Act took a more business-friendly approach to regulating virtual currency businesses than the stringent New York BitLicense regulation. It defined virtual currency and many other necessary terms so that businesses have more guidance in navigating the legislation. The list of exemptions is considerably longer than that of BitLicense, allowing many businesses to begin or continue operating in North Carolina without first obtaining a license.
A federal grand jury in New York indicted Anthony R. Murgio, the alleged operator of an unlicensed Florida-based Bitcoin exchange, Coin.mx, and four alleged co-conspirators, charging them with nine counts of money laundering. See U.S. v. Murgio, No. 15-CR-769 (AJN) (S.D.N.Y. Apr. 21, 2016), Dkt. No. 87 (“Indictment”), ¶¶ 11-15. On September 19, 2016, U.S. District Judge for the Southern District of New York, Alison J. Nathan, denied a motion to dismiss the case against Mr. Murgio. U.S. v. Murgio, 15-cr-769 (AJN) (Sept. 19, 2016). Judge Nathan found that because Bitcoins are “funds,” the Government can prosecute Mr. Murgio for violation of U.S. anti-money laundering laws.
In the State of Florida v. Espinoza, the Espinoza court held that Bitcoins are not “payment instruments” under Florida law.
In House Resolution 835 (H.R. 835), Representative Michael Burgess (R) "[e]xpress[ed] the sense of the House of Representatives that the United States should adopt a national policy for technology to promote consumers' access to financial tools and online commerce to promote economic growth and consumer empowerment." The resolution was virtually unanimous, as the House voted 385 yeas, 4 nays, 42 not voting, and 0 absent after nearly forty minutes of debate. Pursuant to the provisions of clause 8, rule XX, the House Speaker Pro Tempore announced that further proceedings on the motion would be postponed, signaling a likelihood that H.R. 835 will be addressed again in the 115th Congress following the presidential election.
The Illinois Department of Financial and Professional Regulation (“Department”) has released a proposed Digital Currency Regulatory Guidance (“Guidance”). It “expresses the Department’s interpretation of Illinois’ Transmitters of Money Act (“TOMA”) and its application to various activities involving digital currencies.” The Department “seeks to establish the regulatory treatment of decentralized digital currencies under existing definitions of money transmission in Illinois, as defined in the [TOMA],” but acknowledges that “digital currencies currently do not fit the statutory definitions of ‘money’ and, therefore, do not independently trigger the licensing requirements of TOMA.” Specifically, the Department concluded that several types of transactions, including purely digital currency transactions that did not involve sovereign currency, do not qualify as money transmission.
Ethereum Top Players
Aside from the obvious Ethereum Foundation, other studios have contributed to Ethereum’s unprecedented technological growth. ConsenSys is a “venture production studio building decentralized applications and various developer and end-user tools for blockchain ecosystems, primarily focused on Ethereum.”
In other words, ConsenSys is an Ethereum production powerhouse that has been one of the top motivators and contributors to the Ethereum ecosystem thus far. Partnering with Microsoft, LO3, Innogy Innovation Labs, SingularDTV, and Ubuntu, ConsenSys has brought many new projects to the table within this past year alone. Some current ventures from the ConsenSys powerhouse are:
- BTC Relay
In addition to ConsenSys, Microsoft has also been a force for good within the Ethereum space. In March 2016, Ethereum’s Solidity programming language for writing smart contracts was built directly into Mircosoft’s Visual Studio platform. This allowed developers to be able to build, test, and deploy decentralized applications directly within the platform. Due in thanks to ConsenSys, Ethereum’s partnership with Microsoft also paved the way for more adoption outside of the decentralized developer ecosystem. With such a household name at its helm, big names in the banking industry were starting to take notice of Ethereum’s possibilities. Banks such as Santander have joined with Ether.camp founder, Roman Mandeleil, to create Cash Eth, which is the development of cash on a live, public blockchain.
The Countdown to 2017
As the year culminates with the proverbial champagne toast and ball drop, it’s clear that Ethereum has molded into a more mature version of itself than what it was when the year first began. Developers and brilliant minds within the Ethereum ecosystem are hard at work making Ethereum more easily digested by the enumerated masses in mainstream society.
The Homestead development phase of Ethereum is slowly drawing to a close as developers gear up for the Metropolis release in 2017. Sharing the same sentiment as influential people within Ethereum, it’s possible that the mainstream will end up using the Ethereum technology without even realizing it. After the deployment of Serenity, which is the final stage of Ethereum, users outside of this environment will be able to take part in the Ethereum technology in a user-friendly capacity, most likely not even realizing the transformation and “growing pains” it’s had to overcome.
With the closing of 2016, we can certainly look ahead to 2017 and see the emerging Dapps, regulations, and other projects that are about to unfold. It’s an exciting time if you have just joined this industry, so keep a lookout for what’s to come and brace yourself for all of the innovative possibilities.
*The above is just a brief overview of events and projects that have taken place during 2016. The projects/companies listed are not endorsements nor have they received any intended favoritism from ETHNews. If you would like a project you’re working on to be reported on in a non-marketing format, you may send it to ETHNews’ idea submission section for review. ETHNews is a proponent of a growing Ethereum ecosystem but does not write advertorials for projects.