Every system is a machine. A set of rules and moving parts meant to serve its users. But there are times when the machines we use become hopelessly outdated and ineffective. The economy, the financial system, these are machines – tools – meant to circulate money around and allow people to live richer lives. But if the machine keeps pushing all the money to the top or if it breaks like it did in 1929 or 2008 or whatever year the next major malfunction occurs, then we should have a backup plan. Repairs and upgrades may not be enough. A new machine will be needed.
The origin of Ethereum starts with Block 0. The “Genesis Block” was brought to life on Jul-30-2015 03:26:13 PM +UTC. The first function of this machine was to get everyone to agree on a basic unit of scarcity in the form of ether or ETH. The first recorded piece of history on Ethereum sent ether to the 8,893 people who participated in the crowdsale where you had to send bitcoin to participate. Ethereum was born out of Bitcoin. Because ETH was ownable and transferable, a price was put on. A market was created. This basic unit could flow and transform via middlemen, exchanges, and traders converted this new thing into existing things like bitcoin, then eventually dollars and other currencies, turning ETH into tangible money. A new economic machine was born, although very basic.
These were exciting times. I was there for it. One of those 8,893 addresses belonged to me, and even though the earnings from that early investment have long been squandered, the idealism remains. Whether we felt Ethereum was a way to make the world more globally coordinated, or less authoritarian, or generally more free, there was a sense that something new was being created.
Ethereum is an economic machine capable of moving vast amounts of wealth, reliably and securely. But underneath is something bigger; a virtual machine, a world computer, a shared source of truth, software and cryptography that basically says, any change in the state of Ethereum must follow the math we all agree to use and since no one controls math, no one can control the truth.
Hope was in the air, and since money was involved, greed and impatience soon followed. We were eager to do more with our new toy, so the market gave us “The DAO”. Not a version of a “Decentralized Autonomous Organization” but THE version of a piece of software that could not be controlled. The DAO operated on a simple rule of taking in ETH, investing it, and returning more ETH. A money-making robot. It was exciting times until a hacker exploited a bug in the code and took all the money – about 14% of all the ETH in circulation in the very early days of Ethereum’s existence. It was a catastrophic violation that could only be remedied by another violation – bending the rules of the protocol and undoing the hacker’s actions. A change in the software that made it so the DAO Hack never happened and no one lost or gained any money because of it. A change in the timeline. A hard fork.
How could you change an immutable source of truth like Ethereum? Obviously, social consensus, the root of all human change. The software doesn’t feel anything, it just runs as programmed and when enough of the people running the software switched to a version with an alternate set of events, the record went on as if the hack never happened.
In another timeline called Ethereum Classic, it all happened exactly as it did in the memories of those who lived through it. Ethereum Classic accepted the DAO hack, rejected the hard fork, and branched off with a different reality and its own native asset called ETC.
The people who ran the Ethereum software agreed on a version of events that would allow the very nascent protocol to escape a life-threatening attack while the people who ran the Ethereum Classic software agreed to a version that was truer to the rules of the protocol.
On Ethereum, the truth is a combination of hard mathematical logic and soft social consensus. The DAO fork taught us that underneath the money, math, and code, everything depends on the agreement machine.
At the Genesis Block, Ethereum was very simple. You could only send ETH between accounts. But Ethereum was a departure from other blockchains because of smart contracts, which can be thought of as promises that must be kept no matter what. These promises are written in code so could be very complex. The DAO was a smart contract. It showed how powerfully binding this type of promise could be. Even when the smart contract threatened the underlying protocol, it could not be undone by its creators alone. Only an embarrassing and controversial, and socially coordinated hard fork could remedy the situation.
Borrowing is at least a 5000-year-old human tradition. Borrowing creates credit, which expands the money supply and generates new activity, ideally unlocking new ways to increase productivity – letting us do more work with less effort. Even if the benefits are temporary or cyclical, any respectable economic machine needs to have the capacity to create credit. Since loans are promises, smart contracts should be able to create borrowing and lending on Ethereum.
When most people think about money, they don’t think of something like ETH. Regular people spend money on everyday items, put it in the bank, and expect the value to not change very much. ETH is not any of these things so in 2017 a system of smart contracts was created called MakerDAO. It took in ETH and created a new token called SAI (now called DAI, which has an upgrade called SKY – it’s all very confusing, I know). SAI was stable and meant to always be worth a dollar. The SAI smart contract promised that 1 SAI = 1 USD. SAI was a stablecoin.
Once the smart contracts were live, anyone could interact with it by depositing ETH and borrowing SAI. The contract would keep your ETH until you repaid the SAI you borrowed. And if the price of ETH went up, you could borrow more. But if the price of ETH dropped too far, then the smart contract would automatically sell some of your ETH and repay your loan for you.
You promised to never borrow more SAI than the value of your ETH allowed, and SAI promised to always stay pegged to the dollar. When either promise was broken, the contract would sell your ETH, without any room for argument or arbitration, in order to make things right. Fun fact, this mechanism is how the author lost most of the ETH received from the Genesis Block.
It is a kind of promise that could not be broken by you or the people that wrote the code or the MakerDAO organization. It’s fundamentally different than promises of the past such as land treaties made with the indigenous peoples of the Americas. If a contract or treaty was agreed on that promised a piece of land to a certain tribe of indigenous people, the only binding force was the integrity and good will of the people holding the most power. If one party possessed overwhelming force, then they could break the promise easily.
Breaking MakerDAO’s contract would be like changing the DAO. It would require a controversial hard fork that requires at least a majority of the network to switch to a different version of the software, altering the timeline of events and likely creating an alternative reality in the process. Unlike the tiny community that accepted the DAO hardfork, the Ethereum ecosystem now consists of millions of people who hold ETH, run the Ethereum software, or use the protocol and its applications in some way. This modern group of stakeholders is much more distributed than in the early days. And each new person who joins increases not only the number, but also the diversity of the group, which increases the network’s ability to defend the integrity of its promises.
Math and consensus are difficult things to manipulate, and this machine uses that fact to bind people together into promises that must be kept. You can trust that if a promise – a treaty – is written well, it cannot be broken in the same ways that treaties have been broken in the past. You would have to force or threaten millions of people to not run a computer program. They must agree to ignore or reject a version of the truth. And if only a few people continue to run the rebel software, then that thread of truth will live on.
Every system is a machine. A set of rules and moving parts meant to serve its users. But there are times when the machines we use become hopelessly outdated and ineffective. The economy, the financial system, these are machines – tools – meant to circulate money around and allow people to live richer lives. But if the machine keeps pushing all the money to the top or if it breaks like it did in 1929 or 2008 or whatever year the next major malfunction occurs, then we should have a backup plan. Repairs and upgrades may not be enough. A new machine will be needed.
The origin of Ethereum starts with Block 0. The “Genesis Block” was brought to life on Jul-30-2015 03:26:13 PM +UTC. The first function of this machine was to get everyone to agree on a basic unit of scarcity in the form of ether or ETH. The first recorded piece of history on Ethereum sent ether to the 8,893 people who participated in the crowdsale where you had to send bitcoin to participate. Ethereum was born out of Bitcoin. Because ETH was ownable and transferable, a price was put on. A market was created. This basic unit could flow and transform via middlemen, exchanges, and traders converted this new thing into existing things like bitcoin, then eventually dollars and other currencies, turning ETH into tangible money. A new economic machine was born, although very basic.
These were exciting times. I was there for it. One of those 8,893 addresses belonged to me, and even though the earnings from that early investment have long been squandered, the idealism remains. Whether we felt Ethereum was a way to make the world more globally coordinated, or less authoritarian, or generally more free, there was a sense that something new was being created.
Ethereum is an economic machine capable of moving vast amounts of wealth, reliably and securely. But underneath is something bigger; a virtual machine, a world computer, a shared source of truth, software and cryptography that basically says, any change in the state of Ethereum must follow the math we all agree to use and since no one controls math, no one can control the truth.
Hope was in the air, and since money was involved, greed and impatience soon followed. We were eager to do more with our new toy, so the market gave us “The DAO”. Not a version of a “Decentralized Autonomous Organization” but THE version of a piece of software that could not be controlled. The DAO operated on a simple rule of taking in ETH, investing it, and returning more ETH. A money-making robot. It was exciting times until a hacker exploited a bug in the code and took all the money – about 14% of all the ETH in circulation in the very early days of Ethereum’s existence. It was a catastrophic violation that could only be remedied by another violation – bending the rules of the protocol and undoing the hacker’s actions. A change in the software that made it so the DAO Hack never happened and no one lost or gained any money because of it. A change in the timeline. A hard fork.
How could you change an immutable source of truth like Ethereum? Obviously, social consensus, the root of all human change. The software doesn’t feel anything, it just runs as programmed and when enough of the people running the software switched to a version with an alternate set of events, the record went on as if the hack never happened.
In another timeline called Ethereum Classic, it all happened exactly as it did in the memories of those who lived through it. Ethereum Classic accepted the DAO hack, rejected the hard fork, and branched off with a different reality and its own native asset called ETC.
The people who ran the Ethereum software agreed on a version of events that would allow the very nascent protocol to escape a life-threatening attack while the people who ran the Ethereum Classic software agreed to a version that was truer to the rules of the protocol.
On Ethereum, the truth is a combination of hard mathematical logic and soft social consensus. The DAO fork taught us that underneath the money, math, and code, everything depends on the agreement machine.
At the Genesis Block, Ethereum was very simple. You could only send ETH between accounts. But Ethereum was a departure from other blockchains because of smart contracts, which can be thought of as promises that must be kept no matter what. These promises are written in code so could be very complex. The DAO was a smart contract. It showed how powerfully binding this type of promise could be. Even when the smart contract threatened the underlying protocol, it could not be undone by its creators alone. Only an embarrassing and controversial, and socially coordinated hard fork could remedy the situation.
Borrowing is at least a 5000-year-old human tradition. Borrowing creates credit, which expands the money supply and generates new activity, ideally unlocking new ways to increase productivity – letting us do more work with less effort. Even if the benefits are temporary or cyclical, any respectable economic machine needs to have the capacity to create credit. Since loans are promises, smart contracts should be able to create borrowing and lending on Ethereum.
When most people think about money, they don’t think of something like ETH. Regular people spend money on everyday items, put it in the bank, and expect the value to not change very much. ETH is not any of these things so in 2017 a system of smart contracts was created called MakerDAO. It took in ETH and created a new token called SAI (now called DAI, which has an upgrade called SKY – it’s all very confusing, I know). SAI was stable and meant to always be worth a dollar. The SAI smart contract promised that 1 SAI = 1 USD. SAI was a stablecoin.
Once the smart contracts were live, anyone could interact with it by depositing ETH and borrowing SAI. The contract would keep your ETH until you repaid the SAI you borrowed. And if the price of ETH went up, you could borrow more. But if the price of ETH dropped too far, then the smart contract would automatically sell some of your ETH and repay your loan for you.
You promised to never borrow more SAI than the value of your ETH allowed, and SAI promised to always stay pegged to the dollar. When either promise was broken, the contract would sell your ETH, without any room for argument or arbitration, in order to make things right. Fun fact, this mechanism is how the author lost most of the ETH received from the Genesis Block.
It is a kind of promise that could not be broken by you or the people that wrote the code or the MakerDAO organization. It’s fundamentally different than promises of the past such as land treaties made with the indigenous peoples of the Americas. If a contract or treaty was agreed on that promised a piece of land to a certain tribe of indigenous people, the only binding force was the integrity and good will of the people holding the most power. If one party possessed overwhelming force, then they could break the promise easily.
Breaking MakerDAO’s contract would be like changing the DAO. It would require a controversial hard fork that requires at least a majority of the network to switch to a different version of the software, altering the timeline of events and likely creating an alternative reality in the process. Unlike the tiny community that accepted the DAO hardfork, the Ethereum ecosystem now consists of millions of people who hold ETH, run the Ethereum software, or use the protocol and its applications in some way. This modern group of stakeholders is much more distributed than in the early days. And each new person who joins increases not only the number, but also the diversity of the group, which increases the network’s ability to defend the integrity of its promises.
Math and consensus are difficult things to manipulate, and this machine uses that fact to bind people together into promises that must be kept. You can trust that if a promise – a treaty – is written well, it cannot be broken in the same ways that treaties have been broken in the past. You would have to force or threaten millions of people to not run a computer program. They must agree to ignore or reject a version of the truth. And if only a few people continue to run the rebel software, then that thread of truth will live on.
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Ethereum PapersWTF are NFTs?
NFTs are objects that last forever in the Ethereum universe. It’s easier and more fun to think of Ethereum like the Marvel Cinematic Universe. The difference is Ethereum lives on the internet, involves real money, and in this universe, no one controls the story. Each NFT is a kind of Infinity Stone. There can be many versions of an Infinity Stone, but each one has its own history. Each one has its own timeline and its own path, interacting with different characters. The World Heavyweight Cham...
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“You can find meanness in the least of creatures, but when God made man the devil was at his elbow. A creature that can do anything. Make a machine. And a machine to make the machine. An evil that can run itself a thousand years, no need to tend it.” - Cormac McCarthy If you grew up in the 90s and, like me, spent nearly every waking, non-school-related hour in front of the television, then you know that the truth used to come from a single, controlled, regularly scheduled source. Then the int...
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There is a giant clock inside a mountain in Texas called the Clock of the Long Now. The clock was built to be as sturdy as possible using physical elements– stone and steel – to guarantee its longevity. It is meant to keep time for 10,000 years and designed to function with as little human intervention as possible. Ethereum uses a different approach to longevity, prioritizing adaptability over fixed structures. Instead of hard physics, it uses a soft strategy of combining scarcity and stories...
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