I read Mastering Bitcoin a while back. It’s a great book on the low-level technological underpinnings of Bitcoin. I have been studying and exploring the Bitcoin ecosystem. It’s fascinating, but there has been a lot of interest in the wider application of distributed consensus.
A particular topic of interest around next wave Bitcoin use is the concept of “Smart Contracts”. Smart contracts usually mean computer code that executes a contract in some sort of autonomous fashion, usually in coordination with cryptocurrency payments. For example, paying money to a certain address would unlock the ignition of a rental car for a certain amount of time.
Bitcoin is a bit awkward to use for smart contracts at this point in time as the only data that can be stored on the blockchain are 80 byte OP_RETURN transactions that require a transaction fee to post to the blockchain. In my use of the bitcoinj library, one op_return transaction costs about 5000 satoshis or about 2 cents U.S. So 1k of data costs about 25 cents. 1 mb Costs about $262. So, if your smart contract is more complicated than an early 1980s video game, you’re going to be paying a lot of money to have it executed.
This problem has lead to a call for alternate blockchains to solve the distributed consensus smart contract problem. The one getting most of the attention, and the second most valuable cryptocurrency by market capitalization is Ethereum.
Ethereum contains multiple components that exist alongside the blockchain. A language for smart contract execution, a distributed object store, and the supporting ecosystem. There is a ton of hype around it and trying to see what it actually does besides being a cryptocurrency is difficult. The web design is very flowery and makes you think they spent a lot on web design but, IMHO, all that floweryness interferes with whatever technical vision they are trying to get across.
So what does this thing actually do besides being a cryptocurrency and its followers spamming me with Reddit PMs about how great it is?
You can make your own crytpocurrency.
Meh.
So what’s the killer app so far?
Let’s take a look at some of the examples posted here: http://www.coindesk.com/7-cool-decentralized-apps-built-ethereum/
vevue where you can pay people bitcoin to take photos of locations and get paid in bitcoin. Ok, but why not use a centralized server?
Virtual World. Games are awesome and stuff and people pay a lot of money for in game items, but the game is going to be on a centralized server, why bother with putting a cryptocurrency on top of it? I guess to use third party trading platforms instead of doing everything in game?
KYC Authentication. So you can have a financially acceptable traceable identity online. Now all your transactions are public on the blockchain and you are KYC identified. Why not just use traditional banking if you are going to have public deanonymized transactions?
Small Business Credit. Hmm…. May work. If you can get vendors to accept ethereum or at least local money changers. How come you need the smart contract part though, can’t you just use bitcoin? Nothing about Ethereum on their site.
Microblogging. Where is the data stored. Isn’t that a lot of data? 2 cents a tweet? Ok, fair enough. This could get some traction for really compelling content that would be censored elsewhere.
Ampliative Art. So you put up your art and get money if people like it distributed from a common pool. The transparency is something that will help people trust this.
Wellfund. Decentralized crowdfunding. Receive digital assets for your crowdfunding. Complex agreements can be offered for sale. This needs some good lawyering to make sure all the risks are managed, but it could go somewhere eventually I guess. Crowdfunding is complex, all the mumbo jumbo and inflexibility that the low level technical stuff creates might be a showstopper. You’ll have to have a lawyer who can code to be able to properly invest here.
It’s still early days with Ethereum and all it takes is one or two workable ideas for a million me to BlahBlahCryptoCurrencySmartContract for pet owners, haircuts and grocery delivery to show up and create a nice big VC niche. Good luck guys!
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