Atop my father’s dresser was a fat wad of Canadian Tire money, and as a very young boy, I learned to steal on behalf of a school bully. Seth enjoyed receiving his payment on the playground, which I so stupidly provided, more than a few times. There was little value in the money I gave him, and I knew that, but nevertheless it enabled a transaction between us. I paid him in order to stay on his good side, partly afraid of what might happen if I didn’t. Similarly, before governments issued money, trade was used to exchange items of value. Salt was worth its weight in gold. The Canadian dollar, a fiat currency, is not backed by gold or any other commodity. The essential component of the financial industry is trust, and people use the dollar because they believe it holds value.
Value is a funny thing in the digital age. Think of an mp3 file. How does anyone know who owns the original? The (rightful) owner of the Mona Lisa is whomever is in possession of the painting. Non-fungible tokens are a product of Ethereum, a cryptocurrency and blockchain technology, and these tokens represent digital ownership. Art is being sold for millions of dollars worth of Ether on the platform, and the rightful owner of the digital copy has a one-of-a-kind stamp that is recognized by everyone in the community.
To take a step back, blockchain is the technology behind Bitcoin, heavily loaded with complex algorithms. To put it simply, it maintains a ledger containing every transaction, distributed across a collection of computers. Decentralized, Bitcoin and Ethereum are theoretically infallible, unlike a financial institution, lest the Internet collapses. God forbid you blow up a bank tower, there will be fallout from the physical loss. The 2008 financial crisis, with its bad mortgages, repackaged, stamped into “low-risk” CDOs, became worthless when the housing market flipped upside down. Lots of people lost money and there had to be a huge bailout from the US government. From the ashes, like clockwork, a whitepaper quickly arose, by an unknown author, and the open source code for Bitcoin was released. As if it were a remedy to the instability of the physical financial system, Bitcoin eliminated the need for a trusted third-party to conduct a transaction.
So what’s the hype behind cryptocurrency? I first heard of Bitcoin in 2013 from another student in my ethics class in university when he gave a class presentation on it. New to the idea, I did not understand why he was so eager to share this with us. But at the time, the price was low, and now, it is staggeringly high, beyond belief. Part of making an investment is having faith in the product and its ability to perform on the market, and admittedly, I did not have much of that for Ethereum. Last October, I purchased $500 worth of ETH, only to sell the next month for just pennies more. I believed it to be too volatile and was afraid to lose money on it. Today, one ETH is worth over $2000. I imagine everybody winces upon hearing how someone “could have been rich”, if only they invested in such-and-such. But the fact of the matter is, Ethereum further redefines finance and will become an essential tool in application development in the future.
Ethereum uses the blockchain for general purpose, and unlike Bitcoin, it can run code, and not just act as a cryptocurrency. Like Lego blocks, functions can be called to work together to build something very complex, computationally. Beyond this, Ethereum enables smart contracts which removes the need for an intermediary. Ethereum is a platform that enables applications to run on a distributed computing system, and this opens up a whole world of possibilities. The mathematical concepts behind it are genius, and with cities become smarter and our streets flooded with Internet of Things devices, there’s a need for a platform to manage it all. Indestructible records of validated transactions, synced across all clients. With the direction things are headed, anyone would be naive not to give Ethereum a closer look.