Big breakthroughs typically follow a seven-step path:
First, no one’s heard of you.
Then they’ve heard of you but think you’re nuts.
Then they understand your product, but think it has no opportunity.
Then they view your product as a toy.
Then they see it as an amazing toy.
Then they start using it.
Then they couldn’t imagine life without it.
–Morgan Housel, “When You Change the World and No One Notices”
No One's Heard of You
Ethereum is now the most actively developed blockchain network in the world. But five years ago today, when the genesis block was mined into existence and the network officially launched, few people outside of software engineering circles had heard of the Ethereum blockchain.
Ethereum: Bitcoin Plus Everything
In Goldman Sachs’ 2015 landmark report, “What If I Told You The Blockchain Could Disrupt Everything,” Ethereum was listed as a “startup.” Elsewhere it was described as a “group.” People were trying to understand what it was and exactly what made it different from Bitcoin, a digital cash system. At Consensys, we spent, and still spend, a good chunk of time explaining these differences. They can’t be emphasized enough:
Bitcoin is a single application of blockchain technology.
There are many different types of blockchains, with very different properties.
Ethereum is one type of blockchain.
Ethereum is open source and therefore owned by everyone.
If you want to know what blockchains mean for the future of human networks and the distribution of power, this tweetstorm from Naval Ravikant is a good place to start.
The Developer’s Blockchain
The Ethereum blockchain was built according to five design principles, outlined in Vitalik Buterin’s Ethereum White Paper:
Non-discrimination and non-censorship
One way to think about it is, if someone asked you to build a machine that took these principles to their logical limit, you’d end up with a machine like Ethereum.
In their book Mastering Ethereum, Andreas Antonopoulos and Gavin Wood call Ethereum the “developer’s blockchain, built by developers for developers.” Developers generally prefer software that is open, usable, programmable, and powerful. Thousands and then hundreds of thousands of devs gravitated toward Ethereum because the source code is free, you can build on what others have built, the smart contracts are standardized and templatizable, and the possibilities are endless when you start interlocking contracts and plugging in different data feeds.
State of the Dapps did a huge service to the ecosystem when it started digging into dapp contracts and fingerprinting GitHub repos, uncovering the frenzy of behind-the-scenes developer activity on Ethereum. When the New York Times published “Beyond the Bitcoin Bubble,” it felt like people were finally paying attention. Bitcoin was just the tip of the blockchain iceberg, and it was only a matter of time before the rest of the world followed the developers.
They Think You’re Nuts
In 2016, the DAO hack, and the hard fork that followed, caught everyone’s attention. Some people thought this Ethereum thing was nuts. What happened, the press said, “raises philosophical questions about the viability of such systems.”
But developers said, "This is a rite of passage.”
The community got to work documenting known attacks and battle-testing smart contract libraries. While there has been no shortage of security incidents over the years, decentralized autonomous organizations are now a staple of the Ethereum ecosystem (Aragon, Moloch DAO, Legal DAO, Maker DAO), and hard forks are a proven model for upgrading the network’s protocol.
Positive Sum Thinking
Think about what else used to be “nuts” in our ecosystem:
Enterprises operating on a public network
Different blockchains working together
100-year-old firms like Ernst & Young are now using zero-knowledge proofs to develop private transaction solutions on the public Ethereum network. And they’re collaborating with a fleet of other organizations to push the Baseline Protocol forward and help enterprises onboard to mainnet.
Ethereum and Hyperledger, once perceived as rival DLT initiatives, are now fully integrated via Besu, Burrow, and Sawtooth. Even Fabric supports Ethereum smart contracts.
The maximalist, one-blockchain-to-rule-them-all thinking that characterized the early days of the cryptosphere has fallen away in favor of a grander vision of interoperating blockchain protocols. Over the past few months, we’ve seen a huge uptick in “wrapped bitcoin”—bitcoin represented as ERC-20 tokens on Ethereum that allow bitcoin holders to participate in the decentralized finance protocols that are not available on the Bitcoin network.
The point is, the positive sum thinking of early adopters that once seemed far-fetched and technically impossible is now more and more a reality. In the words of Jeff Bezos, “Invention requires a long-term willingness to be misunderstood.”
They Understand It But…
In early 2018, the blockchain and Ethereum community was still reeling from the shock that 2017 had sent through the cryptosphere. The ICO boom of 2017 had initiated one of the greatest bull markets in Ethereum’s history on the backs of considerable speculation and unprecedented ERC-20 token launches. The boom demonstrated first-hand the power of the network effect opportunities at the core of blockchain technology. However, a number of countries—China, South Korea, Morocco, Colombia, Singapore, and many others—issued either bans or severe warnings to their citizens about bitcoin, ether, and other crypto assets.
When the glow of $1000+ ETH prices wore off and crypto winter descended, the industry began reconsidering the past year of ICOs and reckoning with its darker legacies. Fortune reported that nearly 50% of all ICO projects had already failed by February. The Verge published a sobering report on the mental health and despair of many South Korean millennials in the aftermath of the crypto bull market.
Today, there are over 160k ERC-20 token contracts on the Ethereum network. Many were created in early 2018 during the height of the ICO boom. In the last few months of this year, we have seen the creation of ERC-20 tokens begin to increase towards similar levels, yet without the price volatility we all experienced in late 2017 and early 2018.
The ICO boom and its aftermath provided rich soil for a crop of new programmable blockchains, many of which positioned their technology as the replacement of Ethereum. The most notable of these “Ethereum killers” was EOS, which released a white paper in 2017.
The post-ICO marketing narratives of new blockchains focused largely on the shortcomings of Ethereum: scalability, privacy, UX, and utility. Some of these shortcomings were perceived, some real, and some exaggerated.
Altogether, the Ethereum ICO boom and aftermath had many understanding the technology, but still searching for compelling use cases and opportunities. One silver lining of the crypto boom and winter was that it spurred us to pay attention to lower-level and perhaps more revealing blockchain metrics beyond price and transaction volume: smart contract deployments, decentralization, and risk.
They Think It’s a Toy
On-Ramps and NFTs
As the Ethereum community developed new token standards like ERC-721, gaming and art emerged as fun onramps to the underlying blockchain technology. And it made sense: games have built-in micro-economies and collectibles, and digital art that was hashed to the blockchain was easily monetizable and provably authentic. Marketplaces like SuperRare popped up for digital artwork. People talked about “proof of taste.”
The viral sensation that first shock-loaded the Ethereum network was an unassuming dapp called CryptoKitties, a digital kittens trading game that seemed like a cross between Neopets and futures trading. In December 2017, total network requests more than doubled as prices for the CryptoKitties surged into the six figures. A taskforce of developers from MetaMask, Infura, Grid+, and Axiom Zen came together to optimize UX and explore longer-term scaling solutions to relieve the congestion. In collaborating, they realized something profound about Ethereum protocol development. As Alex Miller from Grid+ noted, “Everyone who owns ether is incentivized to make the system better.”
People also realized that gamers and artists were running businesses straight out of their Ethereum wallets. Devs had unlocked economic models where previously none had existed. They brought finance to gaming—now it was time to see if they could gamify finance.
They Think It’s an Amazing Toy
The Rise of DeFi
There’s an argument that all of Ethereum is decentralized finance (DeFi). At its core, the blockchain is maintained by a network of incentivized miners who continue spending resources in order to receive a decentralized currency as a reward. That accumulated currency is then sold to other people and enters into the ecosystem.
DeFi as it is more commonly understood, however—as a set of interconnected protocols that have the opportunity to supplant the traditional financial vehicles of today—emerged onto the scene in late 2017 with MakerDAO’s release of DAI. MakerDAO allowed ETH to be locked into the smart contract and the DAI stablecoin to be taken out as collateral. After that moment, the Ethereum DeFi ecosystem grew steadily, largely still dominated by MakerDAO.
2019 was the year of DeFi, but its influence still remained constricted largely to the community of people who were already familiar with the technology and had been working in the ecosystem for some time. Many companies were building DeFi protocols, but overall, the UX felt rudimentary and the capabilities still fairly limited except for the most skilled DeFi users.
In the early months of 2019, the DeFi ecosystem was in many ways a sandbox, where Ethereum enthusiasts were road testing these open protocols and proving out the case for decentralized finance. In the aftermath of the 2018 bear market, ETH holders may have felt cautious about “putting their ETH to work” rather than HODLing in the hopes of another bull market.
Financial Primitives and Money Legos
Financial primitives are the basic decentralized financial capabilities and technologies that can be combined or built on top of by others in order to create more complex and/or specific applications. These financial primitives and the applications built on top function a bit like legos, to use a popular analogy. Money legos stacked on top of money legos stacked on top of more money legos creates an interwoven, interconnected financial structure that is both strong and customizable.
These money legos reached critical mass in late 2019, hurling us into 2020 and taking DeFi from the status of “amazing toy” to the early stages of a critical tool for reimagining our financial infrastructure.
They Start Using It
Software Eats Finance
Five years ago, it would have seemed outlandish to “move $15 trillion of global gross domestic product to open source programmable blockchains.” Now that seems like the only way to bring speed, resilience, transparency, and ultimately trust to our global financial system, which is still running on 30-year-old banking software.
Forward-thinking enterprises followed the developers and have been investing in Ethereum for years now. Our partnership with Microsoft starting in 2015 was one of our earliest efforts to help enterprises adopt blockchain tech via Ethereum Blockchain as a Service on Azure. The Enterprise Ethereum Alliance and Hyperledger have also become valuable environments for large institutions to actively collaborate, vet deployment options, and develop common enterprise standards.
The Institutional Herd
So who are the major players using Ethereum? It’s a long list. Trade finance giants. Agritech giants. 32 of the Forbes Blockchain 50 projects this year are built on Ethereum. Now, the powerhouses are moving in. The Depository Trust & Clearing Corporation, which processes around $2 quadrillion worth of transactions per year, recently announced an Ethereum-based prototype for digital asset management.New initiatives are constantly sprouting up. In their final report last month, the EU Blockchain Observatory and Forum shared a crowdsourced blockchain initiative map that now charts over 700 initiatives worldwide.
Some of these projects are still very exploratory. Three-hundred-year-old central banks, for example, won’t adopt blockchain-based payments systems overnight. But according to a recent paper from the Bank for International Settlements, 80% of these legacy institutions are actively researching central bank digital currency (CBDC). The incumbents are realizing that in a world with super apps, bundled services, and an increasingly digital economy, Ethereum is not just the infrastructure they need to do bigger business with one another, but their lifeline for serving the 21st-century customer.
Since the beginning, Consensys’ mission has been to build enough infrastructure and tooling to enable the rest of the world to keep building a new trust infrastructure alongside us. We often liken this process to building a rocket ship mid-flight. The stakes are incredibly high and there’s no stopping now. Over the past year, we’ve been working hard to bring our products together into a full stack, integrated suite that makes Ethereum more plug-and-play than ever before, whether you’re a dapp team that needs API access to node infrastructure or a financial institution that is ready to optimize business processes and digitize financial instruments. With a layer 2 solution like the SKALE Network shaping up and Ethereum 2.0 on the horizon, we’re excited to see how new and improved usability and network performance unlocks developers, enterprises, and the next wave of super users.
They Can’t Imagine Life Without It
This chapter of the seven-step path to the big breakthrough is still being written and will unfold slowly but surely in the years to come. Innovation of this scale often can’t be measured in quarters or even years. However, we like to think that there are some users—and some major institutions—who already can’t imagine life without Ethereum.
Thank you all of you across the ecosystem for your support, enthusiasm, and tireless work these past five years. Upgrading our global infrastructure is no small feat, but it is a worthwhile and profoundly rewarding one. We can’t wait to see what this network looks like in another five years.
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