The Future of Ethereum (or “Ethereum by Analogy”)
Pre-script: This post starts out sane and ends up pretty insane. I know it. You’ll know it. But it’ll be fun!
Analogies are like sporks: useful, but imperfect.
They are a little clumsy, but way better than nothing.
Spork-like analogies have a glorious history of helping us begin to understand new technologies. We didn’t go straight from “Horse” to “Car” — we moved awkwardly through “horseless carriage” and “automobile.” What is now “the internet” was once “the World Wide Web” or even “the information superhighway.”
Our little pea-brains need analogies to build a bridge from what we already know to what we barely understand. As our understanding evolves, our terms evolve. We get more precise and have less need to tie the unknown to the known.
I’m working to better understand Blockchain technology, especially Ethereum, and use analogies to understand the impact of Ethereum and what Ethereum might become in the future.
Welcome to my drawer of Sporks.
Guessing the future of Ethereum through analogy
Ethereum is used by developers to build and deploy apps. In this way, it is kind of like AWS.
It is NOT like AWS because those servers aren’t owned by one company, but by many different people and organizations throughout the world.
Those apps write data to the Ethereum Blockchain, for which the apps (or their users) pay a small amount of Eth. In this way, it is like how Apple App Store gets revenue when apps collect money.
Ethereum is also like the Apple App Store in that it exhibits Network Effects — the more people building on Ethereum, the more popular Ethereum is, and the more attractive it is for the next person to build on Ethereum as well.
It is NOT like Apple App Store in that anyone can build on Ethereum without any required approval process, private information, or specific guidelines to follow.
Ethereum allows users to execute transactions securely and irreversibly, recorded on the blockchain. When transactions occur, users pay some Eth for the service. In this way, it is like how VISA collects money on transactions that happen on its payment network.
It is NOT like VISA in that there is no process for un-doing, cancellation, or dispute resolution.
Ethereum has been called the “Settlement layer” of the internet. It contains a set of rules and standards for how apps and programs operate together. In this way, it is similar to HTTP (the text protocol of the internet) or POP3 (one of the email protocols of the internet.) These protocols also have Network Effects — the more people who agree to use a specific protocol, the more “sticky” it becomes.
It is NOT like a protocol in that protocols in web1 and web2 are open-sourced and free, and do not capture much (or any) of the value they create.
Ethereum earns fees from users, apps, and developers. It pays miners, stakers, and employees. In this way, Ethereum is like a company in that it generates revenue and pays expenses.
It is NOT like a company in that anyone can purchase Eth (similar to shares), and there is no board. The profit created from the operation of the Ethereum network goes back to the holders of Ethereum through a variety of mechanisms (Into the treasury to fund future improvements, or burned like a stock buyback), or go to reward participants in the ecosystem. Incentives are aligned to improve the value of Eth, not to gobble up salary, perks, new share issuance, or favor insider suppliers.
Anyone who believes in the growth of Ethereum and wants to participate financially can purchase Ether, the cryptocurrency. In this way, Ether is like owning a stock. It may increase in value over time as the popularity and the usage of Ethereum network grows.
It is NOT like a stock in that owners of Ether get no official voting rights or legal standing. Also, that no one is restricted from buying it by their location, age, income level or local regulation.
Ether (the token, or currency of the Ethereum network) can be spent using apps, games, buying digital art, or traded for other currencies. In this way, it is like having a US dollar.
It is NOT like a dollar in that Ethereum creation is not decided by one country’s central bank, but determined by a set of rules agreed upon by the community and executed by computer code.
Owning Ether (the token, or currency of the Ethereum network), and keeping it in your wallet means it may appreciate (or depreciate) over time compared to a local government currency. The value is changing constantly. In this way, it is like owning a stock or commodity.
It is NOT like owning a stock in that companies are made of a variety of capital types (debt, cash, equity, preferred equity, etc). Participants in the Ethereum ecosystem all receive Ether, which is identical to all other Ether.
In a company:
Customers - get value from the product/service
Employees - get value from salary
Shareholders - get value from stock appreciation
Suppliers - get value in $$$$
Leadership - get value in salary and stock
Community - get value from externalities
In a network/DAO:
Customers - get value from the network (using tokens)
Employees - get value in tokens
Shareholders - get value from tokens
Suppliers - get value in $$$$ or tokens
Leadership - get value in tokens
Community - get value from externalities
Image from BitDegree.org
Predictions for an Ethereum future
We’re still early early early in seeing how reliable, cheap digital scarcity will change how we all use the internet. My rough estimate is that 0.01% of internet users have an Ethereum address, and I bet this is 10% in 10 years (ok maybe 20 people are busy). It’s so early Spellcheck still thinks Ethereum is a typo:
I think it’s sane (bold, but sane) to expect that the digital economy is transformed by this tech over the next 20 years at the same magnitude as PCs, Internet, Web2, and Mobile.
To sum up…
IF… and we’re not here yet, but IF…
IF… Ethereum has the scaled cost advantages of AWS plus the network effect of the App Store plus the value transfer mechanism of VISA at the planetary scale of an internet protocol with the insanely high margins of a well-run software company and the aligned incentives of a totally new form of open, global online organization and the utility of the dollar and it becomes the core of the next era of the online economy…
Then what is it worth?
$1 Trillion Dollars?
If you could have invested in a tollbooth on all of web2… what would that have been worth?
$10 Trillion Dollars?
Because that’s what Ethereum* may turn out to be for web3.
$100 Trillion Dollars?**
My Spork breaks when I try to add too many analogies.
$100 Trillion is probably too crazy. The GDP of planet earth was estimated at $87 Trillion in 2019.
But I think it’s a good ol’ fashioned lollapalooza. And if there’s one consistent trend in our prediction of the impact of new internet technologies — we’ve radically underestimated the impact of software innovations, and how they compound upon themselves.
Yea. I have trouble sleeping too. Welcome to the club.
*It is still early to make calls. Eth may get displaced by one or more projects, in whole or in part.
**$100T Ethereum is ~ $1m/Eth. Would be cool. Just a little manifesting.
Disclosure: I own some Eth. Obviously.