When Satoshi Nakamoto invented Bitcoin in 2009, he actually created two other things: blockchain, a decentralized protocol that supports the transaction of Bitcoin, and what Joseph Lubin, a co-founder of Ethereum, called “blockchain economics,” the possibility of inventing more things based on blockchain.
In essence, Bitcoin is an application built on Bitcoin blockchain, which has its narrowly-defined protocol to support only Bitcoin.
About three years after Bitcoin was invented, recognizing the potential of blockchain technology for more applications than just currency, developers in the crypto space began considering building a more broadly-defined protocol.
In 2013, a then 19-year-old programmer named Vitalik Buterin proposed the idea of Ethereum protocol.
“Ethereum is a much more expressive, much more powerful blockchain system. He [Buterin] described the system as more scalable in a human sense,” said Lubin, a Canadian entrepreneur who became Buterin’s business partner, at Friday’s SXSW Conference in Austin, Texas.
In layman terms, the most innovative thing that Buterin did with Ethereum was separating the blockchain (protocol) layer from the applications built on top of it. This new structure allows software engineers to build any applications that fit their specific needs on Ethereum blockchain.
“It’s a new way of architecting and delivering applications. Instead of a client-server architecture, where you got one company, say Google or Facebook, which owns a bunch of servers to provide services, this new application paradigm has all different nodes on the Ethereum network. They are all effectively the back-end for your application. So, nobody is overly controlling it.” Lubin explained.
The Ethereum token is now the second largest cryptocurrency in the world by market value. However, Ethereum was never created as a new form of money.
As Chris Castiglione, an adjunct professor at Columbia University who teaches a course on digital literacy, explained to Observer, “Bitcoin is competing against existing money to replace them with a truly digital currency. Ethereum is a ‘token.’ What Bitcoin does for money, Ethereum does for everything else.”
One area where Ethereum blockchain is widely adopted is copyright protection.
Kodak, for example, launched an image rights platform in January called KodakOne based on Ethereum blockchain. A similar platform is Ujo Music, an Ethereum-powered music rights marketplace.
On these platforms, artists can upload and sell their work with a customized user policy through a “live document” system called open law, a part of the Ethereum infrastructure. Artists can sell licensing rights and other rights to members on the same platform and get paid in the form of digital tokens.
“Unlike the traditional music industry, where there are lots of people with law degrees who serve intermediary roles and extract a tremendous amount of money from the ecosystem, this new blockchain architecture enables content creators to more directly access their fan bases,” Lubin said.
Ethereum blockchain is also the choice of 70 percent of companies that issue ICOs, according a recent study by consulting firm EY. Companies create digital tokens on top of Ethereum blockchain and sell to investors like securities, except that these tokens are not tradable on public markets and not regulated by governments, which has created its own share of troubles.