The alternative, which Zamfir and Buterin were working on in Montreal, is called Proof of Stake. In this scenario, the holders of the currency in question become the validators, who typically take a small cut of every approved transaction. Theoretically, the more crypto you have, the more influence you have, so PoW partisans consider PoS to be plutocratic as well—a new gloss on the old problem of too much in the hands of too few.
In 2013, Buterin travelled to San Jose for a Bitcoin meet-up, and felt that he’d encountered like-minded people for the first time in his life—a movement worth devoting himself to. “The people that I had been searching for the whole time were actually all there,” Buterin told me. Zooko Wilcox, a cryptographer, recalled Buterin telling him, “This is the first technology I’ve ever loved that loves me back.” Buterin had been writing blog posts about it for five bitcoins per post. Together, he and Mihai Alisie, a Romanian blockchain entrepreneur who’d read his posts, founded Bitcoin Magazine. Buterin had a knack for explaining things—at least to an audience already primed to understand. But, as he travelled around the world to Bitcoin meet-ups, he began to think that the technology was limited, that attempts to jury-rig non-money uses for this digital-money platform was the computational equivalent of a Swiss Army knife. You basically had to devise hacks. He envisaged a one-blade-fits-all version, a blockchain platform that was broader and more adaptable to a wider array of uses and applications. The concept behind Bitcoin—a network of machines all over the world—seemed to be a building block upon which to construct a global computer capable of all kinds of activities.
In the mid-nineties, Nick Szabo, a cryptographer and early cypherpunk, coined the term “smart contract,” which two decades later became the basis of Ethereum. This is a means of setting and enforcing the terms of an agreement without a middleman—no lawyer, notary, bookie, or referee. The terms are enshrined in and triggered by code, rather than by someone’s interpretation of legal language or fit of pique. The proposition is that computer code, unlike, say, Hammurabi’s or the Federal Reserve’s, is impartial—that it can eliminate, or at least greatly reduce, the role of toxic subjectivity. This could cover a simple exchange of digital money, or the sale of a house, or an insurance payout, or a bet. Szabo’s preferred metaphor was the vending machine. You don’t generally require someone to vouch for the machine. In a smart-contract world, as he described it, if a borrower hasn’t paid off his car loans in time his car just stops working, as per the terms of the loan, which are embedded in the code and integrated into the mechanism of the car.
The reliability of the code, and of the system for checking it, would discharge humans from having to read minds and look into hearts, or from having to pay someone else to make up for the fact that they cannot. As it stands, here in the dusty old legacy economy, we have to pay other people, and squander time and resources, to establish a modicum of trust. It’s a legalized kind of protection racket. A favorite example is title insurance; an entire industry exists to prove that the person selling you a house is the owner in good standing. Provenance—of property, both real and intellectual—is big business, but, to the blockchain believers, it need not be. Code shall banish the odious frictions and costs. “Blockchains are more fundamentally about increasing our ability to collaborate across these large social distances,” Buterin said. “It’s the trust machine bringing more trust where there was less trust before.”
Another thing we presently outsource, perhaps to our peril, is our identity: the affirmation of who we are, along with whatever data sticks to that. Identity as we know it now is typically maintained by a centralized state—by the taxman, the department of motor vehicles, the police. Then it spills out into the world, often without our knowledge or consent, through our transaction histories, browsing habits, and unencrypted communications. In the Google era, we spray aspects of ourselves all over the Internet. The blockchain innovation is what’s often called “self-sovereign identity,” the idea that you’ll control and parcel out information about yourself, as you wish. The Ethereum network maintains the attestation.
Then there are those vast realms where the old intermediaries hardly exist at all. The trust machine’s most obvious beneficiaries are said to be the disenfranchised and the so-called unbanked—the billions of humans around the world with no passports or access to any reliable kind of financial system. We may find it harder to see the utility here in our daily lives, where we can rely on Citibank, Visa, Venmo, and Western Union to handle our transactions and keep track of all the money flying around. Amid such a sturdy (if extractive) system, the blockchain can seem like a back-office fix, a change in the accounting scheme, of interest to the systems geeks and bean counters but not to oblivious customers. But if you are, say, a Venezuelan citizen or a Turkish journalist, or a refugee from Syria or Myanmar, the prospect of being able to maintain and render portable both money and identity could be hugely liberating, perhaps even life-saving. Unless you forget your private key.
In November, 2013, Buterin wrote up a white paper—cryptoland is a blizzard of white papers—proposing a new open-source, distributed computing platform upon which you could build all kinds of smart-contract applications and uses, as well as other coins. He called it Ethereum. “I was browsing a list of elements from science fiction on Wikipedia when I came across the name,” he said then. “I suppose it was the fact that [it] sounded nice and it had the word ‘ether,’ referring to the hypothetical invisible medium that permeates the universe and allows light to travel.” He expected that experienced cryptographers would pick his proposal to pieces. Instead, everyone who read it seemed to be impressed by its elegance and ambition. Among the early enthusiasts were a handful of Toronto Bitcoiners who’d got to know one another at informal meet-ups and in a Skype group chat—“a regular call with serious people,” as one of them recalled.
The foundational gathering, in the Ethereum creation story, occurred at the North American Bitcoin Conference in Miami, in January, 2014. These serious people decided to rent a beach house, and there, in a week or so, banged out a fuller sense of what Ethereum, Buterin’s “computer in the sky,” as he described it to me, might become. They defined themselves as founders. Among them were Gavin Wood (a British programmer who later took on the role of Ethereum’s chief technology officer), Charles Hoskinson (a Colorado programmer who was briefly the C.E.O.), and Anthony Di Iorio, a Torontonian who was underwriting the project. Di Iorio had invited a fellow Toronto Bitcoiner named Joseph Lubin, then forty-nine, who, with a sense of the import of the occasion, brought along the reporter Morgen Peck, to bear witness. She later described it as “an after-hours grease trap” for dozens of additional participants in the conference. (The online publication Backchannel published her story, as well as a photograph she’d snapped of Buterin working at his laptop one morning while the rest of the house slept. Peck says that the pot pipe on the table next to him wasn’t his.)
Buterin’s Miami début of Ethereum was a hit. Nineteen at the time, he dropped out of the University of Waterloo, where he’d been studying computer science, and devoted himself full time to the Ethereum project. “We realized this was going to be big,” Hoskinson recalled.
The founders assumed different roles. Lubin, who had Wall Street experience, was the chief operating officer. “That’s one of the silly titles we chose to give ourselves,” Lubin told me. “It didn’t really mean anything in that weird open-source project.” (Buterin dubbed himself the C-3PO.) Lubin positioned himself as the grownup in the room, the worldly chaperon. Wood, with whom he eventually clashed, said, “He wanted to be the mentor, the Obi-Wan Kenobi, but unfortunately he became the Darth Vader.”
Months of work ensued, in which the founders came up with a lexicon and a conceptual framework both to define Ethereum in lay(ish) terms and to inoculate it against possible legal consequences. When the idea arose to sell new cryptocoins to the public, to raise money for the project, Lubin, along with Hoskinson, recognized that this might be a fraught enterprise. “Some people, including me, pointed out that it looks like we were going to raise tens of millions of dollars from bitcoin nouveau riche and that we might want to talk to some lawyers—that we should be concerned that we might be selling an unregistered security to Americans,” Lubin said. It was an exercise in semiotics with vital legal implications.
“In that process, we pretty much defined what Ethereum is and what ether is,” Lubin said. “We realized—I realized—that we had an opportunity to tell people what this is, and there was a good chance that they were just going to accept our understanding and that we could create reality that way. And it seems to have worked. We seem to have created a reality.” Language is consciousness: they defined ether as a “crypto-fuel,” which one needs to run programs and store data on the Ethereum system. Wood, at a meet-up in New York, called it “a computer at the center of the world,” like a sixties-era mainframe that everyone everywhere can use.