Etherium and the Blockchain

24 Oct 2015

I read a fascinating article that attempted to explain the concept behind Etherium and its potential. It described Etherium as the beginning of the Third Act. Thus, the article began the explanation at Act 1. This scene takes place with the introduction of the database. The database is the source of truth for all organizations that rely on it. What is in the database is akin to reality. That which is not compatible with a database is marginalized as trivial. This creates several problems. The first is that the limitations of the database are limitations in our interactions with these organizations. The second is that the communication between two databases is rarely easy.

Imagine two databases that run two separate organizations. Every machine has the fingerprint of its creator ingrained within its design. Thus when each organization creates their database it fits their needs specifically. Thus being able to speak between the two becomes difficult. Their must necessarily be some sort of translation. The article gives the example of the database for your car rental company and the hotel company. One database might use your Driver’s License ID as identification whereas the other might use your social security. These differences in database design must be reconciled in order for them to cooperate.

They certainly can be reconciled, but it is a time consuming matter. Imagine if we wanted to now connect this hotel/car rental cluster to an airline’s database. We would need to solve translation issues between both the airline and hotel as well as airline and rental agency. This suggests that the connection between databases is not scalable. Large clusters can form but in order to continue adding to the cluster, many potential problems must be accounted for.

This is where the blockchain comes in. To my understanding the block chain is a public ledger so that all users may access one domain of Truth. This creates a powerful foundation for many new technologies and ideas. As the internet has taught us, increased communication allows for a burst of ideas. This is what Bitcoin uses. However, Bitcoin engages this technology specifically for cash units. Etherium wants to extend the utility of blockchains to smart contracts.

If there are public ledger for agreements this rules out the need for a central agent that dictates the value of these contracts. When you have these central sources, they became increasingly powerful. Thus, monopoly forms and corruption flows. Etherium allows one to use a programming language to dictate the terms of a contract. If one states in the term that the benefits of my will shall go to my first born child, the smart contract will be obligated to fulfill this order. A powerful example of an organization using Etherium is Augur. Auguris a decentralized prediction market. Individuals can create new surveys and users can hedge bets against them. The maker of the survey gets a cut and those who correctly answer also receive a payout. It uses the idea of group confirmation to acquire conclusions on particular questions.

Etherium is still very much in its infancy. Bitcoin seems to have floundered as it has grown so we will see, I guess, what the future holds for the self proclaimed successor.

Published on 24 Oct 2015