Insights about cryptocurrency and Ethereum

1. Power is shifting from business people to coders.

My book tells the story of Ethereum, the second-largest crypto asset by market capitalization. The initial group of eight cofounders consisted of programmers and business people. Within the first few months, tensions rose between the developers (or “devs”) and the business guys. Ultimately, the devs prevailed.

In contrast, when crypto was barely a thing, a cofounder of Coinbase, Fred Ehrsam, said that when he was a programmer at Goldman Sachs, he was basically considered an IT guy. The business people would stand in front of him, barking orders with one foot up on his desk.

Wall Street used to be considered the center of power, but over the last few decades, that has migrated to Silicon Valley. And with the rise of crypto, it has moved out of Silicon Valley and gone global. News articles have been reporting that we’re regularly seeing Silicon Valley executives jumping ship to work in crypto.

I have sources who have gone from nothing to gazillionaires in the span of a few years, in locations as diverse and unexpected as the Philippines, India, and Brazil. These are just programmers who learned blockchain coding, so they don’t need to work for a corporate entity to make big bucks, nor do they need to be near the Bay Area. They sit at their laptops and do it all from home.

2. Power is shifting from centralized players to decentralized organizations.

Bitcoin is remarkable because it achieved a market cap of roughly $1 trillion without a CEO, executive board, or hiring any employees. All of this is possible because of the incentive design of Bitcoin the asset, and Bitcoin the network. People who run Bitcoin software are entered into a contest about every 10 minutes to win the new bitcoins being minted by the software. To them it feels like a chance to win money, meanwhile the Bitcoin network benefits from added security because more computers on the network means it is harder for any single entity to take over Bitcoin. This approach is more novel than hiring an IT department and offering them salaries and stock options.

Bitcoin was the first example of a decentralized organization (meaning there’s no need for business people to manage it), but my book focuses on Ethereum, which is a platform for creating any kind of decentralized application: lending protocols, social clubs, exchange protocols, grant-making organizations, groups of people trying to buy things like a Wu-Tang Clan album, and more. Ethereum is like an App Store for developers to build and upload decentralized apps—all without any CEOs, boards, or legal contracts.

These groups are called DAOs, which stands for decentralized autonomous organizations. You can think of them as little democracies. Some people only work for DAOs by putting forth proposals to them, and then doing the work if a proposal gets approved. Many of the DAOs have their own tokens, called governance tokens, which function as a vote on submitted proposals. DAOs can have thousands of members, or they can be small groups of friends who invest in crypto or NFTs together. These DAOs, or little democracies, are a far cry from traditional startups or corporations. The decisions are made collectively, and the spoils are shared amongst all token holders.

3. Even when it comes to technology, politics and personalities matter.

A popular tool on Ethereum are software programs called smart contracts. These are automated software programs that (like chat bots) will spit out various transactions, depending on your input. They’ve often been described as a financial vending machine.

That may sound like a sterile piece of software, impervious to human influence. However, a core tension is that the programmers believe they’re building what they like to call “trustless technologies,” but time and again the personalities involved (and their clashes) affect the course of events. Even these so-called machines, which interact with broader markets, are subject to manipulation by behind-the-scenes actors.

For example, there was one particular developer who had been instrumental in architecting Ethereum. He was brilliant, but also arrogant, and not shy to point out other people’s mistakes. After he got kicked out of the Ethereum Foundation, he continued his competitive ways, writing blog posts that dissed the foundation’s software. Years later, he fundraised about $145 million worth of ether for a new project, but due to a flaw in the wallet he and his team designed to store that money, $90 million of those funds got frozen—unusable. Ethereum could have done something to try un-freezing the money, but after his years of sowing ill will amongst developers, they were not at all inclined to help him.

The crypto and blockchain crowd like to dream of a world in which trusting flawed humans isn’t necessary, and financial transactions can be guaranteed with the right code. But how people treat others can have a profound impact on the development of so-called trustless systems.

4. Reputation is more valuable than money.

When I published my book, I was able to break the news on who was behind the biggest theft of ether ever—an amount worth roughly $11 billion today—due to peculiarities around how the hacker stole the money. It was tied up in a venture fund called the DAO, and there were delays built into any withdrawals. This person had ample time and opportunity to return the funds, and, before the hack, the suspect reached out to the creators to point out the decentralized venture fund’s flaws. These were the exact flaws that later made it extremely difficult to resolve the hack without simply erasing the DAO’s existence—thus proving his concerns right.

If the suspect had, instead, hacked it, but then come forward and said he would return the money after having made his point, then the community would have considered him a hero. Indeed, now there are some security researchers who are famous because they identify faulty code and rescue the money before it can be hacked. Plus, because it’s visible on the blockchain that the money was stolen, he couldn’t do much with it anyway.

One of the DAO creators found out the suspect’s identity, and said it was too bad for him that he hadn’t done anything to rectify the situation: “He really screwed the pooch. Reputation is way more valuable than money.”

5. Be discerning about your business partners.

My book starts with the main character, Ethereum creator Vitalik Buterin, having an idea about a new type of blockchain. He wrote a white paper and emailed it to 13 friends in November 2013, on the day bitcoin crossed the price of $1,000 for the first time. It was a heady time in bitcoin. Pretty much overnight, the high price created a number of bitcoin millionaires. When people saw the potential in Ethereum, they realized it could turn them into ether millionaires too. So, the initial group of co-founders and colleagues working on Ethereum were a mix of idealists and opportunists with dollar signs in their eyes.

Over the next few years, Buterin found himself in one crisis after another. He had a hard time detecting ulterior motives, struggling to distinguish between opportunists and good people without selfish intentions. Additionally, he had difficulty telling people no, which led to multiple instances in which he was overruled by those with stronger, greedier personalities. After years of learning, he finally found a group of true friends who weren’t attached to him because of how he could benefit them. He started to understand how not standing up for himself and his principles could harm others, and Ethereum.

While Ethereum has managed to have a big impact on the world despite the drama and backstabbing of its early years, Buterin would have saved himself a lot of heartache and stress if he’d learned, early on, to set boundaries for himself.

This article originally appeared in Next Big Idea Club magazine and is reprinted with permission.

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