Across many cryptocurrency market trackers (including Coindesk.com, Cryptotrendalert.com, and Coinmarketcap.com), invariably Bitcoin is displayed most prominently, along with other popular cryptocurrencies like Litecoin, Tether, Ripple's XRP, Ethereum's Ether, and many, many more.
Many of these non-Bitcoin cryptocurrencies are intended to be just that: currencies. Also known as “altcoins,” they’re direct competitors to Bitcoin and are intended for use as new currencies. However, some popular cryptocurrencies are not necessarily competitors of Bitcoin or other altcoins. They serve purposes other than use as a currency, with some acting like a liquid startup equity. Such alternative uses of cryptocurrency are some of the most exciting and potentially disruptive innovations to come from blockchain’s invention. Today, I’ll look at Ether, the cryptocurrency used by Ethereum, which is meant less as a currency and more as a full-blown cryptocurrency stack and developer platform.
Ether is built on top of blockchain, and Ethereum is essentially a middleware layer for people to build their own blockchain-based apps. Without a platform like Ethereum, building a blockchain app might require building your own bespoke blockchain platform (much the same way Ripple did). So, much the same way Java was positioned initially as the leading platform for building Web apps, Ethereum is the same thing, but for blockchain apps. With a close proximity to the way Bitcoin works, Ethereum is often perceived as a programmable version of Bitcoin.
Why are companies building on Ethereum? Because they want their applications to inherit some of the key benefits of blockchain, such as decentralization and data immutability, while relying on Ethereum’s APIs to give them a head start.
Companies that were built on Ethereum include KYC-Chain (an identity management service), Axiom Zen’s Cryptokitties (a blockchain-based game that raised $30 million from venture capitalist firm Andreessen Horowitz), and WeiFund (crowdfunding).
Ethereum emphasizes the value of decentralization, which is an important feature that results in the trust aspect of a blockchain service because it operates without a central server. In particular, many applications currently operate across a wide range of industries where the non-repudiability of the data that’s involved is backed by the immutability of blockchain’s distributed ledger, rather than a central authority or clearinghouse. Much the same way the decentralized nature of Bitcoin promises to disintermediate financial institutions as the fee-commanding middlemen in banking, finance, and payment verticals, other cryptocurrencies may force a restructuring of other vertical industries.
Let’s look at a couple of examples of those verticals. Insurance companies such as AIG have invested in blockchain technology to reduce costs and remain competitive. Other companies (like Golem and iExec) are looking to compete against Amazon AWS by creating decentralized alternatives. Essentially they’re looking to farm out their data centers during times of non-use to companies needing to run services.
However, Ethereum has its limits. Like much of Blockchain today, Ethereum is not chosen for speed. And unfortunately, barriers to scaling and speed will prevent large-scale services from using the technology practically.
As Ethereum continues to update, competitors launch here or there, sometimes as forks (copies and modifications) of Ethereum’s core. NEO and Stratis are currently the most well-known alternatives, although none so far have noticeably achieved the momentum and community-base of Ethereum.
Ethereum’s key limitations (namely scaling and speed) are common across Blockchain and thus are shared among competing products. Regardless, many businesses are built on blockchain from the ground up, rather than relying on Ethereum or alternatives. The aforementioned Ripple, a global payment solution on the blockchain, is the most famous.
Regardless of its limitations, if you’re looking to start your own blockchain product, Ethereum is a great place to start, although it’s not for everyone. But if you don’t intend to build a fully decentralized app and just want to know more and work more with the blockchain ecosystem, be sure to read more of this series as I explore other APIs coming from services built on blockchain.