A computer programmer explains Ethereum to laymen

Baozou Comment : Although blockchain is very popular, most people do not understand or even know about it. The author of this article is an entrepreneur in the blockchain field. He hopes to bring some knowledge to those blockchain laymen, telling them the relevance of Ethereum to people's daily lives and the difference from another mainstream currency, Bitcoin. The article takes AirBnb rental and Slock smart door lock as the entry point, both of which are projects related to people's daily lives and are easy to understand. The author also has his own views on the future of Ethereum, but the technology is just starting out, and no one can be sure of what the future will be like.

Translation: Annie_Xu

A lot has been written recently about the drama of Ethereum’s DAO and its wild price swings, but very few have explained to the layperson why Ethereum is impacting everyday life in the way it is, and especially why it can fill in the gaps left by Bitcoin.

I'll use the example of Slocks - the internet-connected locks that made the German startup Slock.it famous. Let's say you want to rent out your house while you're on vacation.

In this regard, Airbnb does a good job, albeit with its own flaws.

1. Fees: Airbnb charges 9-15%

2. Handing over the keys: What if you are on a plane? What if tenants move in one after another? How to prevent the previous tenant from entering the residence at will during the next lease?

3. Limited payment methods: Booking with Airbnb is difficult or even impossible if the guest does not have an international credit or debit card. Maybe this does not seem that important, but it is important to know how difficult it is to obtain these cards in many countries.

To leave Airbnb out, tenants must arrange their own logistics - booking, payment, deposit, check-in and check-out; all of which must be done through the door lock. This requires not only smart locks (electronic locks), but also a way for the door lock to interact with tenants over the Internet and follow the rules of the landlord.

Here’s how the folks at Stock.it describe Slock.

Without Airbnb, landlords and tenants still need to rely on the market, a place to find each other. The market under the Slock framework is called the Universal Sharing Network (USN). Therefore, the tenant agrees to the rental terms of the USN and pays the landlord's Slock to obtain the right to stay. After the tenant checks out, the Slock will cancel his or her right to stay and transfer it to the next tenant.

For this process, please refer to Slock.it’s presentation at Devcon1 (Ethereum Developer Conference) last November.

This is a reflection of how Ethereum affects everyday life. Tenants do not need to directly contact homeowners or even companies like AirBnb. Instead, they interact with USN to find a room, pay for the room and check in with the homeowner's slock. Homeowners can enjoy their vacation, while USN only charges 1-2%, which is much cheaper than AirBnb's 9-15%.

How does USN manage to charge such low fees? Because it is a robot and its owner is also a robot.

Where Ethereum fits in

The first illustration provides a lot of detail.

See this more detailed diagram below.

People often get confused about this. Slock is not a single piece of software, nor is it a product made and sold by Slock.it. Slock is a combination of a standard consumer smart lock (like the Danalock in the Slock.it demo) and an Ethereum Computer, which can communicate with door locks (via industry standard protocols Z-Wave or ZigBee), USNs, rental information, and contracts at the same time.

The latter, the Ethereum computer, constitutes Slock.it’s product. The remaining magic is that the USN marketplace is not only a cheap alternative to AirBnb, but a fundamentally different system (which requires mentioning the real purpose of Ethereum).

USN is not a company, it doesn't even have employees. It is an automated computer program.

But it is not an ordinary computer program. It is a collection of programs. For example, each rental information is a program that sends and receives payments according to internal logic: deposit, check-out time, etc.

Unlike AirBnb, these programs do not have any servers, but require many computers - interconnected "nodes" of a distributed network, just like BitTorrent. This network is Ethereum, and its special feature is the payment program it runs - smart contracts.

These smart contracts can receive and send payments to tenants or homeowners, but instead of using credit cards or banking networks, they use the Ethereum network; payments can be made in dollars, euros, or ether (Ethereum's native currency).

Payments between stocks, tenants, and landlords are all made in Ether, and although the USN may display the price in U.S. dollars, the specific price is determined based on the exchange rate at the time, just like a foreign exchange rate.

Now let’s look at DAOs.

The DAO story is complicated and reached its nadir last Friday. But the point here is that the DAO owns the USN and the 1-2% fee mentioned above. It is not a person, not an entity, not a CEO, not a lawyer, but another smart contract on Ethereum.

Why not Bitcoin?

The problem with Bitcoin is, what is the basis for software like AirBnb to run? There must be a program to accept reservations, register tenants, refund deposits, etc. through USN. What software do you need to rely on?

In Ethereum, this software is a smart contract that runs on computers in the network. The purpose of running an Ethereum node is to run smart contracts, just like running BitTorrent is to agree to store and distribute BitTorrent files.

So if you buy Slock.it's "Ethereum Computer", you can run AirBnb software, or any other smart contract. The same node can also run software to rent cars, run online casinos, conduct elections, etc. This is why Slock.it calls it an Ethereum computer, not a Slock computer, which is just general purpose. Bitcoin nodes are different, they only run specific programs, and many only allow you to make payments.

So you either have to run “Bitbnb” on your own server (or a special Bitbnb computer), or someone needs to build a layer on top of Bitcoin to support smart contracts, just like the web is a layer on top of the internet.

Counterparty and RootStock are smart contract projects built on Bitcoin, but the state of Counterparty (how much money the tenant owes) is bound to the Bitcoin transaction, which is not suitable for slock purposes.

This also limits Counterparty’s transaction speed, which is Bitcoin’s 10-minute block time, rather than Ethereum’s 15 seconds. At the same time, RootStock is far less developed than Ethereum and has many unresolved technical flaws (how to securely transfer currency between the Bitcoin blockchain and the RootStock blockchain).

In both cases, you’re relying on two separate networks and technologies — Bitcoin and Counterparty or RootStock.

So it’s not that Bitcoin is not possible, but it’s very troublesome.

For example, you can add devices to a wall clock to detect hand changes and turn it into an alarm clock. But why not just use a smartphone and download an alarm app? This is the power of general-purpose computers.

Not sure yet

Ethereum can do things that Bitcoin cannot do, but the ideas of Slock and Ethereum themselves still have the possibility of failure.

1. Hardware: The hardware competition that Slock.it participates in is fierce, and ASIC manufacturers have shown us this.

2. Network effect: Even if the software has good performance and is cheap, how can most people abandon AirBnb and choose to buy and build unfamiliar physical equipment, after all, the cost difference between them is only a few points.

3. Overhyped automation: Slock and Ethereum supporters often gloss over tasks that cannot be automated. When a homeowner complains that a tenant broke his TV, the robot cannot be sure whether he can get his deposit back. Smart contracts often fail to eliminate the human factor, but can only simplify the process.

4. Still in testing: Ethereum is an extremely ambitious project, but its core features have not yet been designed (proof of stake, sharding, etc.), let alone implemented, which will affect progress in many ways. Slock and USN are more like embryos and have not yet taken shape. Even if they develop well, Ethereum and smart contracts will always be more complex than Bitcoin, and there will be an "attack surface" that hackers can exploit.

5. Lack of use cases: In the short term, it is unlikely that any use case of Ethereum will be recognized by consumers. Slock is the most convincing one I have ever seen, but it is still so esoteric. Even if Bitcoin has simpler and more convincing uses, such as remittances and online shopping, it still cannot gain good consumer support. It is inevitable to think about how many people will buy what Ethereum, the chef, has prepared for us.

6. DAO is a mess: I think Ethereum is a good idea, but it may not succeed; slock has risks, but it is also a viable business plan. I was not optimistic about DAO before its tragedy and comedy. In addition to the huge loopholes, there are many incentive mechanism problems, and the premise that the masses are good at investing seems to be fundamentally wrong. To put it another way, even if DAO had a good investment vision, it would not be able to fool the SEC by treating tokens as shares.

Some predictions

But I would say that it is very easy to just evaluate a technology without making any predictions.

So I'm going to give my prediction.

1. Unlike most cryptocurrencies that faded into obscurity, at least Bitcoin and Ethereum survived, but it is very likely that only one will remain. By 2017, either Bitcoin will reach $2,000 or Ethereum will reach $120.

2. Although Bitcoin came earlier, unless its developers can resolve their differences, Ethereum will surpass Bitcoin in market value in 2017. Now it seems that Ethereum may have adopted proof of stake before Bitcoin's transaction speed reaches ten transactions per second. The comparison of their development speed is somewhat embarrassing.

3. The DAO is dead: Even if the DAO emerges from the crisis, there are still many technical and regulatory minefields waiting for it. The hard fork plan will be implemented, returning the ether to investors (although more than 20% of people will not have time to withdraw), but the end of the DAO will come. Slock.it may also fail, their funding model and reputation will be shattered. But Ethereum will pick up the pieces and move on.

4. Ethereum and Bitcoin applications are not yet systematic. Compared with the idealism in 2013, this is a project that will last for decades, not just a few months. Once this day comes, it will not spread slowly, but will suddenly rise in one or two core areas. For Bitcoin, it may choose the Philippine remittance business, people who evade regulations in China and Venezuela, online poker sites, or perhaps the next Silk Road. For Ethereum, everything is too early. But projects like Slock.it that "disrupt disruptors" (Airbnb, Uber, etc.) may be more direct.

Although harder to measure than to price, an important metric for Ethereum is user adoption.

Like Bitcoin, Ethereum could choose to avoid users and choose other ways to succeed, such as sovereign wealth funds can have different forms of cryptocurrency. But to win with technology, Ethereum needs the support of non-geeks, and the reason for attracting them is not because it is cool, but because it is more practical than other alternatives.

The development of Bitcoin is a bit depressing. In seven years, it has attracted many fans, technicians, libertarians, speculators, venture capitalists, and merchants, but no regular users. Ethereum's success is likely to depend less on social changes in 20 years and more on optimizing people's lifestyles.