Bitcoin Challenged by Alt Currency Newcomer: Ethereum, Not a New Periodic Element, but Competitive New Software

April 4, 2016

Ethereum, the newest digital currency to garner substantial attention from consumers and corporations alike, is hailed by many as Bitcoin’s newest rival.  Recent weeks has seen ethereum gain users, value and attention in a way that is causing many analysts to forecast a lasting presence in the world of digital currency.
Invented by a Russian student, Ethereum is currently run by Blockchain, the same software which powers Bitcoin.  But as bitcoin has faced trouble from some internal, and many security and legal issues, Ethereum has emerged to benefit from bitcoin’s troubles.  It is the first substantial alternative to bitcoin in several years, and has many in the digital currency world taking notice.  Described by the New York Times as “a new virtual gold rush,” ethereum has experienced a rise in value of around 1000% — in the past 90 days alone.  In addition, the value of Ethereum’s individual currency units has varied, ranging from one to twelve dollars per unit.  Given the breadth and availability of the software, ether currency as a whole represented over one billion dollars, compared with bitcoin’s six billion.
Described by some as a smarter currency than bitcoin, ethereum boasts a more complex structure and some new features that are attracting new users.  Ethereum software can provide individual currency, called “ether,” serve as a software structure for online markets, and enable new transactions called “smart contracts.”  Proponents of the new currency and software system maintain consumers can do a whole host of tasks on ethereum which show its flexibility and power.  Proponents report “there are already dozens of functioning applications built on Ethereum, enabling new ways to manage and pay for electricity, sports bets and even Ponzi schemes.”
Smart Contracts
One of the main ways Ethereum has gained in value is its smart contract feature.  Smart contracts enable programmers to directly enter contract and program agreements into the blockchain.  So, holders of the Ethereum can form their own, self-enforcing contracts that allocate money according to agreed-upon rules.  People wanting to effect a transaction through ethereum would work together to come up with terms and an agreement, which they would program directly into the underlying blockchain.  This smart contract feature is available on any of the applications formed to run on ethereum, enabling users to obtain and use Ethereum to form business contracts, simple sales, and even enforce online betting agreements.  Ether, the currency of ethereum, can also be used to pay for “the network power required to process the bet.”  Hence, both parties can structure the entirety of their transaction, and exercise control over the functions used to effectuate the transaction.
Furthermore, Ethereum has garnered a surprising amount of attention from the business community, boosting its credibility.  IBM announced it is considering alt. currency such as Ethereum to “manage real-world objects in the Internet of Things.”  In addition, Microsoft has been working on several projects pairing Ethereum with its cloud, Azure, as a tool to do business across several industries.  Further still, large banks such as JPMorgan are interested in Ethereum as a tool for moving and packaging money, engineering large, private blockchains using Ethereum.  JPMorgan produced a software called Masala, for the sole purpose of enabling some of its largest databases to communicate and trade with Ethereum blockchains.
Still, experts say Ethereum has a ways to go before it can effectively challenge bitcoin without suffering from some of the same issues that plagued bitcoin’s rise and success.  Ethereum is far from being established in the world of digital currency.  Joseph Bonneau, with Stanford’s computer science department, said Ethereum’s “longevity” depended on the development of markets around it, as bitcoin is still the biggest player in alt currency.  Others have jumped at the chance to develop business using Ethereum.  Joseph Lubin cofounded ConsenSys, a network of developers who construct applications around the popular alt currency.  Lubin described his excitement for Ethereum when he learned its capacity to develop new markets and contracts, “it delivered on some of bitcoin’s failed promise[s].”  Lubin continues to develop applications around the new blockchain:

“Ethereum present[s] the crystallization of how to deliver on the broad strokes vision that bitcoin presented.”