In our previous posts, we looked at the philosophy behind Bitcoin. Ethereum, the second largest (by market cap) blockchain behind Bitcoin has a different philosophy. In this post, we are going to dive into the thinking behind the emergence of Ethereum.

Emergence of Ethereum

Ethereum is the second largest blockchain following Bitcoin. Unlike Bitcoin, where the founder (i.e. Satoshi Nakamoto) is a mystery, Ethereum has a more transparent foundation.

Vitalik Buterin, was a 19 years old whiz-kid, was a child of a Russian family which emigrated to Canada in 2011. His father who is a computer science professor mentioned cryptography and Bitcoin when he was younger and Buterin was amazed at the whole idea. He published Bitcoin Magazine with his friends and became a part of the Bitcoin developer community.

He did try to enhance Bitcoin’s capabilities beyond money transfer but realized that Bitcoin is not suitable for such activities. So he formed Ethereum foundation with 15 other developers in 2013 (Gavin Wood, who later formed Polkadot, a rival blockchain, was the other leading developer in that group).

The group came together with the vision to be the ‘world computer’, however, what they had was just an idea and a concept. It was still early for a product (a software) to introduce to the outside world, and they needed funding. The seed funding came for Peter Thiel (an early investor to Facebook) in the form of a USD 100,000 grant.

Image by carmule  from Pixabay

While the funding was great, obviously it was not sufficient, so the group decided to get a public crowding funding in 2014. What would be the best way to raise money? Using Bitcoin network. So they made an announcement “We will give 2,000 ETH for each BTC raised for the first two weeks and that ratio will drop gradually to 1,337 ETH later on”. They raised USD 18.5 million in total. The exchange rate at the time was 31 cents per ETH. That means an appreciation around 100,000 times in 2021 (with ETH around USD 3,000).

What is important above that price appreciation is the global usage of the Ethereum network. Ethereum hosts thousands of applications and is used by millions of people. Its developer size is around 2,500 (to give you a perspective, the second largest developer population is in Bitcoin which is around 400).

We will further elaborate on the philosophy of Ethereum in our next post.

This piece is first published in BlockchainIST Center on October 2nd, 2021.

None of the views expressed in this article should be considered as investment advice