The World Computer: Why Investors Should be Stocking up on Ethereum
We put a man on the moon using the computing power of a handheld calculator. There’s literally millions of times more computing power in my phone, and that's just sitting in my pocket doing nothing.
So then I thought there's, what, billions of phones all over the world with the same computing power just sitting in peoples' pockets. And then I thought, what if we use all those phones to build a massive network?...
Make everything small, efficient, move things around. And if we could do it, we could build a completely decentralized version of our current internet with no firewalls, no tolls, no government regulation, no spying.
Information would be totally free in every sense of the word.
The above quote is taken from the first episode of the latest season of HBO’s Silicon Valley. It describes the seemingly crazy idea of building an entirely new layer of the internet — one that is decentralized and free from the chance of fraud, censorship, or any third-party interference.
While taken from a fictional television series, the idea is very much rooted in reality. As you read this, teams of computer engineers are racing to build a new, decentralized version of today’s web.
As TechCrunch proclaims, “The future is a decentralized internet,” a declaration that should have some of the world's most powerful private companies and governing bodies finding it difficult to sleep at night.
The proposed implications of a decentralized internet are no doubt as potent as they are wide reaching — so much so, in fact, that it would be impossible to list them all here. But here’s the basic idea:
A decentralized web would mean that the vast majority of your data would no longer be moved through a central network, removing power from a few major corporations and overreaching governments or any other centralized powers looking to control it.
As The Daily Dot puts it: “The future of the open Internet is decentralized, and it might just put an end to the surveillance state as we know it.”
The demand for this kind of a global communications network is clear. Citizens around the world have become increasingly concerned about their privacy, and rightly so. Governments across the globe are using the centralized web to take control of their citizens’ data.
We’ve seen it happening in the U.S. with a number of legal battles between federal investigators and private corporations, such as the case with Apple's San Bernardino fight.
Other companies have been more cooperative. Yahoo, for one, was revealed to be scanning customer emails at the request of the NSA.
Jointly, Facebook has documented a significant increase in data requests from the government, the bulk of which come with gag orders, prohibiting Facebook from notifying the targeted user.
In countries like China and Russia, the perils of a centralized web are even greater. These governments blatantly control the Internet in their respective domains to shape pubic opinion and culture. Propaganda, of course, is nothing new, but the level of control now held over public discourse is unprecedented.
The public’s response to these Orwellian developments has been far from complacent, with the international community protesting in demand of a more neutral internet for the last half-decade.
In 2012 a number of prominent internet communities including Reddit, Wikipedia, and 115,000 websites instituted an internet “blackout” in protest against SOPA and PIRA, which were regarded as infringements on internet privacy.
This became the largest internet protest in history.
In 2014 thousands of Hungarian citizens took to the streets to protest a bill that would tax data transfers.
In 2015, citizens of India gathered en masse in support of net neutrality, only to have the government shut down social media accounts two years later as a means of suppressing protest.
And today, U.S. citizens are becoming increasingly concerned as the FCC’s internet privacy rules have been overturned, giving ISPs unprecedented control over user data.
We have also seen a trend towards privacy, with social media shifting to self-destructing message apps such as Snapchat and end-to-end encryption platforms like WhatsApp and Signal.
Internet users fear a centralized internet so much, in fact, that when Facebook attempted to bring free mobile data access to underdeveloped nations, the idea was met with backlash. Users in developing countries feared that the centralized nature of Facebook’s Internet.org made traffic "vulnerable to malicious attacks and government eavesdropping."
But all these protests and net neutrality battles are just treating symptoms of a larger problem: the fact that governments and private organizations have access to centralized data in the first place. As long as traffic is flowing through a select few data centers across the world, there will always be forces seeking to take control of it.
The solution to this problem is to instead build an entirely distributed and secure layer of the Internet, what some are calling a “world computer.”
Using a computing platform inspired by Bitcoin’s blockchain technology, this world computer would allow for decentralized applications that remove third-party interference from the equation.
This platform, for those who aren’t already aware, is known as Ethereum. Ethereum is the leading offshoot of its widely known predecessor Bitcoin, but it goes far beyond the realm of cryptocurrency.
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Ethereum supports applications that run on its custom-built blockchain, an indestructible, public, and fixed ledger that comes with a number of key benefits.
The inner workings of the Ethereum blockchain are, as you might expect, incredibly complex. To fully grasp how the platform operates, you would need to gain an understanding of terms like hashes, Merkle trees, and value-exchange protocol.
But you don’t need to know how gears work to read your watch, and you don’t need to understand how transistors or circuit boards operate to use your mobile phone or understand its benefits. As unfamiliar as the Ethereum platform might be, investors would be remiss to discount its potential.
Inverse gives a good explanation of the benefits of Ethereum:
Ethereum cuts out the middlemen involved in all transactions, whether that transaction relies on money or not. In an idealistically Ethereum-powered world, there’d be no central bank taking percentages off each card swipe, there’d be no individual person deciding what’s content and what’s not, there’d be no Uber cutting rates on its drivers. There’d be very little bureaucracy.
Since Ethereum is powered by thousands upon thousands of nodes (crudely, a node is a computer connected to the Ethereum network), it won’t ever crash, can’t be censored, and isn’t open to fraud or interference.
In other words, Ethereum will be a way for people across the world to opt out of what's become a friction-laden bureaucratic world. Social and business contracts that currently require armies of overpaid middlemen and governmental red tape could be executed effortlessly and securely, with no fear of third-party interference.
For Ethereum to operate, though, it requires an internal currency: a kind of digital fuel known as Ether that pays users for their contributions to the network and facilitates programmable smart contracts.
This goes back to the Silicon Valley quote at the beginning of this piece, where Richard laments the fact that his powerful handheld computing device is spending the majority of its time not in use. Why not just remove the power from the private organizations and give it back to the people instead?
Better yet, why not pay them for it?
And that is potentially how Ethereum’s world computer could operate (or at least platforms like Golem being built on top of it): by paying users in Ether for their otherwise unused computing power while their phones are in their pockets and even while they sleep.
And while that might sound like users are getting paid in Monopoly money, Ether’s real monetary value has been skyrocketing. Trading at about $1.00 USD at the start of 2016, the digital currency has rocketed to ~$55 a unit in less than two years' time.
It’s suddenly outpacing the growth of Bitcoin as nerds, techies, and scrupulous investors like us realize that this could be the real deal.
But rest assured, it’s not just your pimple-covered, Mountain Dew-drinking basement dwellers who are feeding the machine.
J.P. Morgan Chase, for one, is developing its own public ledger (called Quorum) atop the Ethereum platform.
In February the bank formed an Ethereum alliance with Intel, Microsoft, Reuters, Credit Suisse, and more than two-dozen other prominent and established companies.
And earlier this week it was revealed that the UN wants to adopt Ethereum for its World Food Program.
Plus, we now know the SEC is even weighing an Ethereum ETF.
With each of these developments, the value of Ether continues to rise because it acts as an internal currency within the Ethereum platform. It’s the fuel that will run all the decentralized applications these companies are building, making it a very unique but vital form of currency.
In other words, you won’t be using Ether to buy a gallon of milk at your local grocery store, but major corporations and banks will be using it to execute smart contracts and to fuel decentralized applications.
That alone gives the digital currency incredible value and makes it one of the most compelling speculative investments today's retail investors can make.
Until next time,
Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and The Cutting Edge. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.
Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.
Outside the office Jason is a lover of science fiction and the outdoors, and an amateur squash player at best. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.
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