it's all about finding the right sources – the people who know the story. And I'd been lucky enough to find one such person. Exchanges are one of the only institutions in crypto that know the identities of their customers, and not even all exchanges do: some let people get an account and trade on their platforms with only an email address. But my hunt for the right source led me to someone who worked for an exchange. The names of three people in the Zürich area were shared with me by this person, along with transaction links from the exchange to their Ethereum transaction histories, links that pointed to the DAO attack. The man across from me was thought to be the leader of the group, I'd been told. I was enthralled, and yet knew this was almost certainly unsolvable. I only had a sliver of the whole story as I sat across from him. I would need him to confess to be certain.
Still, there were a few clues to this mystery and I'd discovered one.
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There would be no DAO without Ethereum, just as there would be no Ethereum without Bitcoin.
And none of it would have existed without the Internet. Possibly the most tantalizing ingredient missing from the World Wide Web is money in purely digital form. For all that the Internet has enabled, it has fallen short in creating a form of value that can be sent around the world as easily as email. It's not as though no one thought of this, however – there was a realization early in Internet history that digital money should be a feature.
In the 1997 Internet Official Protocol Standards, which specifies various aspects of the html protocol that makes the Internet possible, you can find entry 402, designated “payment required.” This is the code that would've created a field to fill in on a web page with the type of digital money you'd be using to buy the latest Sex and the City DVD. It would have embedded digital payments into the DNA of web pages right alongside graphics and text. Yet for many reasons, it never happened. In the more detailed part of the protocol standards, entry 402 receives a harsh dose of reality: “This code is reserved for future use.”
It would take just over a decade before status code 402 passed the baton to Bitcoin. It was not for lack of effort that digital payments hadn't come along until 2009, though – there were many projects over the years that came close. Which is to say, there were people all over the world who craved a form of digital cash. What the mysterious Satoshi Nakamoto did was bring together a set of existing technological pieces into one design that finally solved the puzzle.
Bitcoin looked like freedom. In its purest form, Bitcoin brushed aside any political or social biases when it first gained popularity, leaving its early adherents with nothing but gleaming possibility. Thousands of people all over the world needed Bitcoin for no reason other than it gave them hope for the future again. It made them quit their jobs, invest all of their life savings, or sometimes both, to ensure that this thing succeeded.
What Bitcoin did was to finally present a competitor to the global banking sector. Banks serve a host of purposes, of course, from granting loans and mortgages to making most everyday payment transactions so convenient that a swipe of an ATM card is all that's needed. But for a subset of people, the fact that banks are gatekeepers that can restrict or prohibit certain transactions has always been a big problem. A strong strain of libertarianism ran through early Bitcoin adopters, who wanted to exist outside the traditional financial world.
One of the keys to how Bitcoin works is its hash function. When the latest batch of transactions is sent to the computers in the network for validation – these are the miners – the block comes with a random string of characters associated with it. The miners take this random string and work through trial and error to change it so that it has a certain output value when it's run through the hashing function. In Bitcoin, that output is one that leads with a certain number of zeros. The only way to do it is to add one thing to the input, see how it changes the output, and then try again and again and again until the output has the right number of zeros in front.
Once the input is changed in the correct way, it's a simple operation for the other computers in the network to check the output to see that it's genuine. So it's very hard to produce, but very easy to check. The process also uses a certain amount of electricity to run the hashing hardware, so economic value enters the equation in the form of the cost of that electricity. That's hashing in Bitcoin, and it allows for trusted transactions to take place among users who neither know nor trust each other. And for all their willing effort, the winning miner is rewarded with free Bitcoin.
All of this lives entirely free and clear of Wall Street and government regulators. That's a big key to why Bitcoin is valued as it is. People want it to have value; they want it to work and exist in a world wholly separate from Bank of America ATMs as well as governments and their central banks that set monetary policy.
The big strike against Bitcoin, however, is that it doesn't allow for derivatives. Bitcoin is all Bitcoin is about. It's an amazing thing for what it does, and as of this writing it's been doing it for more than a decade without any person, corporation, or government being able to stop it. But if you want to do more with a global distributed network of computers, Bitcoin can't help you.
That's why Ethereum sprang to life. Ethereum is entirely about the derivative, about being a blockchain system that will support all the weird, amazing, and crazy things people want to build on top of a global digital programmable payment network. As Ethereum cofounder Joe Lubin put it to me, Ethereum's ambition is to be a global computer. In a statement that surely upset Bitcoin loyalists (and there are millions of them), Lubin said that comparing Bitcoin to Ethereum is like comparing a pocket calculator to a desktop.
What I'm about to say now will make some of you laugh, but bear with me. Ethereum is the most successful blockchain in existence. I say that with Bitcoin only a shade behind its younger sibling. Yet in my opinion it's the restrictive nature of Bitcoin that places it second. Ethereum took the distributed security and robustness of Bitcoin and opened a world that allows computer programmers to build whatever they can dream of on top of it. I believe in Ethereum – I'm writing a book about it, for God's sake – but I also know its flaws. I will tell you about them. But as of early 2020, here's what Ethereum has accomplished in brief:
At its highest price in early 2018 the value of ether was above $1,400, giving the entire network a market cap of $135 billion and making billionaires of early founders like Vitalik, Joe Lubin, Anthony Di Iorio, and others. It made millionaires out of hundreds more.
JPMorgan Chase, one of the largest and most powerful global banks, is building its blockchain system on a slightly tweaked version of Ethereum and is creating the bank's own digital currency it has dubbed JPMCoin.
Ethereum didn't allow only for the creation of ether, its own native digital currency, it created a new way for startups to raise money, a process known as an initial coin offering, or ICO. This is an enormous advance in funding, as it allows crypto projects to sell tokens directly to the public, sidestepping any bank or venture capital involvement. While billions have been raised through the ICO market since 2016, it has been rife with scams, fraud, and outright theft.
It spawned a host of competitors like EOS, Stellar, Cardano, and Ava, which took the smart contract structure and tweaked it to make transaction times faster or added different security protocols. Yet none of those projects can compare with the number of developers working on Ethereum. According to a 2019 study by Electric Capital, Ethereum has four times as many developers working to maintain and improve its network as the number of devs working on Bitcoin.
Reddit, one of the most popular destinations for US Internet users, integrated Ethereum smart contracts and wallets into its service in 2020 to grant “community points.” These can be used as a type of reputation metric, as they're given for posting and contributing to reddit discussions. The points are stored in an Ethereum wallet, which could lead to a significant jump in Ethereum users.
Financial markets are now using Ethereum in real-world trading and settlement for assets such as stocks, credit default swaps, bonds, and equity derivatives. The Bank of France used Ethereum to replace a key component of its payment system.
As of June 2020, the value of all ether in existence totaled $27 billion, making it the