an alternate parallel digital universe
A 17-year old boy looks at bitcoin and sees the possibility of creating a world computer that can run an alternate universe. His name: Vitaly Dmitriyevich “Vitalik” Buterin.
Vitalik dropped out of school in 2014 when he was awarded with a grant of $100,000 from the Thiel Fellowship to work on Ethereum full-time.
To understand Ethereum, one needs to first understand massively multiplayer online role-playing games (MMORPGs.)
Games, Networks and Virtual Universes
Parents have been yelling at their kids since the days of Atari’s Pac-Man about spending too much time in front of the screen.
It will melt your brain! Why don’t you go out and play like normal kids!
Over the last four decades, games got progressively realistic, immersive, networked, multiplayer, and pervasive. People started spending more on games, gaming rigs, and consoles. Video game makers moved away from a one-time, hit-based production system to creating virtual spaces where gamers can write their own story. The metaverse was born.
The metaverse is to game makers that SAAS is to enterprise software. Once a metaverse crosses a tipping point, network effects kick in and revenue explodes. Some gamers, the whales of the metaverse, spend an obscene amount of real money buying virtual goods. Everything is for sale – avatars, dresses, weapons, skills – inside the metaverse.
Globally, recent estimates for annual virtual-goods revenues have totaled over $52 billion.
Gaming evolved into a sub-culture onto itself.
Metaverses have a big problem: they can implode if they get boring.
Back in 2003, Linden Lab launched Second Life – an online virtual world. By 2013, it had about one million regular users. Users, or residents, as they are called, can login using client software and create virtual representations of themselves, called avatars, and are able to interact with places, objects and other avatars. They can explore the world (known as the grid), meet other residents, socialize, participate in both individual and group activities, build, create, shop, and trade virtual property and services with one another.
The platform principally features 3D-based user-generated content. Second Life also has its own virtual currency, the Linden Dollar, which is exchangeable with real world currency (wikipedia.)
At the peak of its hype-cycle in 2006, American Apparel had a virtual store and even IBM had set up a “property.”
And then it died.
While media articles on its failure focus on buggy software, missing the switch to mobile, etc, the biggest reason was that it was owned by a company (centralized decision making,) that had to host and pay for the servers themselves (centralized scaling,) and there could be only one Second Life.
Ethereum is a platform on which another Second Life can be created on a distributed network not owned by a single corporation.
In a nutshell, the Ethereum platform allows programmers to write code that runs on a distributed network. To incentivize miners to run the code, they are paid in Ether (ETH.)
The code is called a smart-contract and to run it, you need to supply it with ETH. The code will do the work and consume the Ether. Both the code, and the ledger keeping track of ownership of the Ethers, are on a blockchain.
Technically, the code runs on many computers across the world, computing and storing data locally, but networking globally, to create a distributed ledger which is sometimes also called “a blockchain”.
With these basic building blocks, one can construct self-contained virtual worlds with virtual goods, etc.
CryptoKitties was the first mainstream use case for Ethereum’s blockchain. It operates as a non-fungible token (NFT), unique to each CryptoKitty. Each CryptoKitty is unique and owned by the user, validated through the blockchain, and its value can appreciate or depreciate based on the market. These virtual kittens (tokens) are also traded on crypto exchanges.
What is fascinating is not just the technology but the storytelling that made it real. The kittens are unique, supply-constrained, have traits (some of which are rare) that can be passed on through breeding, etc. There is an ecosystem of tastemakers and specialists around it that keep the story alive. And consumers willing to part with real money for virtual kittens.
DeFi – Decentralized Finance
Imagine a global, open alternative to every financial service you use today — savings, loans, trading, insurance, and more — accessible to anyone in the world with a smartphone and internet connection.
There are DeFi dapps that allow you to create stablecoins (cryptocurrency whose value is pegged to the US dollar), lend out money and earn interest on your crypto, take out a loan, exchange one asset for another, go long or short assets, and implement automated, advanced investment strategies.
This is a nightmare for regulators like SEBI and the RBI who are tasked to protect consumers. Who are you going to sue and who are you going to jail when there is no “owner” as in the real world?
For better or for worse…
Ethereum is the biggest crypto-currency after Bitcoin. There is a large ecosystem around the infrastructure breathing life into this alternate parallel virtual universe. It is here, it exists, and it is growing.
Some think that the current economic and political order is an accident of history. What if we had the opportunity to evolve an alternative? What would it look like? Don’t we owe it to ourselves to find out?
We leave you, dear reader, with these thoughts and a recording of our fascinating conversation with someone who is working on a PhD in crypto-currencies and who also happens to be a dear friend of mine. Enjoy!
Further reading: An Economic Analysis of Ethereum
Previously: define: bitcoin