Ethereum: 2nd gen cryptocurrency with contract programming, "dagger" hashing

[vintagetrex]

   Ether will be sold in a Mastercoin-style fundraiser at the price of 1 ether for 0.0001 BTC. Suppose that X ether gets collected in this way.
    0.25X ether will be given to the founders.
    0.25X ether will be given to the Ethereum organization as a reserve pool to pay expenses in ETH such as ETH salaries or bounties for those developers who want part or all of their compensation to be in this form
    0.5X ether will be mined per year forever after that point (ie. permanent linear inflation)

 

Yes but - there's dilution baked in, and the founder's shares are timelocked for 12 months before they can spend it (think of it as vesting).

From Vitalik's Reddit account: "The units will be in a timelock contract for at least one year, so they will be at most 1/8 when they actually become spendable. Just from a Zipf's Law perspective, I think it's likely that a single person will put in at least 8% of the total investment into the fundraiser, so the largest ether holder will likely not be a founder. Also, the big difference from Bitcoin (and especially the 100% premined/fundraised Ripple and Mastercoin) is that, once again, the currency is linear-inflationary, so the percentages will go down over time. I think that's the main moral objection people have with wealth inequality in existing cryptocurrencies; that the Winklevosses have not just 1%, but 1% of all that will ever exist. With Ethereum we don't have that."

One big investor will have 8% of the total fundraiser???!!!

NOT IF I CAN HELP IT

[Lloydie]

To ignore coin and profit is to deny reality. Communism is a failed experiment. We laud your generosity to invest on possibilities and your wherewithal to invest 20 Btc on visionary projects. Thank you. However, your noble actions are somewhat diluted by your criticism of others.

Sorry, I'm not a communist, and that is not my intent with my post. My point is that it's like people are arguing about how many shares of stock Google has issued, and at what starting price, wodering how much their shares will be diluted, while ignoring the actual business plans and people behind Google who will actually make those stock shares be worth something. People focus too much on the supply/demand side of economics, not the network effects enabled by the capabilities of the coin software. Much like people who don't understand bitcoin complain about it's supply/demand, and complete lack of backing compared to FIAT and gold, while completelly ignoring the fact that bitcoin can replace most of our world's financial and legal asset systems.

Apologies if you felt I called you a communist. I was trying to use the concept of economic incentives not the political overtones. The point is that if you had $100 invested in google whether you should then invest in Facebook. That discussion is ok in terms of ROI comparing the two. Sure fb might do well but maybe google would do better. However, if you had $1 billion in google, throwing $200k into fb would be nothing to you.

[Lloydie]

What is the point of investing in a currency with inflation ?

The value of Bitcoin is going up. The value of a currency with inflation go down. The difference between the two is huge growing gap.

So why ? I'm open minded, I just want to understand.

This is a good question. There is no sense unless the Ethereum rate of adoption exceeds the bitcoin rate of adoption. Unlikely in my view, at least in the initial years. But I'm no expert.

[Brilliantrocket]

I'm new to the concept of Ethereum (just learned about it from this morning's article on coindesk) but it appears to be worth investigating.

A few (related) questions I will be trying to answer:

1. Is Ethereum necessarily a competitor to bitcoin, or is it complementary?

2. Can Ethereum work in conjunction with bitcoin? eg can you write a contract in Ethereum that is denominated in bitcoin?

3. Could bitcoin be modified, in the words of Jeff Garzik, "to incorporate any highly desirable features into a future bitcoin revision" ? adopt the basic concept of Ethereum? From what I've learned so far, Ethereum seems sufficiently different from bitcoin that this would not be straightforward.

Ethereum seems to be focusing heavily on its contract function, as opposed to Bitcoin which appears to be more exclusively a currency or store of value. That doesn't mean that Ethereum can't or won't act as a currency, and thus compete with Bitcoin.

Ethereum should certainly be able to work in conjunction with Bitcoin. From what I've read, it will be possible to initiate Bitcoin transactions using Ethereum. I do not think that Bitcoin will incorporate the main functions of Ethereum. Take note of the fact that although Bitcoin could have had more functions, such as BitDNS, they were split into Namecoin instead. Bitcoin has its purpose and I don't think that the developers will try to deviate from that purpose to go in a different direction, such as where Ethereum is going.

[currencydebt]

http://www.ursium.com/ethereum-white-paper-updated/

Important update on numbers.

[msin]

http://www.ursium.com/ethereum-white-paper-updated/

Important update on numbers.

1000 ether for 1BTC?  Lame

[dewdeded]

Who is investing? Should I? Does this have a chance?

[dewdeded]

Are you going to patent troll? LOL

Or are you just drunken?

[dewdeded]

I am also a big inventor, you can send me a share then.

[Anotheranonlol]

Introduction video

http://www.youtube.com/watch?v=q5FDvzj8YX4

[bpd]

There is SO much confusion here about the initial price. Molecular has explained previously that the price relative to BTC does not matter, and he is correct. The only thing that matters is the total amount of BTC that is raised. Let me try to explain, by analogy to how startups raise money in Silicon Valley and elsewhere.

When a startup raises capital, they set a "pre-money" valuation for the company. All this means is a value for the company that the founders and the investors agree on, BEFORE the new money goes in. If the company raises $2 million on an $8 million pre-money valuation, then the post-money valuation is $8+2 = $10 million, because you have the existing value of the company, plus the new cash. Since the investors paid $2 million for their stake in a $10 million company, they own 20% of the company. If the company raises more money in the future, new shares are issued, and the first set of investors owns a smaller % of the company (i.e. they get diluted, as do the founders).

Now, let's leave aside mining for a moment and look JUST at the IPO for Ethereum. After the IPO, if investors put in X BTC, there will exist a TOTAL of 1.5X BTC worth of Ether (the units don't matter, just look at it in BTC or percentage terms). Let's simplify for a second and assume the founders retain the entire extra 0.5X (they don't technically own all of it, but they do control all of it -- see (*) below). This means the investors will own 2/3 of the resulting "company," while the founders will own 1/3. So, regardless of how much money is raised, the founders are selling exactly 2/3 of their company.

But this means that the valuation they're raising at is NOT fixed. Since the post-money valuation is 1.5X BTC, and the investors put in X BTC, the pre-money valuation must be 0.5X BTC. But that's not a fixed number: the more interest in the IPO, the higher the resulting valuation they raise money at (in direct linear proportion). If 1000 BTC of money wants to get in, then investors are collectively valuing the existing company at 500 BTC. But if 10,000 BTC wants to get in, then it must mean the company was worth 5,000 BTC initially. That's definitely not the way startups typically raise money, but it is not completely absurd, either. The more VCs that are competing to put money into a startup, the higher the valuation is going to be. The difference here, though, is that all the money doesn't go in at once. Only the people who invest BTC at the very end of the 60-day window will know approximately the actual valuation at which they're investing. The people who invest early on, might think they're getting 1% of the resulting company, but end up only getting 0.1% of the company.

If they chose to, the founders could address this in two ways. One way is to have an explicit pre-money valuation cap, of, say, 5,000 BTC. Then, the founders would receive min (0.5X, 5000) BTC worth of Ether, but they could end up owning less than 1/3 of the company. The other way would be to put a cap on the amount they're willing to raise in the IPO. If they committed to raise no more than 10,000 BTC, then the pre-money valuation is capped at 5,000 BTC, but the founders also guarantee they will still own 1/3 of the resulting company. This would be easy to do: simply return investments once 10,000 BTC had been reached. The benefit of both these approaches is that ALL investors, early and late, know the maximum they are paying for the company.

I do think it would be wise for the founders to do something of this nature, since it strains the imagination that a company which hasn't actually yet launched a product should be worth more than about $10 million (and even by Silicon Valley standards, that's a stretch). There's also a limit to how much and how quickly a large amount of capital could actually be effectively used. If they somehow raise $100M of BTC, it'd be awfully tempting just to split it up and go sit on a beach in a non-extradition country somewhere...  So, just spare yourselves the temptation, guys. :-)

Ideally, the investors would also effectively have preferred shares. For instance, let's say that BTC value skyrockets, and the foundation is sitting on more BTC than they could ever use effectively. They decide to issue a BTC dividend proportionately to all Ether holders (somehow). In a perfect world, the investors would have to first get their BTC back before the founders' Ether got paid any dividend. That's exactly how it works for startups, but I'm guessing it may not really be that feasible here. However, I do think it's important that the founders can't simply pay the BTC to themselves. They should publicly commit to never use the IPO BTC to pay themselves beyond a basic salary -- but ideally, even their salaries should be almost entirely in Ether.

(*) I assumed above that the founders own 0.5X BTC, or 1/3 of the resulting company. Actually, they only own 0.225X, and 0.275X is reserved for paying employees, issuing bounties, etc. You can think of this 0.275X as more analogous to the employee stock option pool of a company. It's not actually in the hands of the employees yet, but the company can issue it later to pay for services. This doesn't really change the pre-money valuation calculations above, but it does mean that the founders themselves actually only own 15% (0.225/1.5) of the resulting company, not 1/3 as used above. The "company" owns the other 18.3%.

(**) All this is before mining starts. Think about mining as ongoing employee stock option issuance (payment for services rendered). Of course one can certainly argue whether 0.4X per year is a reasonable amount for mining or not. Or whether PoW is better than PoS, yadda yadda yadda.

[mercenar1e]

so the count down was for an announcement of an announcement lol when will we be able to mine it? how many total coins will be available? and how did they come up with the valuation of 2,000 ETH/BTC?

[vintagetrex]

There is SO much confusion here about the initial price. Molecular has explained previously that the price relative to BTC does not matter, and he is correct. The only thing that matters is the total amount of BTC that is raised. Let me try to explain, by analogy to how startups raise money in Silicon Valley and elsewhere.

When a startup raises capital, they set a "pre-money" valuation for the company. All this means is a value for the company that the founders and the investors agree on, BEFORE the new money goes in. If the company raises $2 million on an $8 million pre-money valuation, then the post-money valuation is $8+2 = $10 million, because you have the existing value of the company, plus the new cash. Since the investors paid $2 million for their stake in a $10 million company, they own 20% of the company. If the company raises more money in the future, new shares are issued, and the first set of investors owns a smaller % of the company (i.e. they get diluted, as do the founders).

Now, let's leave aside mining for a moment and look JUST at the IPO for Ethereum. After the IPO, if investors put in X BTC, there will exist a TOTAL of 1.5X BTC worth of Ether (the units don't matter, just look at it in BTC or percentage terms). Let's simplify for a second and assume the founders retain the entire extra 0.5X (they don't technically own all of it, but they do control all of it -- see (*) below). This means the investors will own 2/3 of the resulting "company," while the founders will own 1/3. So, regardless of how much money is raised, the founders are selling exactly 2/3 of their company.

But this means that the valuation they're raising at is NOT fixed. Since the post-money valuation is 1.5X BTC, and the investors put in X BTC, the pre-money valuation must be 0.5X BTC. But that's not a fixed number: the more interest in the IPO, the higher the resulting valuation they raise money at (in direct linear proportion). If 1000 BTC of money wants to get in, then investors are collectively valuing the existing company at 500 BTC. But if 10,000 BTC wants to get in, then it must mean the company was worth 5,000 BTC initially. That's definitely not the way startups typically raise money, but it is not completely absurd, either. The more VCs that are competing to put money into a startup, the higher the valuation is going to be. The difference here, though, is that all the money doesn't go in at once. Only the people who invest BTC at the very end of the 60-day window will know approximately the actual valuation at which they're investing. The people who invest early on, might think they're getting 1% of the resulting company, but end up only getting 0.1% of the company.

If they chose to, the founders could address this in two ways. One way is to have an explicit pre-money valuation cap, of, say, 5,000 BTC. Then, the founders would receive min (0.5X, 5000) BTC worth of Ether, but they could end up owning less than 1/3 of the company. The other way would be to put a cap on the amount they're willing to raise in the IPO. If they committed to raise no more than 10,000 BTC, then the pre-money valuation is capped at 5,000 BTC, but the founders also guarantee they will still own 1/3 of the resulting company. This would be easy to do: simply return investments once 10,000 BTC had been reached. The benefit of both these approaches is that ALL investors, early and late, know the maximum they are paying for the company.

I do think it would be wise for the founders to do something of this nature, since it strains the imagination that a company which hasn't actually yet launched a product should be worth more than about $10 million (and even by Silicon Valley standards, that's a stretch). There's also a limit to how much and how quickly a large amount of capital could actually be effectively used. If they somehow raise $100M of BTC, it'd be awfully tempting just to split it up and go sit on a beach in a non-extradition country somewhere...  So, just spare yourselves the temptation, guys. :-)

Ideally, the investors would also effectively have preferred shares. For instance, let's say that BTC value skyrockets, and the foundation is sitting on more BTC than they could ever use effectively. They decide to issue a BTC dividend proportionately to all Ether holders (somehow). In a perfect world, the investors would have to first get their BTC back before the founders' Ether got paid any dividend. That's exactly how it works for startups, but I'm guessing it may not really be that feasible here. However, I do think it's important that the founders can't simply pay the BTC to themselves. They should publicly commit to never use the IPO BTC to pay themselves beyond a basic salary -- but ideally, even their salaries should be almost entirely in Ether.

(*) I assumed above that the founders own 0.5X BTC, or 1/3 of the resulting company. Actually, they only own 0.225X, and 0.275X is reserved for paying employees, issuing bounties, etc. You can think of this 0.275X as more analogous to the employee stock option pool of a company. It's not actually in the hands of the employees yet, but the company can issue it later to pay for services. This doesn't really change the pre-money valuation calculations above, but it does mean that the founders themselves actually only own 15% (0.225/1.5) of the resulting company, not 1/3 as used above. The "company" owns the other 18.3%.

(**) All this is before mining starts. Think about mining as ongoing employee stock option issuance (payment for services rendered). Of course one can certainly argue whether 0.4X per year is a reasonable amount for mining or not. Or whether PoW is better than PoS, yadda yadda yadda.

nobody read this massive wall of text

[dewdeded]

nobody read this massive wall of text

Confirmed.

[tacotime]

nobody read this massive wall of text

Confirmed.

tl;dr

It doesn't matter whether the Ethereum people make it 10000 BTC per ETH or 0.0000000000001 BTC per ETH, because both the amounts mined and the amounts deposited in the developer fund are proportional to the number of ETH bought, not what their price was.

For instance, let's say it's 10,000 BTC per ETH, and 500 BTC is given to Ethereum and co.

0.05 ETH (500 BTC / 10,000 BTC) is then given to the preminers investing (0.225 X), and in the first year and every year after, ~0.09 ETH (0.400 X) will be mined by miners.

In a way it's as if Ethereum is just saying, "If you can't understand our premine distribution scheme, don't invest because, to you, it's now more expensive.  Except it's not."

(tbh I didn't read what he wrote either, but I assume this is what he's talking about)

[BittBurger]

http://www.ursium.com/ethereum-white-paper-updated/

Important update on numbers.

1000 ether for 1BTC?  Lame

I thought the IPO price was going to be $0.08 USD per ether?

It doesn't matter whether the Ethereum people make it 10000 BTC per ETH or

If it doesn't matter then why did they increase the price from $0.08 to $0.82 ?

-B-

[SyRenity]

In a way it's as if Ethereum is just saying, "If you can't understand our premine distribution scheme, don't invest because, to you, it's now more expensive.  Except it's not."

Is it possible to calculate any potential ROI with such model?

[vintagetrex]

http://www.ursium.com/ethereum-white-paper-updated/

Important update on numbers.

1000 ether for 1BTC?  Lame

I thought the IPO price was going to be $0.08 USD per ether?

It doesn't matter whether the Ethereum people make it 10000 BTC per ETH or

If it doesn't matter then why did they increase the price from $0.08 to $0.82 ?

-B-

In one way it appears not to matter: "Oh well if we increase the price there will just be less ETH outstanding.  If we decrease the price there will just be more ETH outstanding"

The swindle here is subtle, and I am going out on a limb just theorizing how it will work:  There will be a fixed fee for transferring ETH just like there is with Nxt.  By increasing the price, the people with more ETH get more from proof of stake mining by way of transaction fees. 

[crabel]

I ran a query, probably not very good, trying to understand if Bitcoin can include a Turing complete scripting protocol without forking the block chain.

My apologies if this question has already been asked/answered.  Thank you.

[bumblebee101]

So how do you mine it?