Dec 2, 2019
Ethereum: The Anti-Fragile Hydra
The Mythical Hydra
One of Hercules’ most famous battles was against a great Hydra. According to Greek mythology, a Hydra is unique in that when it’s attacked and has a head severed, two more grow back in its place. The more pain and issues the Hydra encounters, the more resilient it becomes. This regrowth trait is a feature which is known as Anti-Fragility.
Anti-Fragility is a response to a stressor or source of harm, leading to a positive sensitivity to increase in volatility, variability, stress, dispersion of outcomes, or uncertainty.
Ethereum, the Anti-Fragile Hydra
Ethereum, the #1 Public Blockchain, is a modern day Hydra. Ethereum has only been around for ~5 years but has seen many battles and has had many severed heads during its short time in existence. From a technological standpoint, it was designed to be anti-fragile. But what boy-genius Vitalik Buterin did not realize is that Ethereum would become its own self sustaining and head-regenerating organism, both technologically and socially.
I will attempt to explain and highlight a few of the episodes where Ethereum was mortally wounded, but bounced back stronger than ever thanks to its anti-fragile nature.
Ethereum Foundation ‘Co-Founder’ Leaves but an Ethos Grows
In June of 2014 and far before the launch of Ethereum, Charles Hoskinson and Vitalik Buterin had disagreements about the direction they would proceed with the Ethereum Foundation. Charles wanted to accept Venture Capital money and have a formalized governance structure. Vitalik wanted to keep Venture money away and instead run the Ethereum Foundation as a non-profit entity. One of the first battles Ethereum faced resulted in Charles leaving the Ethereum Foundation. While Charles lost his head, a deeply rooted community Ethos grew to replace him.
The Ethereum Foundation has since become an incredible supporter for the Ethereum ecosystem, granting millions of dollars to different teams across the globe and spearheading some of the most important cutting edge research.
Ethereum Foundation Centralization Risk but Consensys Sprouts
While the Ethereum Foundation has been paramount to the success of Ethereum and even helped spearhead the launch, it was a centralizing force in the early days. Centralization inherently creates fragility within a system and is thus the anti-thesis of Ethereum. This centralization resulted in numerous attacks from the Bitcoin community as they claimed Ethereum was a “centralized scam”.
In October of 2014, Joseph Lubin sprouted Consensys. The organization is now present in over 30 countries worldwide, helping everyone from developers to NGOs to Global 2000 companies launch real-world blockchain solutions based on Ethereum technology. They are even behind critical infrastructure like MetaMask, Truffle, Infura and more.
In addition to the Ethereum Foundation and Consensys, Ethereum has many other stakeholders including Coinbase, Ernst & Young, Santander Bank, Gemini, the entire Ethereum Enterprise Alliance, and more.
Ethereum (ETH) is Volatile but MakerDAO Appears
The original vision of Bitcoin was as a Person to Person Electronic Cash, and while the Ethereum vision is much more, it still wants to be able to fulfill that role. The problem with things like Bitcoin (BTC) and Ethereum (ETH) is that they are highly volatile assets. This volatility makes it hard to use for payments as people need stable currencies when buying or selling goods and services.
In 2015, MakerDAO appeared with the promise of “building a better money.” Through their novel technology, they allowed the creation of Dai, the world’s first unbiased currency. Maker was one of the first Decentralized Autonomous Organizations (DAOs) built on Ethereum and is currently the backbone of the New Open Financial System.
In 2018, the MakerDAO system was battle tested as Ethereum dropped more than 94% from peak to trough. This proved that Dai truly is a revolutionary invention that is already helping some Argentinian citizens avoid hyper-inflation according to Mariano Conti.
The DAO is Destroyed but Evolved DAOs are Summoned
In May of 2016, a few members of the Ethereum community announced the inception of The DAO. It had a creation period during which anyone was allowed to send money in and receive back DAO tokens on a 1–100 scale. After the contribution period, The DAO was worth over $250 million. The goal for The DAO was to allow projects to pitch their idea to the community and potentially receive funding based on votes by The DAO token holders. This was a novel idea and in essence was the first decentralized Venture Capital firm in the world.
By June of 2016, The DAO (which had not been properly audited) was hacked and all of the funds were drained. It’s important to understand that Ethereum itself was not hacked, but just this one application built on top of Ethereum. This was a critical wound to Ethereum but the community rallied and got through this painful period which will be forever remembered.
Flashing forward, anti-fragile Ethereum now has many successful DAOs running, each having learned from the errors of The DAO Hack. These include but are not limited to MakerDAO, DigixDAO, MolochDAO, MetaCartel, KyberDAO and soon a resurrection of The DAO, known as The LAO.
Parity is Killed but Gnosis Builds
Parity was one of the first organizations to build infrastructure on Ethereum. They created the Parity Wallet and Parity Ethereum Client. While both have been plagued with issues, the Parity Wallet caused the most damage to Ethereum.
In July of 2017, a vulnerability was found on the Parity Multisig Wallet that allowed an attacker to steal over 150,000 ETH (~30M USD). While this was tragic, the final decapitation came just a few months later.
In November of 2017, the entire wallet was killed which created losses of over 500,000 ETH ($150 million USD), including over 300,000 ETH from the Web3 Foundation (Parity) team.
Luckily, the Anti-Fragile Hydra has an entire ecosystem building towards the future. There were and still are many other great choices when it comes to securing Ethereum based value. The most notable is provided by the team Gnosis who not only have one of the best Ethereum multi-sig wallets, but are helping to pioneer the future wave of Smart Wallets as well.
EtherDelta Shuts Down but DEX Protocols Flourish
Decentralized Exchanges (DEXs) are a promise of censorship resistant trading while never having to place your precious money in the hands of a centralized operator which oftentimes have questionable track records. Vitalik has even gone as far as saying “I hope centralized exchanges burn in hell as much as possible.”
The first prominent DEX with meaningful use came through EtherDelta. During the 2017 mania, EtherDelta serviced everyone from raging retail speculators to VCs dumping their ICO coins. There were many coins that you could not get access to anywhere other than EtherDelta due to it having an open listing policy, which brought it to prominence.
Unfortunately in 2018, the Securities Exchange Commission (SEC) forced the founder Zachary Coburn to shut down the exchange and charged him with violating US securities laws. This vicious blow decapitated the head of the most prominent DEX and left investors scurrying to find a replacement. Hydra Ethereum did not even flinch as just a few months after the shut down Uniswap was announced by Hayden Adams. Uniswap is the first fully decentralized exchange and is immune to the issues faced by EtherDelta since even Hayden himself can’t take down the protocol. Uniswap allows anyone in the world to not only trade in a decentralized, censorship resistant and transparent manner but also submit liquidity to the pool in order to generate fees.
In addition to Uniswap, there are more than 20 other DEXs built on Ethereum, including entire protocols like Kyber Network and 0x Protocol. The DEX ecosystem will continue to grow and mature until it circumvents many centralized exchanges.
Crypto Kitties Clog but Scaling Technology Breeds
The first Decentralized Application (DAPP) to get mainstream attention from the public was CryptoKitties. These cats are provably rare digital collectibles that can breed and have unique traits. Ethereum technology allows the creation of digital scarcity which when discovered by mainstream users, caused a short term beanie baby fever among users. At the peak of the short lived hysteria, someone paid more than $170,000 for a single Crypto Kitty.
By December 4th, 2017 the kitty mania was at its peak and ended up clogging Ethereum due to transaction volumes. While this can be seen as a victory from a user acquisition perspective, it showed that Ethereum has much to grow before scaling for world wide adoption.
The Ethereum community had already been working on scaling solutions but this pushed many teams into hyperdrive. There are now many 2nd layer scaling solutions coming to Ethereum through things like Optimistic Roll Ups, SKALE Architecture, Connext Network, Counterfactual, Raiden Network, Funfair Technologies, Offchain Labs and multiple Plasma implementations. One solution that has been driven by Gods Unchained, shows their solution already handles significantly more transactions than Crypto Kitties and has not clogged caused any slowing of the Ethereum network. These second layer solutions do not include base layer scaling which is an entire animal of its own with things like raising the Gas Limit, Sharding and more.
ICOs Boom and Bust but Open Finance Composes
Initial Coin Offerings (ICOs) are a revolutionary way to raise capital and like many revolutionary advancements, caused a massive speculative bubble. The 2017 ICO fever saw many enter the Crypto space and while most of those participants left, some (possibly like yourself) stayed after realizing the future that this technology can bring to the world.
While many were quick to call Ethereum “good for nothing other than for ICOs”, that is very far from the truth. While this was the first time Ethereum proved itself as a decentralized and censorship resistant platform, there will be many more revolutionary episodes in the future.
Open Finance has always been brewing in the background of Ethereum but it’s certainly the next large wave within the Ethereum ecosystem. The benefit of Open Finance is that it allows the composability of protocols in order to create new novel use cases. If you want to learn more, please refer to the following articles A New Open Financial System and Network Effects and Friendly Developer Moats.
Synthetix is Attacked but Oracles Mature
Synthetix is a promising decentralized synthetic asset system. It allows users to stake value and in return generate synthetic assets that track the price of real world assets, such as Bitcoin, Gold, Crypto Assets, Indices and more. If you want to learn more about Synthetix, read this article by DeFi Prime.
In June of 2019, the Synthetix Oracle was attacked which resulted in a loss of 37 Million Synthetix Ether. Oracles have always been a talking point within the Ethereum ecosystem but creating a decentralized and robust oracle is not easy. While teams like MakerDAO have had great success with their oracle, even they have decided to pivot to a new model. As the history of Ethereum shows, each time there is an attack, one or more backup replacement options come to save the day. After evaluating most of the oracles on the market, Synthetix decided to partner with the clear leader in the space — Chainlink.
Chainlink has risen to fame within the crypto asset community due to obtaining the most high profile partnerships we have seen in the space. While most of the partnerships can be found here, the most prominent was their partnership with Google in order to connect BigQuery to Ethereum. Chainlink is dedicated to the Ethereum Open Finance ecosystem, which is not only shown through the Synthetix partnership but through their announcement at DevCon 2019 that they plan to support seven new price reference oracle networks on Ethereum.
Parity Shrinks but Ethereum 2.0 Spreads
Ethereum has been lucky enough to have two main software client implementations, as opposed to Bitcoin who only has one (Bitcoin Core). These implementations are Go Ethereum (GETH) and the Parity Ethereum Client. The great thing about having two or more client implementations is that they can serve as protection against certain attacks, such as the Denial of Service Attack that was attempted on Ethereum in 2016.
Parity's dedication and loyalty to Ethereum has been under question for some time. Not only was their code the cause of the largest Ethereum financial loss to date (wallet incident), but their team frequently has had significant delays and even saw one team member leave Ethereum due to conflicts of interest. While they may truly remain dedicated in the long run, many Ethereum community members have their doubts.
Ethereum 2.0 is the next evolution of Ethereum and while two main client implementations in the past has been nice, the future is much more bright. This light comes on behalf of teams like Trinity, Sigma Prime, Prysmatic Labs, Status, Chain Safe Systems, Ether Camp, PegaSys, Parity and the Yeeth Team. They are all actively working on Ethereum 2.0, with 6 teams already live in test-net environments.
While we may see some merging and/or consolidation from teams, we will likely see at least 3 live client implementations in the next generation of Ethereum, which is only growing bigger and more powerful over time.
Future Battles
As history shows, Ethereum has transformed from a technology, into an entirely new organism that is powered by an ethos driven community.
Many things are apparently man-made but grow on their own to reach some kind of self-organization. They may not be strictly biological, but they resemble the biological in that, in a way, they multiply and replicate. — Nassim Nicholas Taleb
Ethereum, the Anti-Fragile Hydra, will undoubtedly face many more battles in the coming years but it will continue to regenerate its wounds and come back stronger each and every time.
About the Author
Anthony Bertolino is dedicated to educating the world about Ethereum and the future of finance. He studied Blockchain Technology at U.C. Berkeley and currently lives in Los Angeles, California. If you want to learn more or have any questions, reach out to him on Twitter.
