Ethereum Cryptocurrency Is Blockchain for Contracts

Paul Gillin

Bitcoin may get most of the buzz, but the somewhat less well-known Ethereum cryptocurrency is the one that records and information managers should watch more closely.

Like bitcoin, Ethereum is based on the blockchain protocol, a peer-to-peer messaging and storage architecture that enables parties to conduct transactions without the use of intermediaries like banks and clearing houses. Unlike bitcoin, however, Ethereum is programmable. It can process small chunks of code called “smart contracts,” which opens up a vastly greater number of use cases. That’s why more than 300 large corporations have banded together to support it.

Although Ethereum cryptocurrency can be bought and sold like any other cryptocurrency, it was created for a different purpose. “While Bitcoin allows you take part in a global financial network, using Ethereum you can participate in a global computational network,” notes Coinbase. Parties in Ethereum transactions can create rules that fire off automatically without the need for approvals or go-betweens. There’s no risk of downtime, fraud or hacking, because every party in an Ethereum blockchain has a full record of every transaction. If the records don’t match, the blockchain automatically falls back to the most recent valid state.

Ethereum has intriguing applications in areas as diverse as voting, supply chain, self-governing markets and real estate. A “coin” in the Ethereum blockchain can be a membership, vote, record of ownership or share. The programmable features make it possible for members of an Ethereum network to create rules around those digital tokens.

Take a crowdfunding platform, for example. An Ethereum-based approach could use a contract to hold contributions in escrow until specific milestones in the development process are reached. Funds can then either be released to the developer or returned to the donors, depending upon performance against goals.

The same technology could be used to create a peer-to-peer energy sharing network among neighbors. Surplus power from generators of electricity could be sold to power consumers in other homes in the network. Payments would be handled automatically by the blockchain, with a full ledger of accounts kept by every participant.

The Ethereum Project has a collection of more than 1,000 applications that are now being built on the platform. One of them is Augur, a decentralized production platform that uses the wisdom of crowds to forecast the future. Studies have long shown that years of crowdsourced predictions are more accurate than those of even the most informed individual. In Augur, members buy and sell shares in predictions, rather than securities. The market price reaches an equilibrium based on the collective wisdom of all participants.

Ethereum cryptocurrency could potentially remove much of the delay and cost from complex transactions. That’s why the Enterprise Ethereum Alliance has attracted more than 300 members, including some of the world’s largest financial institutions, pharmaceutical companies and technology firms. They’re working to evolve Ethereum into an enterprise-grade technology that can streamline supply chains, improve field trial efficiency, verify quality controls and generate self-regulating contracts.

The success of technologies like Ethereum could change the nature of records and information management, consolidating vast amounts of paper and electronic forms into a few blockchain ledgers. It’s a trend worth watching.

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