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Any time I read about Ether I think about this - "12 Million ETH were created to the development fund, most of it going to early contributors and developers...

by nope96 9y ago

Any time I read about Ether I think about this - "12 Million ETH were created to the development fund, most of it going to early contributors and developers..." At today's rate that's $5,860,200,000 USD. Who were these early contributors, how much did each get, and why do they get to have 12.5% of the entire economy on day 1? How is that a fair currency? I've read there were only 60 some "early contributors". Where's the list? On their FAQ, under "Is the ether supply infinite?" there are two paragraphs of goobly gook basically saying "we haven't decided yet" ("an area of active research"). How can anyone take this currency seriously? What is so special that makes you invest in this instead of Bitcoin?

StavrosK 9y ago
I'm not a fan of Ethereum (because their languages and VMs seem to be designed to maximize bugs), but the answer is "powerful smart contracts".
marcell 9y ago
> Who were these early contributors, how much did each get, and why do they get to have 12.5% of the entire economy on day 1? Why does Larry Page or Google Engineer #1 own billions of dollars of Google stock? Because he was there on day 1 and you weren't :)
- nope96 9y ago
  I know the US Government oversaw the Google IPO and the stocks weren't printed out of thin air. In the Ether ICO, a big whale friend of Vitalik could have sent his Bitcoin in during the ICO sale, got Ether for it, then Vitalik sent him his Bitcoin back. Poof, Ether printed out of thin air - there is no way to prove this did not happen. That is the problem with these ICOs vs. using Proof of Work to fairly distribute the currency.
  - albertgoeswoof 9y ago
    But couldn't exactly that have happened during Google's seed rounds? And even the Google IPO? There's no way to prove that didn't happen either?
    - FreeRadical 9y ago
      They are audited
  - Erlich_Bachman 9y ago
    Ethereum itself is not an ICO. ICO is something other projects can do on Ethereum (or on other platforms). There is actually some big differences and the rules are different. Bottomline: you are free to create your own cryptocurrency and pre-mine any large amount of it to yourself. Good luck making such a good one that other people will consider worth using and buying it, knowing about your premine. (And I even hope you succeed, because it will mean that you have created tremendous value for the world. But the chances are you won't.)
    - FreeRadical 9y ago
      Ethereum had an ICO https://blog.ethereum.org/2014/07/22/launching-the-ether-sale/ https://blog.ethereum.org/2014/07/22/launching-the-ether-sal...
  - wslh 9y ago
    I was following your point of view until you said "That is the problem with these ICOs vs. using Proof of Work to fairly distribute the currency". First, PoW can't be said to fairly distribute the currency but rather to secure the currency against double spend attacks. If it is a fair method or not is another discussion where many models are possible. On the other hand there are questions about who develops the currency and how the team is funded. In this case Ethereum, Zcash and others propose this model which is valid. Bitcoin development is not progressing from thin air and it is not funded by the PoW mechanism anyway so the consensus method and the development work are different problems.
  - reissbaker 9y ago
    > I know the US Government oversaw the Google IPO and the stocks weren't printed out of thin air. But... the stock did get printed out of thin air. When Google was originally being started — like any startup — the founders could have, and regularly did, make stock appear out of thin air. For example, that's what dilution is. If you've ever worked at a pre-IPO company that's raised money from VCs, at some point your company likely printed stock out of nothing, diluting your share of the company however much they liked — and there's not much you can do about it. In fact, all of the stock sold in the Google IPO was at one time printed out of thin air. That's where stock comes from. When Larry and Sergei and their lawyers (and whoever) drew up the initial documents when they were incorporating Google, they decided there would be X shares, and then over the course of many years increased that number semi-arbitrarily as they saw fit to sell to VCs, and eventually to sell to the public. All of the stock was made up, and it was distributed mostly to the founders and the early investors, just like any startup. They weren't being particularly evil or unfair, that's just how startups work. In fact, the Google board could, today, legally decide to invent more Google stock out of nothing and sell it, or give it away. Here's some good reading on Investopedia about dilution and stock issuance, along with a recent example of a company legally creating stock out of thin air and giving it to their new CEO, diluting existing shareholders: https://www.investopedia.com/terms/d/dilution.asp https://www.investopedia.com/terms/d/dilution.asp Ether had a one-time initial sale, and everything since is Proof of Work. In terms of being certain that Ether isn't being printed out of thin air, it's IMO quite a bit more trustworthy. (And if you want to really get down into the details, printing money out of thin air is a daily occurrence with the US government: that's how inflation works. We make dollars out of nothing. For good reason, but still!)
  - cryptodogemoon 9y ago
    Proof of Work simply facilitates existing capital to proportionately take over the network and supply. It becomes notibly problematic if the total distribution is produced within a small window of time, locking out entire swaths of the population to be at the whim of horders (assuming there would be a genuine demand for the supply).
- Passthepeas 9y ago
  stocks are securities, while crypto projects are trying to be currencies, two very different things.
diegocerdan 9y ago
Early developers used this 12.5% to bootstrap projects and also to sustain themselves using ETH as a salary. On the early days ETH was pretty cheap so you can imagine them burning through a lot of it. I would say they hold much less nowadays. Lets say 4%. And the more they hold, the better for the community as a whole as they have more at stake for the project to succeed.
- cryptodogemoon 9y ago
  There's no evidence to support your claim. Even if one provided blockchain transaction logs, they might just be moving funds to wallets owned by the same user.
  - zaarn 9y ago
    So basically, no evidence can convince you that they aren't doing this since the blockchain is afaik the only evidence. There is no evidence on the contrary point either, many have lost the private keys to 2k ETH wallets at this point...
golergka 9y ago
> $5,860,200,000 USD This value is influenced by free decisions of people, like you, who decide to invest in it. If those people (just like you) would decide that the developers are getting an unfair share and therefore, the currency is not valuable for them, Etherium wouldn't have such valuation. But for some strange reason, people don't care about how much do developers get and how "fair" their compensation is, as long as they get their value out of it. (I'm sorry for the rant, but I always feel really irritated when people bring the word "fair" into a situation which is controlled by a free market with a lot of small individual agents who are free to act in any manner they like and are not dealing with something they need for the basic survival.)
- charlesdm 9y ago
  Life isn't fair. Do I think its fair some people get born with billions of dollars to their name? Probably not. Do I care? I honestly don't. Find and create your own path.
  - golergka 9y ago
    I would disagree, because the concept of "fair" doesn't really exist - every person has his own perception of what "fair" is. Therefore, it's much more useful to build society on concepts that we can actually agree on.
Merthurian 9y ago
You're right about the infinite supply being dodgy. But I'm so sick of hearing how it's not fair that the early crypto adopters are doing well for themselves. Wah wah wah.
celticninja 9y ago
In cryptocurrencies this coin was essentially a pre-mine which is done specifically to enrich the creators without any expense to themselves. Say what you want about bitcoin, but Satoshi Nakamoto earned his coins fairly (even though he may never access them) and created a fair and level playing field for everyone who started mining alongside him. Further the vague wording about the supply size means it is unlikely that it would hit bitcoins level of value because there is no scarcity.
- crypt1d 9y ago
  huh? btc was premined by Satoshi and early contributors too. while nobody can confirm which of the early wallets are his, the value of the premined btc coins is likely higher than the Ethereum premine. this is the nature of all the PoW coins. The early contributors take the most risk and the most reward (if the coin succeeds).
  - nope96 9y ago
    > btc was premined by Satoshi No, Satoshi did not "premine" bitcoin. Premine means on day zero you have created currency for yourself already. The only block we know Satoshi did mine cannot be spent. There is also zero evidence that Satoshi mined additional blocks once the network got up and running. (It took days for the second block to be found.)
    - Erlich_Bachman 9y ago
      Since no one can actually prove (or, rather, no one has been able to do that yet) who Satoshi is, your statement of whether there is evidence of him (her?them?) mining or not mining in the beginning is rather baseless.
      - celticninja 9y ago
        He would have had to mine initially to keep the network alive. In the early days people mined on their desktop CPUs, it wasn't common to mine consistently 24/7 so Satoshi likely mined for the first 6 months at a minimum. He was not the only miner but he would have been the miner of last resort. Some analysis has been done on the blockchain from the time and work done to tie some of the early addresses to known addresses of Satoshi (payments to more public early adopters). So whilst it is correct to say no one knows who he is we do know that there is a high likelihood that he mined and that he probably mined around 1m BTC. Those coins haven't moved but they are probably watched by thousands of people.
lnsp 9y ago
Because Ether is actually usable (even without smart contracts) as a form of money since the transaction fees are really low compared to Bitcoin. When you pay somebody using Bitcoin, you currently pay $5 to $8 as transaction fee and it needs about 1 1/2 hours for the money to arrive. When you use Ether, you only pay $0.25 (or even lower) as a fee and the system needs less than 20 seconds to confirm your transaction. The Bitcoin model is simply unsustainable if the exchange price continues to explode.
- once_inc 9y ago
  bitcoin's mempool is being cleared off 5-10 and even some 0-5 sat/byte transactions. If you set a correct fee, you can have $0.5 transactions that confirm within 10min.
  - aquadrop 9y ago
    If you set fee at $100 for $0.5 transaction? Not really sustainable...
- aquadrop 9y ago
  Bitcoin also worked ok before the number of transactions went high, is ether protected from that kind of thing? If for example amount of ether transactions go up 3 orders of magnitude? And it would be nice to have even smaller fees on Ether and transaction time less than a second, so it could be better than VISA/Mastercard.
  - charlesdm 9y ago
    Afaik Ethereum is already processing double the transactions of Bitcoin, very cheaply, and near instantaneous (e.g. little to no transaction backlog). The issue of Bitcoin is not the technical part; it's that no consensus can be reached between people on what is the right course of action, leading to multiple forks of the network.
    - nope96 9y ago
DalasNoin 9y ago
The FAQ is probably outdated. The roadmap in the article includes the switch too proof of stake. Proof of stake generally does not include block rewards, so it will stop completely.
- nope96 9y ago
  So the 60 early contributors now get 12.5% of all network fees, forever? (if they "stake")?
  - DalasNoin 9y ago
    I assume they sold some of it by now. But I see your point, does pos make the rich richer? Rich people can stake almost all their ether. since you can't move your ether for a long period of time after you stake it, staking is impractical for many. The first version of Casper will also include a minimum of ether to stake, though there are pools and they want too lower it over time.
    - whiskers08xmt 9y ago
      Capital begets capital. The choice of consensus algorithm doesn't matter, as long as the system follows some kind of capitalistic economic model.
- VMG 9y ago
  What's the incentive to participate honestly in Proof of Stake if there is no reward? Leaving aside the question whether PoS even works at all https://download.wpsoftware.net/bitcoin/pos.pdf https://download.wpsoftware.net/bitcoin/pos.pdf
  - DalasNoin 9y ago
    You get the transaction fees. when I said block reward, I was referring to the minted coins.
    - 9y ago
jcousins 9y ago
Putting aside the contributors and developers I think people invested based on one theme - chasing gains. The technology sounded great, I imagine people spent some time learning about an area of computing they really had no understanding of but the technology was probably far from the main reason they chose to invest. I doubt that the economics came into the decision making process at all. Back in 2014 it made sense to divest a small proportion from bitcoin if you made significant gains. Fresh, crypto-wealthy people with little to no investing experience (or even basic wealth management) tended to look to new cryptocurrency projects rather than fiat vehicles for divestment. Say what you will about that line of thinking, but it paid off for anyone that held onto their presale ether. At the time there were many new similar projects running presales. Some of those are now at a loss based on bitcoin's value, others are breaking even or failed and ethereum has gone parabolic. The going rate if you participated near the beginning of the ethereum presale was 2000ETH/BTC which was ~$600 at the time. This was an easy gamble for anyone with double digit bitcoins and the foresight to invest conservatively. One bitcoin invested in the ethereum presale is now worth nearly $1M. Does it make sense invest in this space now as an independent investor? Definitely not. The signal to noise ratio is god awful, the economics don't make sense (to me, at least), the sharks are circling and it is going to take a long time for the technology to catch up with the hype. When we see crashes of epic proportions I believe it is going to bring heavy-handed regulation and many are going to lose everything. People will be looking for blood and they will look to projects like ethereum for their pound of flesh.

by nope96 9y ago

StavrosK 9y ago

I'm not a fan of Ethereum (because their languages and VMs seem to be designed to maximize bugs), but the answer is "powerful smart contracts".

marcell 9y ago

> Who were these early contributors, how much did each get, and why do they get to have 12.5% of the entire economy on day 1? Why does Larry Page or Google Engineer #1 own billions of dollars of Google stock? Because he was there on day 1 and you weren't :)

nope96 9y ago
I know the US Government oversaw the Google IPO and the stocks weren't printed out of thin air. In the Ether ICO, a big whale friend of Vitalik could have sent his Bitcoin in during the ICO sale, got Ether for it, then Vitalik sent him his Bitcoin back. Poof, Ether printed out of thin air - there is no way to prove this did not happen. That is the problem with these ICOs vs. using Proof of Work to fairly distribute the currency.
- albertgoeswoof 9y ago
  But couldn't exactly that have happened during Google's seed rounds? And even the Google IPO? There's no way to prove that didn't happen either?
  - FreeRadical 9y ago
    They are audited
- Erlich_Bachman 9y ago
  Ethereum itself is not an ICO. ICO is something other projects can do on Ethereum (or on other platforms). There is actually some big differences and the rules are different. Bottomline: you are free to create your own cryptocurrency and pre-mine any large amount of it to yourself. Good luck making such a good one that other people will consider worth using and buying it, knowing about your premine. (And I even hope you succeed, because it will mean that you have created tremendous value for the world. But the chances are you won't.)
  - FreeRadical 9y ago
    Ethereum had an ICO https://blog.ethereum.org/2014/07/22/launching-the-ether-sale/ https://blog.ethereum.org/2014/07/22/launching-the-ether-sal...
- wslh 9y ago
  I was following your point of view until you said "That is the problem with these ICOs vs. using Proof of Work to fairly distribute the currency". First, PoW can't be said to fairly distribute the currency but rather to secure the currency against double spend attacks. If it is a fair method or not is another discussion where many models are possible. On the other hand there are questions about who develops the currency and how the team is funded. In this case Ethereum, Zcash and others propose this model which is valid. Bitcoin development is not progressing from thin air and it is not funded by the PoW mechanism anyway so the consensus method and the development work are different problems.
- reissbaker 9y ago
  > I know the US Government oversaw the Google IPO and the stocks weren't printed out of thin air. But... the stock did get printed out of thin air. When Google was originally being started — like any startup — the founders could have, and regularly did, make stock appear out of thin air. For example, that's what dilution is. If you've ever worked at a pre-IPO company that's raised money from VCs, at some point your company likely printed stock out of nothing, diluting your share of the company however much they liked — and there's not much you can do about it. In fact, all of the stock sold in the Google IPO was at one time printed out of thin air. That's where stock comes from. When Larry and Sergei and their lawyers (and whoever) drew up the initial documents when they were incorporating Google, they decided there would be X shares, and then over the course of many years increased that number semi-arbitrarily as they saw fit to sell to VCs, and eventually to sell to the public. All of the stock was made up, and it was distributed mostly to the founders and the early investors, just like any startup. They weren't being particularly evil or unfair, that's just how startups work. In fact, the Google board could, today, legally decide to invent more Google stock out of nothing and sell it, or give it away. Here's some good reading on Investopedia about dilution and stock issuance, along with a recent example of a company legally creating stock out of thin air and giving it to their new CEO, diluting existing shareholders: https://www.investopedia.com/terms/d/dilution.asp https://www.investopedia.com/terms/d/dilution.asp Ether had a one-time initial sale, and everything since is Proof of Work. In terms of being certain that Ether isn't being printed out of thin air, it's IMO quite a bit more trustworthy. (And if you want to really get down into the details, printing money out of thin air is a daily occurrence with the US government: that's how inflation works. We make dollars out of nothing. For good reason, but still!)
- cryptodogemoon 9y ago
  Proof of Work simply facilitates existing capital to proportionately take over the network and supply. It becomes notibly problematic if the total distribution is produced within a small window of time, locking out entire swaths of the population to be at the whim of horders (assuming there would be a genuine demand for the supply).
Passthepeas 9y ago
stocks are securities, while crypto projects are trying to be currencies, two very different things.

diegocerdan 9y ago

Early developers used this 12.5% to bootstrap projects and also to sustain themselves using ETH as a salary. On the early days ETH was pretty cheap so you can imagine them burning through a lot of it. I would say they hold much less nowadays. Lets say 4%. And the more they hold, the better for the community as a whole as they have more at stake for the project to succeed.

cryptodogemoon 9y ago
There's no evidence to support your claim. Even if one provided blockchain transaction logs, they might just be moving funds to wallets owned by the same user.
- zaarn 9y ago
  So basically, no evidence can convince you that they aren't doing this since the blockchain is afaik the only evidence. There is no evidence on the contrary point either, many have lost the private keys to 2k ETH wallets at this point...

golergka 9y ago

> $5,860,200,000 USD This value is influenced by free decisions of people, like you, who decide to invest in it. If those people (just like you) would decide that the developers are getting an unfair share and therefore, the currency is not valuable for them, Etherium wouldn't have such valuation. But for some strange reason, people don't care about how much do developers get and how "fair" their compensation is, as long as they get their value out of it. (I'm sorry for the rant, but I always feel really irritated when people bring the word "fair" into a situation which is controlled by a free market with a lot of small individual agents who are free to act in any manner they like and are not dealing with something they need for the basic survival.)

charlesdm 9y ago
Life isn't fair. Do I think its fair some people get born with billions of dollars to their name? Probably not. Do I care? I honestly don't. Find and create your own path.
- golergka 9y ago
  I would disagree, because the concept of "fair" doesn't really exist - every person has his own perception of what "fair" is. Therefore, it's much more useful to build society on concepts that we can actually agree on.

Merthurian 9y ago

You're right about the infinite supply being dodgy. But I'm so sick of hearing how it's not fair that the early crypto adopters are doing well for themselves. Wah wah wah.

celticninja 9y ago

In cryptocurrencies this coin was essentially a pre-mine which is done specifically to enrich the creators without any expense to themselves. Say what you want about bitcoin, but Satoshi Nakamoto earned his coins fairly (even though he may never access them) and created a fair and level playing field for everyone who started mining alongside him. Further the vague wording about the supply size means it is unlikely that it would hit bitcoins level of value because there is no scarcity.

crypt1d 9y ago
huh? btc was premined by Satoshi and early contributors too. while nobody can confirm which of the early wallets are his, the value of the premined btc coins is likely higher than the Ethereum premine. this is the nature of all the PoW coins. The early contributors take the most risk and the most reward (if the coin succeeds).
- nope96 9y ago
  > btc was premined by Satoshi No, Satoshi did not "premine" bitcoin. Premine means on day zero you have created currency for yourself already. The only block we know Satoshi did mine cannot be spent. There is also zero evidence that Satoshi mined additional blocks once the network got up and running. (It took days for the second block to be found.)
  - Erlich_Bachman 9y ago
    Since no one can actually prove (or, rather, no one has been able to do that yet) who Satoshi is, your statement of whether there is evidence of him (her?them?) mining or not mining in the beginning is rather baseless.
    - celticninja 9y ago
      He would have had to mine initially to keep the network alive. In the early days people mined on their desktop CPUs, it wasn't common to mine consistently 24/7 so Satoshi likely mined for the first 6 months at a minimum. He was not the only miner but he would have been the miner of last resort. Some analysis has been done on the blockchain from the time and work done to tie some of the early addresses to known addresses of Satoshi (payments to more public early adopters). So whilst it is correct to say no one knows who he is we do know that there is a high likelihood that he mined and that he probably mined around 1m BTC. Those coins haven't moved but they are probably watched by thousands of people.

lnsp 9y ago

Because Ether is actually usable (even without smart contracts) as a form of money since the transaction fees are really low compared to Bitcoin. When you pay somebody using Bitcoin, you currently pay $5 to $8 as transaction fee and it needs about 1 1/2 hours for the money to arrive. When you use Ether, you only pay $0.25 (or even lower) as a fee and the system needs less than 20 seconds to confirm your transaction. The Bitcoin model is simply unsustainable if the exchange price continues to explode.

once_inc 9y ago
bitcoin's mempool is being cleared off 5-10 and even some 0-5 sat/byte transactions. If you set a correct fee, you can have $0.5 transactions that confirm within 10min.
- aquadrop 9y ago
  If you set fee at $100 for $0.5 transaction? Not really sustainable...
aquadrop 9y ago
Bitcoin also worked ok before the number of transactions went high, is ether protected from that kind of thing? If for example amount of ether transactions go up 3 orders of magnitude? And it would be nice to have even smaller fees on Ether and transaction time less than a second, so it could be better than VISA/Mastercard.
- charlesdm 9y ago
  Afaik Ethereum is already processing double the transactions of Bitcoin, very cheaply, and near instantaneous (e.g. little to no transaction backlog). The issue of Bitcoin is not the technical part; it's that no consensus can be reached between people on what is the right course of action, leading to multiple forks of the network.
  - nope96 9y ago

DalasNoin 9y ago

The FAQ is probably outdated. The roadmap in the article includes the switch too proof of stake. Proof of stake generally does not include block rewards, so it will stop completely.

nope96 9y ago
So the 60 early contributors now get 12.5% of all network fees, forever? (if they "stake")?
- DalasNoin 9y ago
  I assume they sold some of it by now. But I see your point, does pos make the rich richer? Rich people can stake almost all their ether. since you can't move your ether for a long period of time after you stake it, staking is impractical for many. The first version of Casper will also include a minimum of ether to stake, though there are pools and they want too lower it over time.
  - whiskers08xmt 9y ago
    Capital begets capital. The choice of consensus algorithm doesn't matter, as long as the system follows some kind of capitalistic economic model.
VMG 9y ago
What's the incentive to participate honestly in Proof of Stake if there is no reward? Leaving aside the question whether PoS even works at all https://download.wpsoftware.net/bitcoin/pos.pdf https://download.wpsoftware.net/bitcoin/pos.pdf
- DalasNoin 9y ago
  You get the transaction fees. when I said block reward, I was referring to the minted coins.
  - 9y ago

jcousins 9y ago

Putting aside the contributors and developers I think people invested based on one theme - chasing gains. The technology sounded great, I imagine people spent some time learning about an area of computing they really had no understanding of but the technology was probably far from the main reason they chose to invest. I doubt that the economics came into the decision making process at all. Back in 2014 it made sense to divest a small proportion from bitcoin if you made significant gains. Fresh, crypto-wealthy people with little to no investing experience (or even basic wealth management) tended to look to new cryptocurrency projects rather than fiat vehicles for divestment. Say what you will about that line of thinking, but it paid off for anyone that held onto their presale ether. At the time there were many new similar projects running presales. Some of those are now at a loss based on bitcoin's value, others are breaking even or failed and ethereum has gone parabolic. The going rate if you participated near the beginning of the ethereum presale was 2000ETH/BTC which was ~$600 at the time. This was an easy gamble for anyone with double digit bitcoins and the foresight to invest conservatively. One bitcoin invested in the ethereum presale is now worth nearly $1M. Does it make sense invest in this space now as an independent investor? Definitely not. The signal to noise ratio is god awful, the economics don't make sense (to me, at least), the sharks are circling and it is going to take a long time for the technology to catch up with the hype. When we see crashes of epic proportions I believe it is going to bring heavy-handed regulation and many are going to lose everything. People will be looking for blood and they will look to projects like ethereum for their pound of flesh.