Blockchain technology can have many uses, but humanity seems hell-bent on creating cryptocurrencies that bring their fair share of risk and reward.
Last week, we reported how blockchain player Bancor raised $153m in the largest initial coin offer (ICO) to date, using ether, a cryptocurrency just like bitcoin, which is also built on blockchain.
Blockchain is a digital ledger system that enables users to create smart contracts that can have all kinds of uses, such as creating billing orders or drug prescriptions, or even potentially managing computer networks, entire supply chains and more.
The possibilities are endless but it is perhaps ironic that the first instinct of humans was to use blockchain to create a new kind of currency. Hence the bitcoin cryptocurrency and the enduring enigma around the mysterious programmer, Satoshi Nakamoto, who is alleged to have invented it.
An ICO is a way to raise capital by getting people to buy up cryptocurrencies, in the same way people would buy shares to fuel an IPO such as Snap’s on the New York Stock Exchange earlier this year.
Bancor’s cryptocurrency ICO was based on ether, a form of digital money that was created by a network entitled Ethereum.
Ethereum is an open-source, public, blockchain-based distributed computing platform that makes use of smart contracts to facilitate online agreements. Ether is a currency that was developed on the system, while Gas, an internal transaction pricing mechanism, is used to mitigate spam and other threats, and allocate resources on the network.
The irresistible rise of ether
The interesting thing about ether is that its value has risen 4,500pc since the start of the year and outstanding units of ether are worth $34bn.
Ether is on the verge of catching up with – and, at its current trajectory, outpacing – bitcoin, which is currently worth $43bn, when you add up all of its units of value.
According to the latest data (at the time of writing) from CoinDesk, one bitcoin is now worth more than $2,800, while ether is trading at north of $375.
Last week’s ICO by Bancor yielded $153m from the sale of network tokens of ether, just marginally ahead of the previous record set by The DAO in 2016 at $152m.
Launched in 2017 by the Bprotocol Foundation, Bancor is a platform that aims to make it easier for users to launch their own blockchain tokens. The Bancor sale was backed by Blockchain Capital, an investment firm focused on blockchain start-ups.
Bancor is currently cryptocurrency’s darling, but it would be wise to heed the warning from recent history that to err is digital, as well as human.
In June 2016, just one month after The DAO ICO, users exploited a vulnerability in the organisation’s code to siphon off $55m (more than a third of its funds) to a subsidiary account.
Efforts to restore the original smart contracts split the Ethereum, or ether, into two separate cryptocurrencies.
So, while the rise of ether is irresistible, it is by no means immune to danger and is likely to run the same gauntlet of problems that dogged bitcoin in its inception.
What is also intriguing is the fact that bitcoin is finally making its way into the mainstream, with online players such as Overstock and Expedia accepting the cryptocurrency for purchases.
Despite backing from JP Morgan and Microsoft, expect ether to struggle with various regulatory and legal hurdles – not to mention cybersecurity scandals – before it finally becomes mainstream.
And that’s just the thing – until real-world applications are found for cryptocurrencies such as bitcoin and ether, then this take on blockchain could just turn out to be hot air.