> 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 :)

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.

> 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

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!)

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.

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).

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?

They are audited

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.)

Ethereum had an ICO

https://blog.ethereum.org/2014/07/22/launching-the-ether-sal...

stocks are securities, while crypto projects are trying to be currencies, two very different things.

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.

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.

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.

> Ethereum is already processing double the transactions of Bitcoin

Take a look at the charts here, http://bc.daniel.net.nz

It's not "free" to process more transactions. At some point you are no longer p2p and decentralized when the requirements to run a node go up so high, so quickly .

I'm not sure on the exact details, but I believe those are full nodes. I believe there are also light nodes that are only a few gb in size when you sync them (e.g. a lot of the historical less relevant data is truncated).

I'm assuming those full nodes will eventually be intended to be run in data centers.

> Afaik Ethereum is already processing double the transactions of Bitcoin

I was talking just about Ether, what happens to time/fees if number of transactions goes 1000x?

> 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

I don't think it's a problem of Bitcoin. It has its pros and cons, but it allows bitcoin evolve, assessing different approaches. It's like saying that main problem of open source projects is that they can be forked. Is it a problem or is it a feature?

I don't disagree with that premise, but I do think it makes things overly complicated and confusing for people. It dilutes the Bitcoin brand. And crypto in itself isn't exactly the easiest topic to grasp.

At this rate we'll have 10 forks with minor changes in 5 years, and that just isn't good. Some pragmatism in working towards a common goal should be expected.

Unless people believe the current state of Bitcoin is good enough to be digital gold. It might very well be.

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.

If you set fee at $100 for $0.5 transaction? Not really sustainable...

> Because Ether is actually usable (even without smart contracts) as a form of money

I'm curious, how many drug dealers do you know that accept Ether?

I'm curious, why does this matter? How many drug dealers do you know accept cash?

100% of them afaik

All of them accept bitcoin. And it matters because buying drugs is the most popular use case of it.

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.

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.

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...

> $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.)

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.

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.

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.

Satoshi actually used a manipulative log curve for his minting algorhythm which effectively created a ponzi style distribution scheme. The majority of BTC was produced to the small userbase for minimal effort, whereas time passes the computational work and wattage required to produce coins for late adopters increases as presumably more users discover the system.

Satoshi easily could have chosen a linear algorithm anticipating additional work input with more users, instead he designed a system to exploit late adopters.

The aspect of Bitcoins having a limited supply is mostly ineffective, as all the features of Bitcoin are now available in other service networks which are including more advanced features and better ASIC resistant algos.

>Satoshi easily could have chosen a linear algorithm anticipating additional work input with more users, instead he designed a system to exploit late adopters.

Are you suggesting he provides a bigger reward for work as time goes on, thereby providing more currency later in the piece?

That would be counter-intuitive to the idea of bitcoin as a fixed store of wealth (strong libertarian influence, anti-bank ethos being kinda the cornerstone of the origins of bitcoin).

His plan was that the transaction fees would be what sustains the miners due to bitcoin being worth a lot once the block reward was low. The deflationary nature was not "manipulative" in the way you are implying, it was done in order to slowly wind down the reward and currency generation so eventually the transaction fees were the purpose for mining.

>The aspect of Bitcoins having a limited supply is mostly ineffective, as all the features of Bitcoin are now available in other service networks which are including more advanced features and better ASIC resistant algos.

Whether or not this is true is neither here nor there, the effectiveness is non consequential when it comes to the intent. He was not attempting to exploit late adopters.

>Are you suggesting he provides a bigger reward for work as time goes on, thereby providing more currency later in the piece?

Yes.

The minting design Satoshi choose merely granted a few users the majority of the supply for the least amount of work. They can then horde and hope to sell at a profit to late adopters.

>That would be counter-intuitive to the idea of bitcoin as a fixed store of wealth

No, the total supply remains the same. Distribution and production is the issue. The linear curve should align to match the energy and work input, assuming that is representative of additional users joining the network.

Fixed store of wealth is even more difficult to achieve, as users must trust the design to be desirable.

>No, the total supply remains the same. Distribution and production is the issue. The linear curve should align to match the energy and work input, assuming that is representative of additional users joining the network. Fixed store of wealth is even more difficult to achieve, as users must trust the design to be desirable.

I understand what you are saying (even if I disagree with the concept), but I think you are missing that this was created as a run away from the GFC, heavy inflation would run a counter to what libertarians and anti-global economics people would believe in.

I didn't say anything about your particular opinion on wealth distribution on crypto, I'm just saying your opinion that satoshi was attempting to exploit people is baseless.

Even with the decrease in the mining reward over time, Bitcoin mining is now consuming enough energy to power a small county. I'm not convinced that having the mining reward increase over time to provide more reward to later miners would be a wise feature in any way.

As Satoshis minting algo was used, why should one user receive significantly more coins for such low effort simply for running the software at an early date?

The end result is early users exploiting users who join the network after them. Ponzi style.

Because at the point he started the network the coins were worthless, he got paid less per block than someone who mines a block today even though the mining reward is 1/4 of what it was in 2009.

No, this is purely the internal economic model of bitcoin production concerning work/energy/value input versus output to workers.

Imagine someone tells you they've created a money printing machine that prints 21m BTC, and they design the machine to give them most of the BTC and when it arrives in your town the man says "well it looks like the rules have changed now and your work isn't worth as much as my work because you encountered the magic box after me"

The users who ran the software on the network in 2010 required much less value input to generate bitcoins. Acording to Satoshis design, a user running the software now on an identical computer would not produce the same rewards for their work. This is essentially an intentional ponzi design.

Users who aquired bitcoins for low capital input are incentized to psychologically convince late adopters to purchase their bitcoins for more than it cost to produce and acquire.

The rule change was fully known about in advance, it didn't suprise anyone. And you could contend that the work is now worth more. For a long time mining was economically unrewarding, miners created a blockchain and provided it with power at their own cost and without any guarantee of success or return. Those who joined later were joining when their work would be immediately rewarded with profit because it became economically feasible to mine. These late arrivers actually pushed out a lot of the early miners by using more powerful and efficient equipment. So they may have taken more of a capital risk but less of a risk in terms of knowing a return was possible and would repay their investment.

If later comers took more capital risk, in what way did they take less risk, exactly?

The semantics matter here. Perhaps the later comers were more opportunistic and optimistic about the likelihood of achieving a favorable return. But they had to take more risk, since they were later to the party and risked more capital (as you noted).

He didn't design it to exploit later adopters, he designed it so that the output was consistent regardless of the network size.

Completely wrong.

The output is actually completely inverse. More work, more users, less output.

The consistency you're thinking of is likely the algorithm that adjusts blocktime to 10 minute intervals.

Apologies, consistent was not the correct word to convey my meaning. The reward schedule is consistent but the reward itself is pre-determined, known by all participants, it was set out from the beginning. There was no attempt to hide the idea until a certain proportion of the BTC was mined by the creator.

Penalising late adopters is just the reverse of rewarding early adopters and bitcoin needed early adopters to keep the network alive so it makes sense to reward them. I dont really buy that late adopters are being penalised though.

If you design a system for mass adoption that exploits the masses and only benefits a tiny group of people and you publish your blueprints and claim the details were available, that doesn't change the fact that you've already literally taken the money supply and run.

"Without any expense"? What do you call the technical expertise and man-years of work put into the network?

That's effort not expense, regardless don't you think that Satoshi Nakamoto put in the same, if not more, effort and didn't pre-mine BTC.

I'm not sure why I would compare the two.

If OpenOffice team gives out their software for free, does it mean that Microsoft is somehow morally evil for selling their own Office package?

Difference between effort/expense does not seem to be important here, the point is that Ethereum developers put something real into it (work, resources, etc - quantifiable and provable), for which they claim that they should be reimbursed in form of a pre-mine. This information is publicly available, and known by most network participants, who still voluntarily participate in it. I don't see any problem here.

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).

> 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.)

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.

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.

Risk is defined by what can be lost. If you bought a $200 video card early on and spent $200 on electricity mining than your risk was $400. Contrarily someone right now buying a single bitcoin is going to be risking a lot more than just that.

Yes, but you could just buy $400 worth of bitcoin and the risk is the same.

No, the previous poster said the earliest adopters take the most risk. In actuality, whoever pays the most for their btc takes the most risk.

Early adopters invested almost nothing compared to the amount of money moving around now (at risk on a speculative investment). Their risk was negligible and certainly far less than folks getting into the game now, coin for coin.

You’re right that if one buys 0.05 btc today for $400, it’s the same risk as someone investing $400 years ago to mine hundreds or even thousands of coins, but real investors aren’t buying 0.05 btc.

Early miners are exerting less energy and less work to produce more coins.

The difficulty curve often further benefits early miners to be taking minimal risk when the design is reverse logarithmic.

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".

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.

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.

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.

So the 60 early contributors now get 12.5% of all network fees, forever? (if they "stake")?

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.

Capital begets capital. The choice of consensus algorithm doesn't matter, as long as the system follows some kind of capitalistic economic model.

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

You get the transaction fees. when I said block reward, I was referring to the minted coins.

On top of earning fees, if PoS includes penalties for not being honest, you will lose money by not doing the right thing.