Bitcoin rival Ethereum a rising virtual star

The Ethereum software has won many fans with its promise to do much more. In addition to virtual currency, it provides a way to create online markets and programmable transactions known as smart contracts.
The Ethereum software has won many fans with its promise to do much more. In addition to virtual currency, it provides a way to create online markets and programmable transactions known as smart contracts. PHOTO: NEW YORK TIMES

Currency value soars but Bitcoin advocates say complex system will face security issues

NEW YORK • A new virtual gold rush is under way. Even as Bitcoin, riven by internal divisions, has struggled, a rival virtual currency - known as Ethereum - has soared in value, climbing 1,000 per cent over the past three months.

Beyond the price spike, Ethereum is also attracting attention from giants in finance and technology, like JPMorgan Chase, Microsoft and IBM, which have described it as a sort of Bitcoin 2.0.

The rise of the relatively new virtual currency has been helped by a battle within the Bitcoin community over how the basic Bitcoin software should develop. The fights have slowed down Bitcoin transactions and led some people to look for alternative virtual currencies to power their businesses.

Like Bitcoin, the Ethereum system is built on a blockchain in which every transaction is recorded publicly. The promise of such a system is that it allows the exchange of money and assets more quickly and more cheaply than relying on a long chain of middlemen.

But Ethereum has also won many fans with its promise to do much more: The software provides a way to create online markets and programmable transactions known as smart contracts.

CORPORATE INTEREST

Ethereum is a general platform where you can solve problems... using a fairly elegant solution - the most elegant solution we have seen to date.

MR MARLEY GRAY, business development and strategy director at Microsoft, on the usefulness of the virtual currency system.

The system is complex enough that even people who know it well have trouble describing it in plain English. But one application in development will let farmers put produce up for sale directly to consumers and take payment directly from them. There are dozens of functioning applications built on Ethereum, enabling new ways to manage and pay for electricity, sports bets and even Ponzi schemes.

All of this work is still very early. The first full public version of the Ethereum software was recently released, and the system could face some of the technical and legal problems that have hit Bitcoin.

Many Bitcoin advocates say Ethereum will face more security problems because of its greater complexity. Thus far, Ethereum has faced much less testing, and a lot fewer attacks, than Bitcoin. The novel design may also invite intense scrutiny by the authorities, given that potentially fraudulent contracts, like the Ponzi schemes, can be written directly into the Ethereum system.

But its sophisticated capabilities have made it fascinating to some executives in corporate America. IBM said last year that it was experimenting with Ethereum as a way to control real-world objects in the Internet of things.

Microsoft has been working on several projects that make it easier to use Ethereum. "Ethereum is a general platform where you can solve problems... using a fairly elegant solution - the most elegant solution we have seen to date," said Microsoft business development and strategy director Marley Gray.

Many corporations, though, have created their own Ethereum networks with private blockchains, independent of the public system, and that could ultimately detract from the value of the individual unit in the Ethereum system - known as an Ether - that people have recently been buying.

NEW YORK TIMES

A version of this article appeared in the print edition of The Straits Times on March 29, 2016, with the headline 'Bitcoin rival Ethereum a rising virtual star'. Print Edition | Subscribe