Why Ethereum Succeeded Where Bitcoin Failed

Imagine that tomorrow you wake up and discover that you've been taken for all you're worth by an anonymous hacker. The thief has managed to steal everything that belonged to you and a good deal of others—$56 million worth of a new virtual currency that you've invested in, to be exact. You have a month to decide what to do.

This might seem like an impossible situation, the kind of pressure cooker that breeds hasty decisions, but it's exactly the dilemma that faced the developers and users of a new cryptocurrency and coding platform called Ethereum.

In June, millions of dollars were stolen from a crowd-directed investment fund called the DAO and siphoned into a smaller version referred to as a "child DAO." The only way to get it back was with a hard fork that slipped a refund mechanism into the DAO and all its offshoots. This meant a change to Ethereum's code that split the currency into two versions, which users had to choose between by either updating their software or not. It was a risky proposal that threatened to permanently cleave Ethereum, and it had its share of vocal dissenters who saw the change as manipulating the system to "bail out" the DAO.

Mere hours after the fork began, however, Ethereum creator Vitalik Buterin called it: the fork was a success, with 85 percent of users moving over to the new version.

Users of Bitcoin, the cryptocurrency that inspired large portions of how Ethereum works, were watching the fork closely and tweeting with a heady mix of respect for the Ethereum community and perhaps just a bit of jealousy. You see, Bitcoin has been gripped with indecision amid a year-long debate over whether or not to fork the currency's software just like Ethereum did.

How did Ethereum manage to do in a month what Bitcoin seems utterly incapable of even coming close to pulling off?

The main factors may be Ethereum's relatively small community compared to Bitcoin, making it easier to come to a consensus, and how hard forks are built into the platform in a way that Bitcoin has never seen.

"Politics are very much a part of Ethereum, just like with Bitcoin, but I think Bitcoin is just basically rotten with politics," said Stephan Tual, the French developer who designed the DAO alongside German brothers Simon and Christoph Jentzsch.

"The reason they can't coordinate," he added, "is because they hate each other."

While hate may be a strong word, the debate about whether to hard fork Bitcoin's software has reached critical levels of acrimony and ideological rhetoric about the virtues of decentralization. The furor led core developer Mike Hearn to slam the door on Bitcoin and brand the whole experiment a failure.

The bitcoin ecosystem is also extremely varied and everybody is trying to protect their interests without blowing the whole thing up, from the miners who make thousands of dollars for every block of bitcoin data they compute to the services that allow people to send money overseas or buy groceries with bitcoin. The system is entrenched, and changing anything at all elicits fears of a shake-up.

"A hard fork for Bitcoin would be like travelling on a train going 200 miles per hour going over a bridge," Tual said. "Someone says, to make it go faster we're going to send a bunch of nerds to go change the engine at the front. Who would volunteer?"

In contrast, Ethereum is still a very young platform with only a few thousand users and one killer app: the DAO. Forking the system to save the one thing that Ethereum really had going for it, and that many people had invested in, was a no-brainer for most and easy to agree upon. In contrast, changes to Bitcoin are likely to advantage one group while having potentially dire economic consequences for many others.

"For Bitcoin, the community is essentially riven and I'm surprised any changes get through at all," John Biggs, founder of Freemit, a Bitcoin service to send money abroad. "The ultimate problem is that you have to gain consensus and when there's cash on the line even the most all-encompassing nerd becomes deeply conservative."

Vitalik Buterin, the inventor of Ethereum, agreed that the largest difference between bitcoin and Ethereum when it comes to forking is "the differences between the two protocols' communities."

However, he also suggested after the hard fork on Wednesday that if Ethereum ever needs to fork again in order to solve a major problem, it may not be so easy. "Forks will only get more and more difficult to implement over time as the community grows," he wrote Motherboard in an email at the time.

The second reason for Ethereum's apparent ease in pulling off a hard fork compared to bitcoin, Tual said, is that hard forks are par for the course at this nascent stage of the platform's development.

The hard fork to refund the DAO's money was actually Ethereum's third—there's been one every time the software has been upgraded to a more powerful version—and there is even one on the horizon, since Ethereum is getting set to upgrade to a version called Metropolis.

In contrast, Bitcoin has only ever experienced one event that could be described as a hard fork, and it was basically an accident that occurred not because of a planned software upgrade, but a faulty block of bitcoin data.

Ethereum is still a big experiment that can afford to have a few eggs broken at the moment, Tual said. "We haven't seen what Ethereum can do yet and it's just in alpha," he said.

The deadlock between competing corners of the Bitcoin community when it comes to hard forking, in contrast, spells doom for the currency, according to Tual. "As long as that's true, Bitcoin will never evolve, and it will die, because what doesn't evolve dies."

According to Biggs, Bitcoin's failure to evolve thanks to an inability to agree on a way forward means that centralized organizations—say, banks or credit payment processing companies—will be the ones to benefit from the technology simply because they're able to move faster when it comes to changing the system.

"I'm betting that true decentralized cryptocurrencies will eventually become a sideshow in a corporate blockchain circus," Biggs said.

For Ethereum, riding on the high of a successful fork, a similar fate might seem like a distant possibility right now—but proponents of the platform would do well to heed Buterin's warning and wonder: for how long?

CORRECTION: An earlier version of this article stated that Stephan Tual is German and designed the DAO with his two brothers. In fact, Tual is French and designed the DAO with two German brothers, to whom he is not related.