IMO, This post just has a click-baity title with almost no information within. TheDAO is a failure. There are a few of the other Ethereum DAOs like Augur, Digix and Maker have invested a lot of effort over the last one year and haven't launched yet to iron out issues like these. They didnt need to learn such expensive lessons. Maker Market contracts were hit by the same bug and they handled it very elegantly three days back.
TheDAO was convoluted from the beginning(code, incentives, purpose), and a lot of us within Ethereum were highly skeptical too but when mainstream media started covering it, our voices got drowned.
A few common misconceptions that I'd like to correct,
Ether is not in the currency business. It was emphasized multiple times by the devs themselves. It so happens that Bitcoin is so slow and full that users are flocking to use Ether as a currency even when Ether's inflation is uncertain. This is an open network, we cant stop people from using it the way they want it to.
Ethereum is not being built for financial apps only. It provides a VM that can run code and store data. This can be used for any purpose that requires code to be executed and data fields to be changed atomically in a secure way, the users need to pay a fraction of a cent worth of Ether to run this code. That means they dont have to be invested in Ether to be able to derive value from the Ethereum network. You have to be invested heavily in Bitcoin to get value from the Bitcoin network, especially after Bitcoin payments are such a dud. Please dont rush to type that Steam started accepting Bitcoin recently.
Ether is not competition to Bitcoin. Bitcoin killer will be a new token on the Ethereum network. There could also be a AirBnb killer and a Uber killer built on the network too. These are companies that pride on being leaders in sectors by writing only code. What if this code and data can exist as commons in the Ethereum network that is global and has 100% uptime. Users pay a fraction of cent worth of Ether to run transactions instead of a percentage cut. And these users will transfer money between themselves for these transactions with the token that killed Bitcoin, not Ether. It will take a while to kickstart a reputation layer on Ethereum network but these usecases are a real possibility.
There is a very good chance that these new tokens created on the Ethereum network will surpass the total market cap of Ether very soon :O
Ether's long-term inflation is uncertain, but its maximum inflation is known. It's 26% of the crowdsale amount per year, or about 22% of the initial supply (so as the supply increases, the rate decreases). The devs have reserved the right to lower the inflation rate when they transition to proof of stake, but they've guaranteed not to increase it. That guarantee is enforced by the community just like it is on Bitcoin, plus it's actually written in the legal documents for the crowdsale.
Right now the ether inflation rate is under 20%. Bitcoin's inflation when it had a $1 billion market cap was 33%.
As a currency, ether works just as well as bitcoin, but with higher throughput and much less latency.
Bitcoin's competition is not Ether, it will be another token built on Ethereum. There is a very high chance that a lot of Ethereum tokens individually will exceed the Ether market cap. Ether's main purpose is securing the Ethereum network and it will be used for staking in PoS and its own valuation will depend on the number of transactions in the network.
Ether is not a currency like Bitcoin. Ethereum is a pure platform play that enables multiple Bitcoin competitors to rapidly experiment and find the product-market fit of crypto-currencies in the real world.
I believe there can be a crypto-currency with better properties than Bitcoin.
Once one of these Ethereum apps finds their hockey stick, Ether will continue to play its role in securing the Ethereum network for this killer app which removes the need for both Ether and Bitcoin to play the role of crypto-currencies.
While you are distracted by one DAO, there are many other DAOs successfully in operation on the Ethereum network. There is only one that made a lot of noise because it had to, the others are silently building their products after raising money from a passionate set of users.
What other DAOs are there and how much have they raised?
The thing with tokens is that because Ethereum is so young, the companies being built on top of it are by default super early stage, with no real traction or product market fit to show. So anyone buying tokens at this stage because they want a shared revenue stream of the companies profits, is making very risky bets which have a high likelihood of failure (on average).
I think it's the lure of secondary markets for DAOs that is behind a lot of the interest in, at least, The DAO - people buy the tokens early because there is anticipation of the token prices going up relatively soon after the crowdsale, fear of missing out etc.
I think a lot of it is driven by speculative motives rather than long term investment in Ethereum companies themselves.
The other major DAO was Digix, which set a target of $5.5 million and raised it in 14 hours.
They've got a more definite revenue plan: DAO token holders get transaction fees from transfers of the gold-backed tokens Digix plans to issue. For various reasons I don't think this is going to work out very well for Digix DAO holders in the long term, but it's an interesting experiment.
Yes, the bets are risky. It is an opportunity to rethink your portfolio like a VC where few investments could return 10x easily and a lot will lose the capital allocated to them.
I think this is better than buying IPO stock in public markets which are so bad these days that only zombie companies are being listed and investors are being screwed very regularly.
You can create whatever structure you want. There's no reason (other than that it doesn't make good financial sense) that you couldn't sell special preferred tokens, etc.
One key difference is Ethereum is not being built only for writing code for monetary transactions using Ether.
Ethereum is being built to store and run code in the EVM. Ether main use is only to pay for gas so that any user of the network can execute the code. Although in Bitcoin there is no point in writing code other than encode conditions upon which monetary transfers can be done, this isn't Etheruem's main goal.
An example of a non-monetary use case is - A concert ticket issuer could issue tickets on the Ethereum network. When users want to resell, they need not rely on a re-seller and instead can do a direct exchange on a decentralized exchange. They will pay a few cents worth of Ether as fees to run code that triggers this exchange to get the guarantee that the tickets are not counterfeit. After a quick confirmation the ownership of the tickets is updated on the blockchain. The exchange of money between these users can be in USD itself directly without any conversions to Ether.
It is non-monetary consumer use cases like these that drives the Ethereum team to bring the transaction confirmation times to the current 15 seconds and even lower in the near future.
You're absolutely right - I should have called that out more.
Ethereum can be used to represent the ownership of any item (property title, ticket, claim for fiat currency). Some will inject a third-party you need to trust (a custodian who holds dollars), while others may not (the digital ticket as @daoland highlights). You can also define ownership broadly, where it might be as simple as the "ownership" (right) to vote (e.g., corporate governance decision, poll, etc). While it's not the primary use today, I could see tradeable tokens to represent various real world rights (to land, to tickets, to voting) being an area for much further experimentation.
I do think there's a question if confirmation times need to be low on the blockchain itself (with its attendant risks) - as Lightning in Bitcoin shows an example where this is injected on top. This really is a broader debate about what should live at the lowest layers of a blockchain stack and what should be higher up (disclosure, I specialized in networking, and so see some parallels to the debates in the early years of the networking stack). Another interesting area for exploration is what should live on the blockchain, and what should live off, given the cost of blockchain storage.
In practice I wouldn't say that's ether's main use. If you add up the total gas fees so far, it'll probably amount to less than the $150 million in ether raised for TheDAO, the $5.5 million raised for Digix, etc. And if you look at the code samples on ethereum.org, one is for a crowdfunding app that raises funds in ether.
And of course, if you're paying miners with ether, then ether better be a functioning currency or it's a worthless payment.
You're certainly right that Ethereum has lots of uses beyond simple value transfer, but if you want to transfer USD instead of ether, you need to trust someone to back tokens with USD, and trust governments not to shut them down over KYC issues.
The devs are so badass, they constantly mention that they will allow miners to accept any currency for gas fees if it is feasible. Most of us who have some Ether are comfortable with this move too, ironically our hedge for this scenario is to hold some Bitcoin.
Because, Ethereum will prosper not when Ether has a high market cap, only if it can become robust enough to provide a decentralized platform to run code for a variety of apps and services.
True but they're not planning for currency-agnostic fees before they move to proof of stake, which will require ether for staking.
It might not be a done deal, either. A few weeks ago Vlad Zamfir, the lead researcher for PoS, tweeted that he thought agnostic fees were a dumb idea, because they'd be too much trouble for miners.
A lot of contracts are easier to write if you assume a single currency. If you're doing that you have to pick one, and ether seems like the obvious choice.
I mostly agree with your last sentence but a high market cap doesn't reduce Ethereum's robustness either; in fact it makes it more secure.
I'm actually convinced that Ethereum has something unique to offer specifically to developers. Ethereum will be a common ground for a lot of high value code and data between organizations, people, etc. A lot is possible in a few lines of solidity, I've seen devs create working decentralized exchanges in a few weeks. As you can see, the use of Ether here is just to ensure that the code a user wants to execute on the EVM gets executed. Users need not have to use it as a currency.
Ether's primary purpose is to secure the Ethereum network, not to be used as a "currency" like Bitcoin. If someone gave me an ether every time the Ethereum devs keep emphasizing this, I'd be very rich by now. If Bitcoin did a great job at transferring value in the network without being slow and full all the time, all the ancaps would have stuck to Bitcoin and would have left us in peace.
The Bitcoin challenger is not Ethereum itself, it will be services like Maker that are currently being built on top of Ethereum. Ether purpose is to secure Ethereum so that services like Maker don't have to worry about the security and scalability of the underlying blockchain and can focus on the EVM abstraction and above.
Only in the short term, It is well within the realm of possibility for a purpose built token without counterparty risk like Ether to emerge on the Ethereum network.
No, they develop at least one with minimum, basic features their formal spec depends on. Then another. Then another. Then another. Then, they have four.
Alternatively, several of them develop several components in parallel with constant communication to keep them in sync and with a spec. These have the minimum, basic requirements.
Then, there's security-focused products that... going by your statement... start with a formal spec that ignores basic, integrity checks then develop four implementations simultaneously also missing basics. "Not a great plan." (Tony Stark)
TheDAO was convoluted from the beginning(code, incentives, purpose), and a lot of us within Ethereum were highly skeptical too but when mainstream media started covering it, our voices got drowned.