The Ethereum merger is approaching, a retrospective on the Ethereum crowdfunding eight years ago

Original Title: 《The Ethereum Crowdsale 8 Years Later》

Authors: Kyle Waters, Nate Maddrey, Matías Andrade, Coin Metrics

Compiled by: DeFi Dao

Editor’s Note: Vitalik Buterin revealed at the EthCC conference in Paris that Ethereum developers are working on five long-term phases aimed at improving the overall capacity of the network. The first item on the agenda is "The Merge," which is 90% complete and only requires testing on Ropsten. Once "The Merge" successfully occurs, validators will be able to withdraw their ETH locked in the ETH 2.0 deposit contract.

Ethereum Crowdsale 8 Years Ago

After years of testing, research, and development, there is excitement around the potential timeline for Ethereum's transition to proof of stake (PoS) through The Merge. This merge can be considered the largest protocol-level change in Ethereum's history, eliminating mining and introducing a validator system where validators stake their ETH to earn rewards by creating and validating new blocks.

Tracking ETH supply continues to draw attention, as the amount of ETH held directly determines users' ability to participate in PoS. Meanwhile, the shift to PoS will also introduce a new ETH issuance model and impact ETH's monetary policy. However, to better understand Ethereum's current supply situation, observers need to go back to the critical period one year before the launch of the Ethereum network, from July 22, 2014, to September 2, 2014: the ETH crowdsale.

This article will review the data surrounding the ETH crowdsale using Coin Metrics' ATLAS data. While reviewing the data behind the sale, it will also examine the current genesis accounts (those who participated in the crowdsale).

Background

How should cryptocurrencies conduct initial distribution? This question has been a source of debate for years. There are now many initial issuance models that reward early adopters and contributors differently, leading to significant disparities in supply distribution.

For Bitcoin, Satoshi Nakamoto addressed this issue when he released the first version of the Bitcoin code in 2009:

​"You can run a node and generate blocks by having someone send you some coins, or by opening Options->Generate Coins. I set the difficulty of proof of work very low, so for a while, a regular computer could generate coins in just a few hours."

​Anyone can download Bitcoin's open-source software and contribute computing power to secure the network in exchange for newly minted BTC. According to Bitcoin's supply schedule, the first 50 BTC were generated in the genesis block, the same amount as any other block until the first halving in 2012, when the block reward dropped to 25 BTC (interestingly, these 50 genesis coins are unspendable and have been proven to be lost).

After that, with the surge of alternative cryptocurrencies, new models were tested. In 2013, Mastercoin (MSC), the precursor to Bitcoin's Omni Layer, launched a fundraising campaign using Bitcoin as a crowdfunding platform. Anyone could send BTC to a designated address and receive a predetermined amount of MSC at a set rate. The project raised over 5,000 Bitcoins at the time, worth about $500,000. The success of this model paved the way for Ethereum's high-risk ETH crowdsale in 2014.

How ethereum.org looked during the summer ETH crowdsale in 2014

Like Mastercoin, the Ethereum crowdsale exchanged BTC for ETH. When Ethereum launched the following year, participants in the crowdsale were promised a distribution of ETH. By using Bitcoin as a crowdfunding platform, theoretically, anyone in the world could participate. Author and Defiant News founder Camila Russo summarized the profound significance of the ETH crowdsale in her book The Infinite Machine, which provides a brilliant account of Ethereum's origins:

​"Previously, anyone wanting to buy shares in large tech companies like Facebook or Google needed a U.S. bank account; for those wanting to invest in startups that hadn't raised funds on public markets, things became even more complicated. Now, anyone can become an investor in one of the most cutting-edge tech companies. All they need is an internet connection and at least 0.01 Bitcoin."

​The crowdsale started on July 22, 2014, and was planned to last for 42 days. By this time, Vitalik and other early contributors had showcased Ethereum's vision to the world, most notably through the Ethereum white paper in 2013 and Vitalik's speech at Bitcoin Miami in January 2014.

The crowdsale had an interesting incentive mechanism that encouraged early participation. In the first two weeks of the sale, 1 BTC could purchase 2,000 ETH, after which the price changed linearly, ultimately allowing each BTC to purchase 1,337 ETH. The following chart shows the price of ETH in BTC to illustrate the discounted price of ETH during the early crowdsale and the rising prices from day 14 to day 36 of the sale.

Source: The terms and conditions of the Ethereum genesis sale

​At the time, using Bitcoin as a crowdfunding mechanism was a novel experiment on many levels. However, one result of conducting a crowdsale on a public ledger is that years later, we can easily access this rich dataset of contributions. Unsurprisingly, this data has been the subject of extensive scrutiny to date—most notably, Preston Byrne's remarks in 2018 and independent cryptocurrency researcher Hasu's data-driven follow-up analysis.

Bitcoin "Exodus" Address Statistics

The following chart shows the total amount of BTC sent to the Bitcoin address controlled by the Ethereum team (36PrZ1KHYMpqSyAQXSG8VwbUiq2EogxLo2), known as the "Exodus Wallet." Notably, this address was one of the most valuable multisig addresses at the time.

It also shows the total amount of BTC raised during the crowdsale and its equivalent in USD, as well as the total amount of ETH sold. Over 31,000 BTC were raised, worth approximately $18.3 million, with a total of 60 million ETH sold (making Ethereum the second-largest crowdfunding campaign at the time).

Source: Coin Metrics ATLAS and Coin Metrics reference rates

​Of the 60 million ETH sold, approximately 50 million were sold in the first two weeks at a significantly discounted price—there was a notable spike in sales on the last day of the sale when each BTC could purchase 2,000 ETH.

Between the minimum purchase amount of 0.01 BTC and the maximum purchase amount of 500 BTC, there were a total of 8,437 transactions (although theoretically, there was no way to prevent contributors from splitting larger amounts across multiple addresses). The three largest purchases were 500, 466, and 330 BTC. The average purchase amount was 3.65 BTC, or about 7,000 ETH.

Ultimately, given the pseudonymity of Bitcoin addresses, it is difficult to say much more about the participants, but these results provide valuable insights into one of the most significant events in cryptocurrency history to date.

Current Crowdsale Supply Proportion

In addition to the 60 million ETH sold in the crowdsale, early contributors to ETH also received an additional amount equivalent to about 10% of the total ETH sold, with another approximately 10% allocated to the Ethereum Foundation.

This means that the total supply of Ethereum at the network launch was approximately 72 million ETH, distributed across 8,893 addresses. However, as additional ETH has been distributed through mining, the proportion of total supply controlled by crowdsale participants and early contributors has decreased over time. Today's total supply of ETH is close to 120 million, with nearly 50 million new ETH issued since the genesis.

Source: Coin Metrics Formula Builder

Please note that the chart above is only for comparison with proof of work (PoW) issuance over a period and does not reflect how genesis accounts distribute their tokens over time. In other words, the set of accounts controlling 72 million ETH has been changing and growing since the genesis.

So far, over 92% of genesis accounts have moved their ETH, with only 693 accounts having never moved their ETH to date (the largest being 0x2b6ed29a95753c3ad948348e3e7b1a251080ffb9ETH, which controls 250,000 ETH).

Across all genesis accounts, the largest by the amount of ETH held today is 0x1b3cb81e51011b549d78bf720b0d924ac763a7c2, which controls 347,000 ETH (approximately $530 million at today's ETH price), having received 560,000 ETH at genesis (with about 213,000 ETH transferred only this year).

But overall, the Ethereum accounts created at genesis today control only 2.66 million ETH, about 2% of the total supply of ETH, down from 7 million ETH in 2018 (of course, some holders may have simply transferred their ETH to custodians/exchanges or new accounts).

While there is often debate about its lasting impact on supply distribution, it is undeniable that the ETH crowdsale was an ambitious project, and its success reflects the enthusiasm surrounding the new era of programmable blockchains that support smart contracts and decentralized applications. With The Merge approaching, many eyes are on Ethereum as it enters a critical phase in its history of less than a decade.

Also check out other resources covering ETH supply and its presale:

• Galaxy Digital Research: Breakdown of Ethereum Supply Distribution Since Genesis
• Takens Theorem: Visualizing Ethereum's History