Work on Ethereum started in 2013, when its creator Vitalik Buterin failed to get enough support for his proposal to start application development on top of Bitcoin’s blockchain. Ethereum is above all a platform for decentralized software development. The value of its associated currency Ether is based on its utility – it is also used as a fuel that powers the decentralized apps (daps) and other functionality (smart contracts).
Ethereum has its own Turing complete or computationally universal internal code – meaning that any software application can be built on top of it, giving the technology a very broad range of use. Smart contracts are ones allowing to program a contract which executes when given variables are met. Finally, blocks are mined in a matter of seconds allowing quick transaction times.
The utility of Ethereum goes beyond digital cash and therefore has garnered a lot of attention from investors and institutions. Its development team is covered by the Ethereum Foundation, a Swiss non-profit organization. Every aspect of Ethereum is well documented and openly discussed and there is a lot of effort to promote Ethereum’s functionality to software developers and businesses. Ethereum is well on its way to storm the industry and become the number one platform for decentralized software application.
What are Smart Contracts?
Imagine you want to bet someone a 1000 ETH on who wins the presidential elections. You both put 1000 ETH on the smart contract, you agree on the data feed for the election results. Once the president is elected, the winner is automatically rewarded with 2000 ETH from the escrow contract.
This is a very simple example of a smart contract, but many inputs and conditions can be defined so that, automatically executed smart-contracts can be used for will settlement, trust funds, work-contracts, industrial-grade agreements without the need for intermediaries. Once agreed upon, the smart contracts cannot be altered by one of the parties or a third party. They can’t be hacked or nullified.
Vitalik Buterin https://twitter.com/VitalikButerin
The main driving force behind Ethereum. On the cryptocurrency scene since its beginning, Buterin proposed and described Ethereum in his 2013 whitepaper when he was seventeen. After seeing the shortcomings of Bitcoin. Ethereum’s co-founder who openly discussed and presented the technical and strategic choices for Ethereum.
Vlad Zamfir https://twitter.com/VladZamfir
A long-term member of the Ethereum R&D team, very voiced and often sharing all his findings without sugarcoating them. Very valuable source of information from Ethereum’s development.
Ming Chan https://twitter.com/mingchan88
The Executive Director of the Ethereum Foundation who is paving the way for the blockchain technology by working on legal and regulatory matters and cooperating with key industry players.
Jeffrey Wilcke https://twitter.com/jeffehh
One of the founders and the creator of Ethereum - as in the one who coded it to existence using the Go programming language. Wilcke has been the head developer of the Ethereum platform ever since.
Ethereum’s own proof of work algorithm, which started as a modified version of the Dagger-Hashimoto algorithm, has constantly changed and improved. Ethash is memory demanding, which makes it ASIC resistant. This is achieved by the algorithm requiring data from the DAG - a few gigabytes of data which changes every 30,000 blocks (roughly every 5 days).
POW vs POS
Although the hashing algorithm is different, Ethereum currently uses Proof of Work to avoid double-spending and secure the consistency of its blockchain, much like Bitcoin does. Later, it will switch to Proof of Stake with ETH owners betting on the next block to be added to the blockchain. Blocks have random probability to become the next block and the most probable ones get most votes and are selected. The changes were originally scheduled for the end of 2017 with a hybrid transition period between the two. The POS approach tackles the problem of blockchain verification being too resource demanding.
The Ethereum Virtual Machine (EVM)
As it was mentioned before, Ethereum is a platform for applications, not just a virtual currency with a ledger of transactions. This is achieved by the EVM, the runtime environment which executes smart contracts and is run on every Ethereum node. It’s the Turing-complete language upon which daps are built.
Ethereum was being developed while Bitcoin was maturing and managed to learn from it and avoid the main problem that plagues Bitcoin, and that’s the ASIC dominated mining and the looming problem of centralization. It does so by using a memory-heavy hashing algorithm -Ethash and the GHOST protocol, which rewards stale blocks.
- Quick block creation and transaction times (seconds)
- Ethereum blockchain can store code, not just transactions
- ASIC-mining resistant, more secure against 51% attacks
- Universality of application
- Ethereum community and new open industries forming around Ethereum
- Blockchain bloat - storing transactions AND code
- Trying to do everything at once - ledger/super computer/smart contract generator
- Danger of a virus and/or attacks (computer code distributed throughout the network)
- High probability of hard forks with planned development milestones
With its robust and universal use, the Ethereum’s whitepaper has a formidable 152 pages (compared to Bitcoin’s eight pages) and every aspect of the technology, from the hashing algorithm, to decentralization. Scalability is covered in it. The importance of Ethereum being a platform for the future is emphasized.
In the whitepaper, Buterin already proposed valuable use of Ethereum in finances, file storing, insurance, banking, Centralized Autonomous Organizations (DAPs) and prediction markets among others. Over 500 startups have already formed around Ethereum. Here are three examples:
Colony - a platform that enables truly open organizations
Augur - a prediction market tool that creates very accurate forecasts with the power of a decentralized network
Slock - a company specializing in decentralized sharing network of everything. They are developing an Ethereum computer which will be used as a hub for connected devices, for example: securely renting access to any space without intermediaries.
The utility of Ehtereum goes beyond digital cash and therefore has garnered a lot of attention from investors and institutions. Its development team is covered by the Ethereum Foundation, a Swiss non-profit organization. Every aspect of Ethereum is well documented and openly discussed and there is a lot of effort to promote Ethereum’s functionality to software developers and businesses. Ethereum is well on its way to storm the industry and become the number one platform for decentralized software application.
Ethereum has its own Turing complete or computationally universal internal code – meaning that any software application can be built on top of it, giving the technology a very broad range of use. Smart contracts is one such use allowing to program a contract which executes when given variables are met. Finally, blocks are mined in a matter of seconds allowing quick transaction times.
J.P. Morgan, Microsoft, Intel, Accenture, BP, and Credit Suisse were the founding members creating the Enterprise Ethereum Alliance (EEA) in February 2017. In July 2017, the number of organizations in the EEA surpassed 150, pushing the EEA into the largest open-source blockchain initiative in the world. Newcomers included Cisco Systems and MasterCard among others.
The development of Ethereum was originally divided into 4 stages.
Frontier was the beta stage, which called for user caution;
Homestead is the current version launched in March 2016, considered stable;
Metropolis, which is being tested since September 2017, its main focus is to make dap development and the whole EVM environment more user-friendly to promote steep adoption;
Serenity is the final (for now) stage. It aims to improve scalability by adding sharding, offer more privacy for users and to switch from Proof of Work to Proof of Stake; the so-called “virtual mining” which consumes less resources while keeping the network secure and agreeing on a single sequence of blocks. The Serenity stage is to make the protocol
“industry-ready”, deadline for Serenity has not been set yet.
Since Ethereum is the second-largest cryptocurrency many see it as Bitcoin’s main competitor. But the true power of Ethereum lies in its utility as a full-fledged software platform which can run any algorithm and daps, in other words make action happen. It’s the first World Computer. Decentralized businesses can create their business logic and thrive with Ethereum. The potential of Ethereum has been recognized by many Fortune 500 companies who participate in its development. These include J.P. Morgan, the biggest US bank, Microsoft, Intel, BP, Thomson Reuters or Russian Development Bank. The development of Ethereum is not stopping, and its use is growing.
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