In 2011, a then 19-year-old programmer and keen Bitcoin enthusiast, Vitalik Buterin, found that the largest cryptocurrency in the market had limited functionalities. While it was an ideal store of value and could facilitate swift payments in a decentralised manner, the Bitcoin blockchain lacked a scripting language on which other applications could be built.
Failing to gain support from the Bitcoin community, Buterin wrote his Ethereum whitepaper in 2013, proposing the idea of a blockchain platform that could support the creation of decentralised applications by developers, without any censorship or regulation. This could be achieved through smart contracts or encoded complicated functions, through which users could conduct safe and reliable transactions with each other.
Did you know: Vitalik Buterin picked the name “Ethereum,” inspired by Wikipedia articles on science fiction and chemical elements. He came across the term “Luminiferous aether” in wave particle physics, which is a postulated invisible medium in the universe that allows light to travel.
Creation of the World’s Leading Programmable Blockchain
First announced in the 2014 Bitcoin Conference in Miami, the Ethereum project found many takers and ultimately had a long list of founders, including Gavin Wood, Anthony Di Lorio and Charles Hoskinson. Formal development began through a Swiss company, called Ethereum Switzerland GmbH or EthSuisse. The formal crowd-sale took place in July-August 2014, raising approximately $18 million through the sale of the Ether (ETH) token in return for Bitcoin.
In 2015, the project was launched officially with the slogan, “What Bitcoin does for payments, Ethereum does for anything that can be programmed.”
Creating the Decentralised Internet
Like Bitcoin, Ethereum is a distributed public blockchain network, but with significant differences in technology, purpose and capability. Its purpose is to decentralise the internet, by creating a platform on which applications can be built and run.
In today’s world, our personal data, financial information and passwords are stored on clouds and servers, owned by companies like Apple and Amazon. This brought in a host of vulnerabilities, especially due to cyber criminals, while also allowing undue government access to private citizen information. The Ethereum blockchain aims to decentralise the internet, by democratising the existing client-server model. To accomplish this, Ethereum has borrowed heavily from the Bitcoin protocol, only to tweak it to support additional applications beyond just money transfer.
Ethereum proposes the use of Turing-complete programming language to create smart contracts. The Ethereum Virtual Machine (EVM) runs on Turing complete software, enabling developers to run any program, regardless of the programming language, with enough memory and time.
So, instead of having to create entire blockchains from scratch, Ethereum facilitates the creation of thousands of such applications on one platform. These decentralised applications (dApps) are not controlled by any single central entity. Not only that, centralised services can be decentralised using the platform. Entire Decentralised Autonomous Organisations (DAOs) can be run on the platform, with a collection of smart contracts.
Did you know: In March 2017, the Ethereum Enterprise Alliance (EEA) was formed, with 30 founding members, consisting of blockchain start-ups research groups and Fortune 500 companies. The community aimed to drive the use of the Ethereum blockchain as an open standard to create enterprise-ready blockchain solutions. As of 2019, there are 250 member organisations, including MasterCard, Accenture, Cognizant and Banco Santander.
As of February 2018, Ethereum was the leading blockchain platform for ICOs, with over 80% market share. Various businesses have been able to tokenise their solutions for real-world problems, through the ERC-20 standard token protocol.
The ERC-20 Protocol: The ICO Boom of 2017
Before the ERC-20 protocol was created, every cryptocurrency token had to be created with its own standard of verifying account balances and initiating transfers. Moreover, these systems were not compatible with other systems, which meant developers had to create separate systems to allow interchange of token types. With the launch of the ERC-20 protocol, new tokens had immediate interoperability with all other tokens on the Ethereum blockchain.
Startups raised a total of $5.6 billion through ICOs in 2017, as a result of which the Ether coin soared to its largest ever market capitalisation and price in January 2018. On January 18, 2018, ETH traded at a price of $1,432, with a market cap of over $133.59 billion. Today, a wide range of apps are being developed on Ethereum, from finance to real estate, the applications of the platform seem almost limitless.
Did you know: The coin that fuels the network and trades on exchanges is Ether (ETH), which is the ecosystem’s native cryptocurrency. It is like Bitcoin, except that it can also be used to pay for developing and executing smart contracts on the platform.
Mining on a World Computer
A completely decentralised computer, which is distributed across the world, Ethereum needs thousands of people to run software called Ethereum Virtual Machine (EVM) on their computers for the ecosystem to function. To accomplish anything on this world computer, users (nodes) need to pay a fee, is the form of Ether (ETH). Transactions on the network are added in the form of “blocks” and these need to be validated through by providing answers to complex cryptographic puzzles. People who do these complex operations are miners, and for their work, they get rewarded in ETH.
On the network, transactions are termed as “Gas,” powering every operation on the network. This gas is calculated in terms of required bandwidth, complexity of the calculations and storage requirement. Each gas needs a specific amount of ETH to get completed.
Did you know: Unlike Bitcoin, the supply of which is capped at 21 million coins, there is no cap on the number of ETH tokens that can be mined. The only limitation that exists is that only 18 million ETH are available for mining each year.
Ethereum 2.0: An Environment-Friendly Blockchain
Right from its inception, Ethereum has suffered from scalability issues, while also being extremely energy intensive. It follows the Proof-of-Work protocol, which means miners compete with each other to complete calculations, in order to secure the blockchain and receive their rewards. This hampers the speed of the network and makes it extremely energy hungry.
Vitalik Buterin proposed the Proof-of-Stake (PoS) protocol in 2018, citing that it would make the network faster and more efficient for payment transactions. Sharding and Casper, two solutions have been on the company roadmap, to make the network ready for increased transaction load. While Casper is a hybrid of the PoS and PoW protocols, Sharding is a concept that allows network nodes to store only a portion of the entire blockchain registry to validate transactions, in order to increase transaction speed and reduce energy consumption.
Ethereum continues to be the second largest cryptocurrency on the market, with a market cap of $18 billion, as of October 18, 2019. It continues to be the underlying technology for many enterprise blockchain solutions, a recent one being EY’s Nightfall, designed for private Ethereum transactions.
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