What is Ethereum? (ETH) Beginner's Guide, History and Review

Bitcoin is the legacy, original cryptocurrency that has launched an entire industry of innovation based on blockchain technology and its field of application of technical and economic mechanics. Conceived primarily as a deposit of value and an exchange of value outside the jurisdiction of governments or third parties, the application of Bitcoin focuses on the provision of individual economic freedom through the creation of new financial technology.

However, the application of blockchain technology, cryptography, distributed computing and economics in a system such as Bitcoin has been the tip of the iceberg for a future industry of great potential. Ethereum has opened the door to the potential of blockchain technology for a wide variety of applications.

What is Ethereum?

Pegged as a distributed world computer, Ethereum is an open-source computing platform, public and decentralized blockchain with smart-contract functionality complete with turing. Proposed at the end of 2013, by a Vitalik Buterin of 19 years, as a platform that could hypothetically exploit the blockchain to store and execute computer programs on an international network of distributed nodes, Ethereum has become the best known and consolidated cryptocurrency outside of Bitcoin.

The history of Ethereum

Ethereum has a long, controversial and very significant history that has had a major impact on the formation of the sphere of modern cryptocurrency. The white paper proposed by Vitalik at the end of 2013 was the beginning of the era Ethereum.

Outlined as a worldwide computer distributed for the execution and storage of computer programs, the goal was to create a distributed computing platform that would take full advantage of the potential offered by blockchain technology. As Vitalik states in the introduction of his article:

"What Ethereum intends to provide is a blockchain with a complete programming language complete with integrated Turing that can be used to create" contracts "that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply writing the logic in a few lines of code "

The systems that he "describes above" in the quote refer to common applications (dapps) built over the Ethereum blockchain today as digital goods on a chain (ERC token 20), non-fungible goods, decentralized exchanges, identity chains and reputation, a peer-to-peer gamble, decentralized autonomous organizations (DAO) and, in particular, smart contracts.

Smart contracts are the main feature of Ethereum and are essentially self-executable programs that facilitate the exchange of anything of value on the network, immutably stored on the blockchain. They execute when specific conditions are met and are outside the influence of third parties or censorship and have no downtime, provided the Ethereum network functions.

The general ambition of the project outlined in the white paper and the technical skills of its young founder have attracted the attention of many in the cryptocurrency space. The main innovation of the platform became known as "Ethereum Virtual Machine" (EVM) and is a complete turing software that works on the Ethereum network, allowing anyone to run any program, regardless of the programming language, on the Ethereum blockchain . The result is the ability to create a wide range of decentralized applications on a single platform.

The first development of Ethereum began at the beginning of 2014 with Vitalik and a small team including Anthony Di Iorio, Charles Hoskinson and Mihai Alisie. The project began with the Swiss company Ethereum Switzerland GmbH and later through the Swiss non-profit foundation Ethereum.

Read our Vitalik Buterin profile

At the time, Joseph Lubin was the COO of Switzerland GmbH and helped establish the Ethereum Foundation. Remains a prominent figure in the community of cryptocurrency as the founder of ConsenSys.

In July 2014, Ethereum suffered a crowdsale in which over $ 14 million was raised from July to August. In September of the same year, Ether (the currency of Ethereum) was distributed to investors and the development team, while the remaining funds went to the Ethereum Foundation.

In July 2015, the first mainnet version, experimental of Ethereum, was launched, labeled as "Border"publication The first major update to the Ethereum platform was released in March 2016 as"Farm"And it was the first update to be considered stable, focusing on the price of gas, security and transaction processing." At the time, the critics of Ethereum were still wary of its security and stability, though being a complete platform of Turing offers a considerable amount of potential development applications, it also brings with it serious and potentially fatal safety issues.

DAO

Despite the safety concerns, on the wave of excitement of the community, the DAO was created, a decentralized autonomous organization that acts as a fund for venture capital headed by investors. The DAO raised about $ 150 million through contributions of over 11,000 people and was seen as a combination of self-executive smart contracts designed to function as a decentralized investment vehicle.

By mistake, the DAO was hacked in June 2016 when unknown users were able to exploit a vulnerability in its code and were able to move $ 50 million into a different DAO (known as DAO Dark). In addition, once published, other users used the same vulnerability to divert the remaining funds into a third DAO called DAO White Hat.

More information on DAO and DAO Hack

The end result was intense and highly polarizing. Two sides emerged with one side arguing that the immutability of the blockchain and the fundamental principle of "code as law" could not be broken, while the other side claimed to reject the protocol to return the funds of investors and eliminate hacker access to funds on the original Ethereum blockchain.

In the end, Vitalik Buterin announced in July 2016 that the miners agreed on the rigid fork and the fork was imminent. However, a minority of miners were still resisting and holding firm in their convictions for not setting up the protocol, which has seen us undermine the fundamental principle of the platform. Thus, Ethereum was forked and the new chain became known as Ethereum and the old non-functioning chain became known as the Ethereum Classic, effectively dividing the Ethereum community.

Over time, most companies, developers, miners and users have favored the Ethereum chain (a fork) and it is the current chain called Ethereum with the second largest market capitalization and a large community at shoulders. Even Ethereum Classic (ETC) remains a popular cryptocurrency, however, the team behind ETC implements the same updates as the Ethereum chain and actively develops the platform as well.

Ethereum vs Ethereum Classic: what are the differences

The most recent Ethereum update came in the form of "Metropolis – Byzantium", Which is the first part of a two-part upgrade of Metropolis that should lay the groundwork for the passage of Ethereum to its test update of a stake"Casper", As well as its possible implementation of sharding.

Ethereum has been at the forefront of the recent downsizing problems in the broader cryptocurrency industry. Affected by high gas rates and slow transaction times, Ethereum is facing serious concerns about its ability to scale to meet the demands of thousands of executs running on its platform and sufficient high throughput capacity to support a large network of decentralized participants .

The proposed solutions are envisaged for the aforementioned Casper upgrade and its possible transition to sharding, a unique horizontal database partitioning method designed to alleviate network congestion and help the network to scale.

How does Ethereum work?

Ethereum Virtual Machine (EVM) is a complete Turing software running on the Ethereum network. It runs the scripts on a distributed network of computers and allows the execution and storage of everything from intelligent contracts to DAOs. Functionally, Ethereum allows developers to create decentralized applications on it. This can include games, distributed logs, organizations and many others.

The project behind Ethereum, based on the white paper, intends to follow the principles of:

• Simplicity – The protocol should be as efficient as possible, even at the cost of data storage or time inefficiencies.
• Universality – A complete internal Turing script is a language that a developer can use to program any contract or type of transaction.
• modularity – The Ethereum protocol should be designed to be as modular and separable as possible.
• Agility – The protocol is not set to stone and all opportunities will be used to improve the protocol architecture or EVM in terms of scalability or security.
• Non-discrimination / non-censorship – The protocol should not attempt to restrict or actively prevent specific categories of use.

Benefits of Ethereum

The advantages of Ethereum not only as a platform based on blockchain itself but also compared to other blockchain-based platforms include:

• immutability – A third party can not make changes to the data.
• Corruption / tamper evidence – The censorship is not feasible with the consent of the PoW of the vast and decentralized network that agrees on its global state.
• Safety – The combination of the PoW consensus, the cryptographic techniques used in the transaction model and the lack of a central point of error protects the network from hacking and manipulation.
• No dead time – Applications, smart contracts, organizations, etc. All running on the Ethereum blockchain are always running and can not be turned off.

Disadvantages of Ethereum

Being a complete Turing platform, Ethereum is vulnerable to vulnerabilities that can be exploited through the complexity of the primary programming language used in smart contracts, Solidity. The security of smart contracts has become a major concern and the DAO attack has been the revealing event that has led to general concerns about the long-term viability of smart contracts.

Ethereum also pays great attention Safety is Decentralization over scalability. While scalability solutions are in place and on the horizon, low-throughput capacity and high gas costs for Ethereum currently make it inconvenient for mainstream users looking for the free use of applications they are used to, as well as for developers who create applications, where gas costs have become prohibitive in some cases.

Transaction model

Ethereum uses an account-based model, similar to a modern banking model for users, rather than Bitcoin's UTXO model. The overall status of Ethereum is divided into these accounts, which consist of 20-byte addresses and where each transaction of value or information between accounts is considered a state transition.

An Ethereum account contains 4 fields. The there is not, ethereal balance, contract code, is storage. There are two types of accounts, external property account is contractual accounts. External property accounts are user accounts that are controlled by private keys, do not contain any code, and can be used to create and sign transactions. A contract account is an intelligent contract, managed by code and receives messages that allow you to store messages and code and to contact other contracts and accounts of external ownership.

Ether is the currency of the Ethereum platform while Gas it is the derivative of Ether used to pay transactions and calculations through the network. Ethereum has chosen the model based on the account on the UTXO model of Bitcoin for a series of reasons, on which it is possible to find more detailed information here.

Etereum Mining

Ethereum mining is in many ways similar to Bitcoin mining. However, there is a main difference where the Ethereum blockchain not only stores the blockchain transaction list, but also the most recent network status.

Ethereum also employs the use of Patricia Trees rather than Merkle Trees as part of its blockchain state regulation. Patricia trees are a modified form of Merkle Trees that allows Ethereum to efficiently store and adjust the status of the blockchain in each block.

Some other noteworthy features of Ethereum's blockchain and mining include:

• 12 seconds lock
• Ethash extraction algorithm (uses DAG)
• Static Block Reward of 3 ETH
• The miners have offset the gas consumed in the block.
• Extra reward for including Uncle as blocks.

Find out more about Ethereum Mining in our complete guide

Consent

Currently, Ethereum uses a modified Consensus of Work (PoE) consensus model of Nakamoto. The consent of the PoW in Ethereum is extremely safe as the network is made up of thousands of decentralized nodes all over the world.

The extraction in the PoW model of Ethereum uses the Ethash algorithm (DAG) which is designed to have a fast verification time. In addition, large-scale miners get relatively little benefit from larger operations due to the large memory requirements of the algorithm.

This model will eventually be replaced by a & rsquo; consensus implementation to the stake test with the upcoming Casper update.

More information on Ethereum Casper

Smart Contracts & Dapps

Smart contracts and the ability of developers to create decentralized applications on Ethereum is its most important feature. From building games that play games to teams that release their ERC-20 token on Ethereum, a multitude of significant developments have been triggered in the broader cryptocurrency industry using this feature of EVM.

Solidity is currently the main programming language used to write intelligent contracts and build dapps, however, Ethereum is currently experimenting with a new beta programming language known as Vyper which should be a much simpler, more secure and verifiable language for intelligent contracts in order to mitigate some of the complexity deficiencies surrounding Solidity.

If Ethereum is able to scale to meet traditional application and throughput requests, the possible iterations of the on-platform platforms are endless. Developers will have new ways to monetize their creations, users will not be burdened by expensive and inefficient third parties, and eventually applications (and even blockchains) will become interoperable with each other, giving power to a completely new paradigm of development and innovation. of applications.

The future of Ethereum

Ethereum seems invariably placed, alongside Bitcoin, as the center of the cryptocurrency world. With the standards proposed and implemented on the Ethereum network, a vast and dedicated community of developers and various other contributors, and a vocal and talented leader in Vitalik Buterin at the top, the future of Ethereum seems bright.

Ethereum remains at the forefront of innovation in the industry, with developments such as the planned transition to the sharding seen as some of the most difficult tasks, not only in the blockchain field, but also in the wider technical community. Ethereum also lists a number of future technologies that are actively or potentially developing that include:

• Saving of portfolios
• Crop insurance
• Decentralized data feeds
• Multisig Escrow
• Cloud computing
• P2P gambling game
• Forecasting markets (eg Augur)
• Decentralized Marketplace (for example, 0x)

Not only is the Ethereum team developing pioneering innovations, but also the broader community that participates in the network in the form of developing their projects, within the boundaries of the Ethereum network, is making a significant contribution. Some interesting and explorative uses of Ethereum include projects such as Aragon, 0x, Augur, Golem and Loom Network.

Conclusion

Ethereum is today one of the most important and popular platforms in the blockchain / cryptocurrency sector. While technological talent continues to migrate into space, adoption becomes more widespread and scalability solutions are implemented, Ethereum appears to be the world-wide distributed computer for tomorrow's decentralized applications.