Ethereum is an operating system and platform for distributed computing that is based on blockchain, is public and open-source. Ethereum features smart contract functionality and supports the Nakamoto consensus via state transitions based on transactions.
The Ethereum platform generates the blockchain for Ether, its cryptocurrency. Ether is used to pay mining nodes for performing computations and can be transferred between accounts. The Ethereum Virtual Machine (EVM), is a decentralized virtual machine which executes scripts on public nodes on a global network. Spam is mitigated and resources allocated on the network by “Gas”, an internal transaction pricing application.
Vitalik Buterin, a programmer and cryptocurrency researcher proposed Ethereum in 2013. An online crowd-sale in 2014 funded development. On 30 July 2015, the system was taken live using 11.9 million coins that were pre-mined for the crowd-sale.
When The DAO project collapsed in 2016, Ethereum split into two chains. The original carried on as Ethereum Classic (ETC), while the new version became Ethereum (ETH).
The name Ethereum was picked by Vitalik Buterin after he found the name in Wikipedia articles on science fiction and elements. Buterin liked the sound of the name and that ‘ether’ means the invisible medium that pervades the universe, allowing light to travel.
In 2013, Buterin published a white paper describing Ethereum. He was working for Bitcoin Magazine at the time. At the time, Buterin proposed that a scripting language be added to Bitcoin to build decentralized applications. When others did not agree, he proposed that a new platform containing a generalized scripting language be development.
When Ethereum was publicly announced in January 2014, the development team consisted of Vitalik Buterin, Charles Hoskinson, Anthony Di Iorio and Mihai Alisie. Development started early in 2014 through Ethereum Switzerland GmbH. The Ethereum Foundation, a non-profit foundation based in Switzerland, was subsequently created. In a crowd-sale held to fund the development, participants bought ether, the Ethereum token with bitcoin. Although Ethereum’s technical innovations were praised, there were questions about its scalability and security.
EEA (Enterprise Ethereum Alliance)
The EEA was created in March 2017 with thirty founding members, including Fortune 500 companies, research groups and blockchain start-ups. This quickly grew to 116 enterprise members by May, and more than 150 members by July 2017.
Ethereum is a decentralized platform that runs smart contracts. Ethereum Wallet is a gateway to decentralized applications on the Ethereum blockchain. It allows you to hold and secure ether and other crypto-assets built on Ethereum.
What is MyEtherWallet? Free, open-source, client-side interface for generating Ethereum wallets. Interact with the Ethereum blockchain easily & securely.
As part of the Proof-of-Concept concept, the Foundation developed various prototypes of the platform before the Frontier network was official launched. The last prototype was “Olympic”, which was released to the public in beta. The Olympic network paid users a fee of 25,000 ether to stress test the Ethereum blockchain. In July 2015, “Frontier” was released.
Ethereum has undertaken several protocol upgrades since launching. These changes affected the incentive structures and the functionality of Ethereum. A protocol upgrade is done by introducing soft forks of the code base.
The first soft fork considered to be stable was “Homestead” released in July 2015. Improvements to gas pricing, security and transaction processing were included.
Another soft fork provided more flexibility for smart contract developers and reduced the complexity of the EVM. This fork was released in October 2017 and was known as the “Metropolis Part 1: Byzantium.” This soft fork also added support for Zcash’s zk-SNARKs and the first ever zk-SNARK transaction was done on testnet in September 2017.
The foundation for Casper, the change to proof-of-stake, will be laid with “Metropolis Part 2: Constantinople,” one of the two protocol upgrades planned for the future.
A group of smart contracts that were developed using the platform for a decentralized autonomous organization and known as The DAO raised US$150 million in a crowd-sale to finance the project in 2016.
In June an anonymous entity exploited The DAO and claimed ether worth US$50 million. This led to a debate in the crypto-universe about whether the missing funds should be re-appropriated through a “hard fork” and the network split as a result. Ethereum Classic continued on the original blockchain and Ethereum continued on the forked blockchain.
Ethereum has since forked twice more to deal with subsequent attacks. Ethereum had un-bloated the blockchain, blocked other spam attacks, and increased its DDoS protection by the end of November 2016.
Ether is the cryptocurrency used to operate Ethereum, providing a public distributed ledger for doing transactions. Ether is used as a computational unit in transactions and other state transitions, and to pay for gas. The currency is often mistakenly referred to as Ethereum. The Greek Xi character (Ξ) is used as a currency symbol and it is traded on cryptocurrency exchanges under the code ETH. Ether is used to pay for computational services and transaction fees on the network.
Ether, like any other cryptocurrencies, is validated by a blockchain. As the name suggests, a blockchain consists of blocks containing lists of records that grows continuously. These are linked and protected by cryptography. A blockchain is an open, distributed ledger used to record transactions between 2 parties in a manner that is efficient, verifiable and perpetual. Blocks are inherently resistant to the data being modified. Ethereum uses accounts and balances in a way known as state transitions. The states signify the current balance of all accounts, as well as extra data. States are stored in a Merkle Patricia tree and not on the blockchain. Cryptocurrency wallets are used to store both the private and public and “addresses” or “keys” that are used to send or receive Ether. Write to the blockchain is done by using a private key, thereby making a transaction with ether. The public key of an account is needed to send ether to it. Ether accounts are aliases, as these aren’t linked to an individual person, but to an addresses. The addresses can be stored using software, or paper.
An Ethereum address consists of the “0x” prefix, an often used identifier for hexadecimal, followed by the right-hand 20 bytes of the Keccak-256 hash of the ECDSA public key. Two digits in hexadecimal make up a byte, so an address contains 40 hexadecimal numbers. An example would be 0xa794F5eA0ab39494dE839613fffBA74279579268. The same format is used for contract addresses, but they are defined by the sender and the creation transaction instance. User accounts and contract accounts can’t be distinguished from each other if no blockchain data and only an address is available. Any valid Keccak-256 hash formatted as described is valid, even though it might not match to a contract or the private key of an account.
Ether vs Bitcoin
Ether differs from Bitcoin in various ways:
– Ether coins are mined at a consistent rate, but for bitcoin, the mining rate is halved every four years.
– Ether’s block time is about seconds, while bitcoin is 10 minutes.
– Ether transaction fees are determined by bandwidth use, storage needs and computational complexity, while bitcoin only uses transaction size. This results in Ether fees being lower than those of Bitcoin.
– The Ethash algorithm is used for proof-of-work. This reduces the advantage of using specialized ASICs in mining.
– Ethereum’s gas units have prices measured in Gwei that can be specific in a transaction. Bitcoin uses transactions fees stated in satoshis per byte.
– Ethereum’s accounting system uses values in Wei to debit from and credit to accounts. Bitcoin uses the UTXO system, which can be compared to using cash and then receiving change. In terms of security/anonymity, complexity and storage space, both systems have pros and cons.
As of June 2018, ether’s total supply is estimated at Ξ100 million. 9.2 million New ether was generated through mining in 2017, which corresponds to an increase of 10% in total supply. It is expected that Casper CBC and FFG will decrease the rate of inflation to between 0.5% and 2%. Although there is currently not a hard cap specified on ETH’s total supply, it will likely end at some point.
Ether is already traded by various online cryptocurrency wallets, cryptocurrency exchanges and regular currency brokers. Currently, more than 150 stores accept ether and the count continues to rise.
A disadvantage of deploying smart contracts to a public blockchain is that security holes and other bugs can be seen by everyone but can’t be fixed fast.
How to implement formal verifications to prove and express properties that are not trivial is continually being researched. Microsoft noted in a research report that it can be very difficult to write solid smart contracts. The report also discusses tools developed by Microsoft to verify contracts, and notes that analyzing published contracts on a big scale will likely reveal many vulnerabilities.
Turing complete language is used to write Ethereum and 7 programming languages are included. Programmers write and publish applications that will run inside Ethereum using this language to. Although the system is cumbersome, that does not deter developers.
Applications for the Ethereum blockchain are normally known as decentralized applications (DApps), as they are created on the EVM which is decentralized. Many use cases for Ethereum have been proposed, not all of which are possible or feasible. Proposals include the IoT, finance, electricity sourcing, sports betting and farm-to-table produce.
There are currently in excess of 250 DApps that are live, with many more being developed. These include securitized tokens, prediction markets, digital signature algorithms, crowdfunding, remittance, financial exchanges and social media platform.
Software for Enterprises
Enterprise software companies are testing customized networks and software based on Ethereum separate from the public Ethereum chain. Parties that are interested include IBM, Microsoft, Deloitte and JPMorgan Chase. Credit Suisse and Barclays are investigating Ethereum’s blockchain to automate the requirements of the MiFID II (Markets in Financial Instruments Directive).
All Ethereum smart contracts are kept in public on each blockchain node, which costs. Performance issues do however occur as every node calculates all smart contracts in real-time, reducing speeds. The Ethereum protocol was able to process 25 transactions in a second in the beginning of 2016, and by the end of the same year one million transactions in a day was achieved.
Merkle trees are used in the Ethereum blockchain, to optimize transaction hashing, to improve scalability and for security reasons. This also allows for setting membership proofs, light client synchronization and storage savings. Congestion problems have been experienced in the Ethereum network e.g. the congestion caused by Cryptokitties in late 2017.
Forking the Ethereum blockchain has resulted in Ethereum Classic emerging.
Development Governance and EIP
A development governance was proposed as the Ethereum Improvement Proposal (EIP) in late 2015. The community and core development team were to reach consensus by an EIP regulated process. A number of important decisions were made using the EIP, including EIP-20 (ERC-20 Token Standard) and EIP-160 (EXP cost increases).