Ethereum, the world’s decentralized computer
When most people think of cryptocurrency, Bitcoin is usually the first thing that comes to mind. And that’s understandable because Bitcoin is the first and the biggest cryptocurrency.
In marketing language, Bitcoin is the crypto category king.
But its little brother, Ethereum, has been developing several crypto categories on its own. When you hear about DeFi, NFTs, stablecoins and DAOs, all of these crypto categories started on Ethereum.
Bitcoin is laser-focused on one asset, BTC. Ethereum takes the opposite approach emphasizing a general-purpose platform. Instead of one token, altcoin or asset, Ethereum gives you access to an unlimited ecosystem of decentralized products and assets.
So Ethereum’s advantage is that it is purpose-built to be open to many different decentralized assets.
ETH, the first application
Co-founder Vitalik Buterin called ETH the first application on the Ethereum network. ETH is like the key into the world of Ethereum. It’s the fuel or gas that makes it run.
Called the world’s computer, Ethereum gives you and everyone around the world access to a brand new idea about your potential. It’s not about who has the most ETH that matters because everyone who wants to build something can build on Ethereum.
Ethereum is a platform in persistent evolution. It is driven by a strong community and a prominent cryptocurrency token.
The beauty of Ethereum is that it gives traders, crypto enthusiasts and future builders endless possibilities.
The only limit is your imagination.
Back in 2018, we were waiting for the Constantinople fork to be completed. Today the Beacon Chain has been launched and running. These are two of the precursors to the conversion from Proof of Work to Proof of Stake.
And it all began with a curious 17-year-old’s discovery of Bitcoin.
Ethereum’s founders sought to improve Bitcoin
A 17-year-old Vitalik Buterin discovered Bitcoin in 2011. It inspired him to co-found Bitcoin Magazine and write extensively about it.
Over the next three years, he connected with a series of important individuals, some of whom would become founders.
One of these people was Jeffrey Wilckes, who was part of the Mastercoin team. Mastercoin was built to provide the next layer on top of Bitcoin. Vitalik provided a variety of suggestions to improve Mastercoin that were never implemented.
Ethereum was designed to facilitate a wider vision of what was possible with cryptocurrency. The idea for Ethereum was a vision of what the promise of Bitcoin could be.
It was this thinking that provided the foundation for what would become Ethereum.
He wrote the Ethereum Whitepaper in 2013 when crypto was still in its relative infancy. 2013 started with a total of 6 cryptocurrencies and finished with 67. Ethereum’s ICO would come in 2014, and it would be live a year later.
Through a series of updates, Ethereum has moved from an idea to a rapidly morphing smart contract ecosystem.
A smart contract ecosystem
The core vision of Ethereum is based on a series of principles:
- * The software is open source.
- * The protocols all rely on a strong community.
- * The community can vote on the direction of the protocol, including leaving it.
- * There is an economic incentive represented by a token.
- * The organizations, once started, will go on to be run by the community, not the founders.
- * These ideas provide a powerful vision of the structure of an asset and how it can be used.
Ultimately, Ethereum is a platform of smart contracts.
The original idea behind smart contracts was first articulated by Nick Szabo in 1995. He used a vending machine as an example of how a smart contract would work. The machine has a series of instructions that automatically execute.
Ethereum takes smart contracts and allows them to be imagined in numerous different applications using common standards. Standards include ERC-20 for fungible tokens and ERC-721 for non-fungible tokens.
The earliest protocols on the Ethereum network were prediction markets, contracts for difference and eventually, the infamous Crypto Kitties.
Smart contracts operate across all the decentralized applications (dApps) on Ethereum.
Ethereum is an agnostic, decentralized, smart contract computer
Ethereum creates an application-agnostic environment with a set of rules that apply to all.
These applications have the unique quality of being designed to operate on their own without outside tampering. No one individual makes decisions for Ethereum. The Ethereum community and network make them.
You will notice that Ethereum operates independently of the Ethereum Foundation, which is part of the Ethereum community.
You maintain your network by building a strong community and rewarding them with economic incentives. Projects that fail to do this can find themselves challenged by their own code in an updated project.
This happened when Justin Sun took over Steem the company and tried to control Steem the project. The Steem community responded by creating Hive and moving all the assets and activity off Steem to Hive.
The list of decentralized products and applications on Ethereum include:
- * Ether (ETH)
- * Ethereum Naming System (ENS)
- * DeFi applications: prediction markets, automated market making, Stablecoins, synthetic assets, lending, staking and decentralized exchanges.
- * Non-fungible Tokens (NFT)
- * Games
- * File storage
- * Prediction markets
- * Contracts for difference
- * Decentralized Autonomous Organizations (DAO)
All of these applications have what’s called composability. Composability means that each application builds on the rest.
All of these apps can do this because they are open source, permissionless and use a common set of standards. These qualities allow them to interact seamlessly together.
The Ethereum stack
Ethereum is much like a traditional technology stack. The stack has a foundation and various layers built on top of it.
In a podcast with Tim Ferris and Naval Ravikant, Buterin talked about Layers 1 and 2. The updates taking place in 2021 are designed to improve these two layers of the Ethereum stack.
Ethereum describes the technology stack in five layers.
Layer 1 is the Ethereum Virtual Machine (EVM). This is the blockchain that handles all the transactions on Ethereum.
Layer 2 is smart contracts built on top of the blockchain. It allows for different applications to interact without human intervention.
Layer 3 is all of the nodes or computers connected to the network around the world that run the software.
Layer 4 is all of the client APIs, which technically (according to Ethereum) could be considered outside the stack. However, it provides resources that simplify the interaction with Ethereum.
Layer 5 is the end-user apps or dApps that you use when you go into the Ethereum ecosystem.
When you enter into the Ethereum ecosystem through various dApps, you are on Level 5.
Gas and Gwei
When you complete a transaction, create an NFT, you have to pay a fee to get the transaction cleared on the blockchain. That requires a fee in Ether called gas or gwei. Gas represents the price of the computational effort on the network.
Gwei are like Satoshis or cents in a dollar. They are not the smallest unit, but the most commonly used unit of ETH. Each ETH token is equal to 1 billion Gwei.
Each block has a limit on the amount of gwei or gas required to create it. And each transaction will have a certain amount of Gwei to complete. These fees fluctuate based on a number of factors.
Various updates over the last few years have been designed to address transaction costs. The move to Proof of Stake is a key change that will improve efficiencies and costs associated with Ethereum.
The first five founders
Ethereum’s founders came in two parts. As a group and individually, they represent the open and creative spirit of the protocol.
The original five founders were Buterin, Alisie, Hoskinson, Di Iorio, and Chetrit.
Vitalik met his first co-founder Mahai Alisie when Alisie reached out to him in 2011. They co-founded Bitcoin Magazine and worked together on a decentralized eBay for Bitcoin called Egora.
Buterin met Di lorio at a meetup in 2012. Di Iorio was asked to be co-founder and was an early funder of the project. Di Iorio introduced Buterin to Charles Hoskinson and Joseph Lubin.
The fateful decision to make Ethereum a non-profit entity created a rift within the founding team. As a result of that decision, Di Iorio and Hoskinson left to pursue other projects.
Di Iorio became the Chief Digital Officer at the TMX and went on to found Decentral.
The fifth original founder was Amir Chettrit, who met Buterin in 2013 when working on the Colored Coins project.
The second group of founders added some important depth to the team.
The next founders, Ethereum Yellow paper and Solidity
2014 saw the addition of key members Gavin Wood and Joseph Lubin along with Jeffrey Wilcke.
Joseph Lubin, a computer scientist and engineer, met Buterin through Di Iorio. Lubin was an early funder of Ethereum and an important recruiter of key enterprise partners.
He founded ConsenSys, an incubator of numerous crypto and blockchain projects.
Buterin is the last remaining founder still associated with Ethereum as its public face. He is part of the wider Ethereum community through the Ethereum Foundation.
In the spirit of Ethereum’s concept of being driven by community, it is the community, not Buterin, that determines the direction of Ethereum.
How to lose millions on an ICO
The ICO (initial coin offering) market was just getting started when Ethereum floated its sale in July 2014. An ICO at this time meant selling your tokens for BTC then converting to cash to fund your project.
Mastercoin was the first ICO in 2013. They raised $500,000 in exchange for 5120 BTC at a ratio of 100 Mastercoin for each BTC.
Ethereum’s ICO sale brought in 31,529 BTC in exchange for more than 50 million ETH. The value on August 1st, 2014, was $17.3 million.
But no sooner had they acquired their BTC funding than the BTC price crumbled.
That meant millions in losses at the time.
The funding losses were not the last challenge the Ethereum project would face. A major test came from a smart contract tied to the largest crowdfunding effort in history in 2016.
The DAO Attack of 2016
DAO was launched for funding in April of 2016. It was a project built on Ethereum, and funding was through ETH.
DAO represented the largest crowdfunding campaign in history with a haul of $150 million.
The DAO attack occurred shortly after the funding was raised. The attacker exposed a flaw in the DAO smart contract code and stole millions in ETH.
The young organization faced fierce community debate about the correct path to take.
The DAO event resulted in a hard fork of the platform in July of 2016.
Part of the community stayed with the original chain, which became Ethereum Classic (ETC).
The attack was erased from the new chain, which was the beginning of what we now know as Ethereum (ETH).
Ethereum is evolving through hard and soft forks
Ethereum currently uses Proof of Work to secure the Ethereum network. Proof of Work is an energy-intensive consensus mechanism that protects the network at the expense of throughput and scale. Bitcoin is the originator of Proof of Work.
Ethereum has been moving to a Proof of Stake model. Proof of Stake requires users to stake the protocol with ETH. The stake provides the ability to vote on the protocol’s direction.
The objective is to increase scalability and transaction throughput while reducing transaction costs and energy usage.
Ethereum has been taking steps to accomplish this through a series of updates.
The Homestead update came before the DAO attack of 2016. The Tangerine Whistle and Spurious Dragon soft forks further secured the network from attacks after the blockchain split.
In 2017, the Byzantium soft fork reduced mining block rewards and added cryptography for layer 2 scaling.
Then came Constantinople.
Ethereum’s Constantinople is the gateway to proof of stake
The next changes came in 2019 with the Constantinople fork. This was the precursor to the Proof of Stake change in the future. It was followed by the Istanbul fork making Ethereum and Zcash interoperable, amongst other improvements.
Then in 2020, Ethereum launched Muir Glacier to delay the changes in proof of work called the difficulty bomb. That year, the staking deposit contract was deployed as a key feature of the upcoming Proof of Stake change in Ethereum.
And finally, there is the Beacon Chain genesis block in 2020. Beacon Chain creates a parallel Proof of Stake Ethereum chain for testing before moving everything over.
2021 has several upgrades, including Berlin, Altair, and London.
Sharding and Rollups
When asked about what had surprised him about Ethereum, Buterin says his vision hasn’t changed much. He described the idea of NFTs where you could own one unique thing everywhere as a powerful concept.
The Ethereum community is exploring other improvements, including Sharding, Rollups and managing the cost of interacting with Ethereum.
Sharding reduces the need for every node to download the entire blockchain. It combines the ideas of Bitcoin with Bit Torrent.
Then they are looking at using off-chain messages to manage small payments and aggregate them to cut costs and resource usage. These are referred to as Rollups.
Combined, these and the many other improvements of Ethereum 2 are expected to vastly enhance the usability and capabilities of Ethereum for all users.
And according to Buterin, there is much more to come.
The experts said Ethereum would never work
Back when Ethreum started, Naval Ravikant, founder of AngelList, talked to a bunch of computer scientists about the project.
They told him privately that it would never work.
Other projects had tried to create incentive or community-based protocols and were met with failure.
But Ethereum like Bitcoin, has been able to blend these two ideas successfully. Ethereum, along with Bitcoin, is a foundational part of a new financial literacy. They democratize financial opportunities for all.
The only limit appears to be your imagination.
Its international presence has provided powerful regulatory protection. It is sovereign resistant.
The breadth of usage across the world makes it impossible to shut down.
And the move to a Proof of Stake consensus will eliminate the vulnerability of mining to sovereign, environmental and political pressure.
Given what we’ve all seen over the last little while, a place to build, earn, participate and avoid censorship is essential.
Ethereum was created to provide this.
If you want to get involved, all you need is a wallet and some ETH.
ETH is your key to the Ethereum ecosystem. You can buy ETH on Bitvo, a fast, secure easy to use, cryptocurrency exchange.
All you have to do is click the Create Account button below.