Although Bitcoin and Ethereum are not precisely the same, they do possess a few qualities that make them the two most prominent cryptocurrencies on the planet.
- are blockchains, the immutable, decentralized ledgers that record transactions.
- can be used in commerce.
- emerged from the same computer scientist community that embraces the underground, decentralized and entrepreneurial spirit that defines all technology pioneers.
The enthusiasm of the community has been immensely influential in turning blockchain and cryptcurrency from an idea into a legitimate industry in a decade, a groundbreaking development that has the potential to revolutionize the world.
What Is Ethereum?
What is meant by referring to Ethereum as “the world computer”? Let us begin by looking into the details from a computer science perspective, and then dissect this further to see what Ethereum can do in relation to Bitcoin and other distributed systems for data transfer (known as ‘blockchains’).
Looking at it from the point of view of computer science, Ethereum is a state machine whose behaviour is predictable and theoretically infinite. It has one single global state which is accessible worldwide, and a virtual machine that makes alterations to this state.
Ethereum provides worldwide access to a publicly available computing system that facilitates the running of applications known as smart contracts. It is an open source platform. It works with a blockchain to arrange and save all of the alterations in the system, complemented by a cryptocurrency named ether that corrects and puts boundaries on the utilization of execution resources.
Ethereum affords programmers the chance to construct strong, autonomous applications which include a range of economic capabilities. It ensures high accessibility, recordability, openness, and impartiality, as well as cutting down or wiping out censorship and lessening certain risks between parties.
In a nutshell:
Ethereum is a publicly accessible program that employs blockchain tech for setting up smart agreements and enabling trading in its own digital currency, called Ether (usually shown on exchanges using the code ETH).
The development of Ethereum, unlike Bitcoin which was created anonymously by a person or group known as Satoshi Nakamoto, has been done in a very public manner with known community members playing a key role.
In Ethereum, the components of a blockchain system described in Components of a Blockchain are, more specifically:
Ethereum operates on the Ethereum main network, accessible through TCP port 30303, and uses a protocol known as ÐΞVp2p.
The rules that Ethereum follows are stated in the official document titled the Yellow Paper.
Messages transmitted on Ethereum’s network contain information such as the sender, recipient, value, and other data that is included in the transaction.
The Ethereum Virtual Machine (EVM) is responsible for carrying out state transformations in Ethereum, using a stack-based virtual machine that interprets bytecode (machine language instructions). EVM programs, called “smart contracts,” are written utilizing a high-level computer language (for example, Solidity) and then turned into bytecode to be able to be carried out on the EVM.
Ethereum’s data is held on each node like a database (commonly Google’s LevelDB), which encompasses the transactions and system info using a serialized hash data collection named a Merkle Patricia Tree.
Ethereum implements the Nakamoto Consensus methodology employed by Bitcoin, where single-signature blocks are built in a sequence, with the Proof-of-Work (PoW) determining the weight of a given block and thus establishing the most prominent chain as the authoritative order of events. It looks like a transition is in the works to a types of weighted voting system, called Casper, in the not too distant future.
Ethereum originally was built using a Proof of Work or PoW protocol. This, however, was switched over to a Proof of Stake or PoS protocol in 2022 to be more secure, use less energy and better allow for scaling solutions.
Ethereum has multiple versions of the client software available, the two primary versions being Go-Ethereum (Geth) and Parity.
The Origins of Ethereum
At the tender age of 19, Vitalik Buterin, a computer scientist, first explained the ideas behind what later became Ethereum. In 2013, he published the Ethereum White Paper, a concept stemming from his experience and knowledge as a well-established programmer in the Bitcoin field.
The Ethereum White Paper outlined the technical details and design for smart contracts, which are unchanging, binding commitments, as well as the justification for their establishment.
At the North American Bitcoin Conference in Miami, Florida, USA, Buterin presented the Ethereum protocol in January 2014.
Where does the name come from?
Buterin noted that the label made him particularly enthusiastic because it had the word “ether,” which is the imaginary thing which potentially allows light to spread.
When it was first established, Buterin and other proponents of Ethereum called it “Cryptocurrency 2.0,” emphasizing the view that it brought advances that Bitcoin lacked.
At the heart of it, they thought Ethereum presented a decentralized mining operation and programming that would enable individuals to create their own tokens.
From the beginning, the idea behind creating and managing the project was based on democracy. Ethereum created a mining approach called Dagger which curbed the capability of toil optimized processor systems to gain a competitive edge, which was something which occurred with Bitcoin.
It likewise implemented a procedure in which cryptocurrency programs could function, providing custom-made wise agreements that will be circulated on the Ethereum system and record any deals between users and the developers. The automated contract would send and receive transactions.
This was essential to allow Ethereum to be used for various applications, enabling developers to use the network as a tool to construct various business opportunities.
Then the work really began.
Buterin and Wood, both computer scientists, created the software fundamentals of the Ethereum network with the concept of open source development in the back of their minds. This was completed by April 2014.
The functioning of the software was outlined in the subsequent Ethereum Yellow Paper, which disclosed the specifications to the public.
The introduction of something new regarding Bitcoin didn’t frighten traditionalists, even though the features it promised to bring could potentially lessen the value of their investments in the Bitcoin network.
At the time, many people considered Ethereum to be just another effort to enhance Bitcoin, which had seen its share of unsuccessful trials before. Many thought that any enhancements that started to be adopted could eventually be adopted by more people.
Vitalik’s involvement in Bitcoin Magazine and his participation in the Bitcoin community likely earned him a good reputation, which likely worked to his advantage.
Ethereum’s Four Stages of Development
Ethereum has gone through a roadmap that includes four phases, each introducing noteworthy changes. A stage may be divided into several different versions, referred to as “hard forks,” that alters functionality in a way that cannot be reverted.
The codenames for the four primary steps in the progress of the project are Frontier, Homestead, Metropolis, and Serenity. The intermediate soft forks taking place (or scheduled) to this day are named Ice Age, DAO, Tangerine Whistle, Spurious Dragon, Byzantium, and Constantinople. Both the development stages and the intermediate hard forks are shown on the following timeline, which is “dated” by block number:
- Block #0
The starting point of Ethereum began on July 30th, 2015 and went on until March of 2016.
- Block #200,000
The Ice Age is a difficult split meant to initiate a sharp increase in the difficulty level in order to motivate a change to PoS (Proof-of-Stake) when possible.
- Block #1,150,000
Homestead—The second stage of Ethereum, launched in March 2016.
- Block #1,192,000
A hard fork known as DAO was created, which paid back those harmed by the DAO contract hack, resulting in Ethereum and Ethereum Classic being divided into two separate systems.
- Block #2,463,000
The Tangerine Whistle hard fork is implemented to alter the way in which gas is calculated for particular data processing operations that require a large amount of input/output and to remove any trace information derived from a denial-of-service attack that took advantage of the low gas cost related to those operations.
- Block #2,675,000
A hard fork is being implemented in order to tackle a greater amount of Denial of Service attack possibilities, as well as another cleaning of the system state. Also, a replay attack protection mechanism.
- Block #4,370,000
Metropolis, which was present at the time this book was written, was the third stage of Ethereum and was launched in October 2017. Metropolis will experience its first of two hard forks, with Byzantium being the initial one.
Following the Byzantium hard fork, the Metropolis upgrade will carry out another fork, titled Constantinople. The final instalment of Ethereum’s development plan, dubbed Serenity, will launch after Metropolis.
The Ethereum ICO
Once the details for Ethereum were figured out, another problem had to be addressed: obtaining funds to build it.
So far, developers who are volunteers have taken on Ethereum in order to have the experience of crafting something distinct. In order for the network to grow and prosper, they needed to offer compensation to keep their mission going.
Then came the ICO.
In 2014, Buterin and his collaborators hosted a 42-day crowdfunding event, exchanging Ethereum tokens in exchange for Bitcoin and accumulating an approximate $18 million.
This resulted in the inception of ETH DEV, a non-profit which was run by a Swiss foundation supervised by the developers who established it. In 2015, the commencement of the initial operational Ethereum platform was in progress.
Ethereum has become exceptionally popular with developers due to its capacity to facilitate the creation of ideas in finance, shipping, healthcare, gaming, reward systems, video platforms and beyond.
Ethereum provides the foundation for a lot of the projects in the crypto world, even though alternative blockchains have shown up that have distinct functions.
Ethereum has a large and active development community, with its leaders highly involved in the community, which allows it to stay in its position at the top.
Transactions with Ether
A frequent source of perplexity in association to Ethereum transactions is the notion of gas. The currency of Ethereum, Ether, is necessary to cover gas charges that have been set up in transactions on the Ethereum platform.
Think of it this way:
- Ethereum is the engine, and Ether is the fuel for that engine.
- Users who exchange tokens, interact with a contract
You can pay to do anything with Ethereum blockchain technology. That payment is worked out using gas as a measure, and a portion of ether is taken off the account for the complete transaction.
The miners are required to verify and process the transaction even if it is not completed, meaning that the gas cost is nonrefundable. The user is paying for computation time.
Ether, which is usually given the symbol ETH on cryptocurrency exchanges such as Liquid, attained a peak price in excess of USD4,000 per coin in 2021 but has decreased since then.
The Launch of Ethereum
The introduction of the Ethereum Frontier service occurred rapidly on July 30, 2015, prompting a sizeable reaction from the programming experts involved. The software was initially meant to be a beta test, however, since it proved to be working well, the production of the initial version accelerated.
Since then, different modifications to the network have come about, with developers continuing to search for ways to make scaling, transaction times, and especially security better.
There have been bumps on the road. An attack on the Dao was one of the largest ones, and the organization was planned out to be a funds opportunity driven by investors without any management system or governing body. Instead, it had its users who managed the governance.
A token sale conducted in May 2016 provided the primary source of funding for the project, and it resulted in the collection of USD 168 million.
Nevertheless, back in June 2016, a security breach was carried out which saw hackers take advantage of a crack in the code of the DAO and abscond with one-third of its pocket money.
The Ethereum community opted to go forward with a hard fork solution to resolve the problem, which involved splitting the blockchain into two.
The fork of the original blockchain is now referred to as Ethereum, whereas Ethereum Classic is the name given to what was originally the blockchain. Both are listed on stock market platforms, and Ethereum is seen as the primary cryptocurrency compared to the Classic version.
Despite the disagreement surrounding it, the fork did not stop Ethereum from advancing.
In March 2017, a significant growth took place with the development of the Enterprise Ethereum Alliance, which was created by a collaboration of blockchain start-ups, investigative organizations, and Fortune 500 companies such as Toyota, Samsung, Microsoft, Intel, JP Morgan, Merck, and Deloitte.
The collective power of these large businesses provides a robust understanding of the subject and a way for the distributed group to have a tangible impact on policymakers.
The Future of Ethereum
Ethereum, just like Bitcoin, still struggles with many matters such as capability, the speed at which exchanges take place, and protection.
The emergence of other blockchains offering enhanced speed, efficiency and agility, like EOS which has an abundant financial investment, has been seen.
There are still security issues, some with serious consequences. The hack of Parity Technologies, a company formerly managed by Gavin Wood, meant that around USD 60 million of start-up investment was unable to be accessed. So far, no way to thaw those assets has been thought up.
But even with heightened rivalry, no other blockchain apart from Bitcoin has been as successful as Ethereum in getting popular. Plus, due to its open-source feature which allows for on-going evolution, most experts are predicting that its top position will be maintained.