Ethereum: The World Computer

Ethereum is an open-source, public blockchain platform with smart contract functionality. It provides a decentralized virtual machine, the Ethereum Virtual Machine (EVM), for processing peer-to-peer contracts using its native cryptocurrency, Ether (ETH).

Genesis

Inspired by Bitcoin, programmer Vitalik Buterin first proposed Ethereum between 2013 and 2014 as "the next generation cryptocurrency and decentralized application platform." Development began in 2014 through an Initial Coin Offering (ICO) crowdsale. By June 2018, Ether became the second-largest cryptocurrency by market capitalization, and Ethereum was dubbed "the second generation blockchain platform," second only to Bitcoin.

Key Features

Compared to most other cryptocurrencies or blockchain technologies, Ethereum boasts several unique features:

• Smart Contracts: Programs stored on the blockchain and executed by each node, requiring users to pay a transaction fee to the miners or validators.

• Tokens: Smart contracts can create tokens for use within decentralized applications, aligning the interests of users, investors, and managers. Tokens can also be used for Initial Coin Offerings.

• Uncle Blocks: Incorporate shorter blockchains (uncles) that were not included in the main chain due to network latency, improving transaction throughput using Directed Acyclic Graph technology.

• Proof-of-Stake (PoS): A more energy-efficient alternative to Proof-of-Work, reducing computational waste and mitigating network centralization caused by specialized mining hardware (currently being tested).

• Plasma: Utilizes smaller sidechains for computation, only writing final results to the main chain, potentially enhancing transaction throughput (not yet implemented).

• State Channels: Similar to Bitcoin's Lightning Network, enabling faster transactions, reducing blockchain load, and improving scalability. Currently under development by teams like Raiden Network and Liquidity Network.

• Sharding: Reduces the amount of data each node must store and increases efficiency through parallel processing (not yet implemented).

• Decentralized Applications (DApps): Applications built on Ethereum cannot be shut down or censored, offering a new paradigm for resilient software.

Development History

Vitalik Buterin, a programmer involved in the Bitcoin community, initially proposed improvements to the Bitcoin platform's scripting language for greater application development flexibility. However, his proposal was met with resistance, leading him to develop Ethereum as a new platform to address these limitations. In 2013, Buterin authored the Ethereum whitepaper, outlining the vision for a decentralized application platform.

Development funding came through a public crowdsale in 2014, with investors using Bitcoin to purchase Ether. Early development was spearheaded by Ethereum Switzerland GmbH, a Swiss company, later transitioning to the non-profit Ethereum Foundation. While Ethereum's technological innovation garnered praise, concerns regarding its security and scalability were also raised.

Evolution Beyond Bitcoin

Bitcoin pioneered decentralized cryptocurrency, proving the feasibility and security of blockchain technology. Essentially a distributed database, Bitcoin's blockchain, combined with the Bitcoin token and its transfer protocol, created a robust and trustless money transmission system. However, Bitcoin's limited scripting language hindered the development of more complex applications.

Ethereum aimed to address Bitcoin's limitations by introducing a Turing-complete scripting language, allowing developers to build diverse applications beyond simple currency transactions. This versatility attracted major players, with exchanges like Huobi and OKCoin listing Ether in 2017.

Ethereum: A Global Computer

Ethereum represents a paradigm shift, going beyond a distributed database to become a distributed computer. The blockchain acts as the computer's read-only memory, contracts function as programs, and miners act as the CPU, processing transactions and executing smart contracts.

This "world computer" is not free to use; users pay for computation and storage, preventing abuse and incentivizing resource optimization. The formation of the Enterprise Ethereum Alliance in early 2017, comprising over 20 leading financial and technology companies, including J.P. Morgan, CME Group, Microsoft, and Intel, further solidified Ethereum's position as a transformative technology.

Ethereum Foundation and Ethereum Switzerland GmbH

The Ethereum Foundation, a non-profit organization based in Zug, Switzerland, oversees the allocation of resources for research and development related to Ethereum and other blockchain technologies.

Ethereum Switzerland GmbH, also based in Switzerland, was responsible for the initial launch of the Ethereum blockchain in 2014. Fully controlled by the Ethereum Foundation, the company was dissolved after the launch.

Functionality and Applications

Ethereum provides a platform for building applications by offering modular components like walls, roofs, and floors in a house analogy. Users can easily assemble these pre-built components using Ethereum's Turing-complete scripting language, Ethereum Virtual Machine code (EVM), similar to assembly language.

While programming directly in EVM is complex, Ethereum allows for development in higher-level languages like C++, Python, and Lisp, which are then compiled into EVM code. This modularity significantly reduces development costs and time.

Smart Contracts: The Heart of Ethereum

Applications built on Ethereum are essentially contracts, which are self-executing agreements written in code. These contracts, possessing their own Ether addresses, activate upon receiving a transaction and execute pre-defined logic based on the transaction's information. The result might involve sending further transactions or modifying data stored within the contract.

The versatility of smart contracts enables a vast array of applications, limited only by developers' creativity. Examples include escrow accounts, user-defined sub-currencies, decentralized exchanges, and more.

Technical Roadmap

• 2013-2014: Vitalik Buterin publishes the initial Ethereum whitepaper, assembles a team, and conducts a successful crowdsale.

• 2014-2015: Development progresses rapidly, with multiple Proof-of-Concept (POC) releases, culminating in the launch of the Ethereum network on July 30, 2015.

• Frontier (2015): The initial release of Ethereum, primarily for developers, with a command-line interface and basic functionality for mining and contract execution.

• Homestead (2016): Marked Ethereum's transition to a more stable and reliable platform, introducing a graphical user interface (GUI) and making it accessible to non-technical users.

• Metropolis (TBA): Aims to further enhance usability and adoption with a refined user interface, a decentralized application store, and more user-friendly DApps.

• Serenity (TBA): Envisions a transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS), improving energy efficiency, scalability, and security.

Ethereum 2.0

The next major upgrade, Ethereum 2.0, focuses on addressing scalability issues through sharding, significantly increasing the blockchain's transaction processing capacity. This highly anticipated upgrade is expected to solidify Ethereum's position as a leading blockchain platform.

Acquiring Ether (ETH)

The most common way to obtain ETH is through cryptocurrency exchanges. Users can purchase ETH using various payment methods depending on their location and exchange regulations.

Ethereum Accounts

Ethereum's state comprises objects called "accounts," each identified by a 20-byte address. These accounts store:

• Nonce: A counter ensuring each transaction is processed only once.

• Ether balance: The amount of Ether owned by the account.

• Contract code (optional): The code defining the contract's behavior.

• Storage (default empty): Data stored by the account.

There are two types of accounts:

• Externally owned accounts: Controlled by private keys, allowing users to send transactions.

• Contract accounts: Controlled by their code, responding to incoming messages and potentially triggering further actions.

Messages and Transactions

Messages in Ethereum resemble Bitcoin transactions but with key distinctions:

• Ethereum messages can be initiated by both externally owned and contract accounts, unlike Bitcoin transactions, which are only created externally.

• Ethereum messages can include data payloads.

• If the recipient is a contract account, the message can trigger a response, introducing the concept of functions.

Transactions in Ethereum are signed data packages containing:

• Recipient address

• Signature

• Ether balance

• Data payload

• STARTGAS: A limit on computational steps allowed for the transaction.

• GASPRICE: The fee per computational step paid to miners.

This gas system prevents infinite loops and resource abuse. If a transaction runs out of gas, its state changes are reverted, and the paid fee is lost. Remaining gas is refunded to the sender upon successful execution.

Applications

Ethereum's potential applications span various domains:

• Financial applications: Offering tools for managing and engaging in contracts, including sub-currencies, financial derivatives, hedging contracts, savings wallets, wills, and even employment agreements.

• Semi-financial applications: Involving both financial and non-financial aspects, such as self-enforcing bounties for solving computational problems.

• Non-financial applications: Facilitating online voting, decentralized governance, and more.

Token Systems

Ethereum simplifies the creation of token systems, which can represent various assets like:

• Sub-currencies: Pegged to fiat currencies or commodities like gold.

• Company shares

• Smart property: Representing ownership of digital or physical assets.

• Non-fungible tokens (NFTs): Unique digital assets representing ownership of digital or physical items.

• Loyalty points

• Rewards systems

Financial Derivatives and Stablecoins

Ethereum's smart contract functionality enables the creation of sophisticated financial instruments, including:

• Decentralized exchanges

• Prediction markets

• Hedging contracts

• Stablecoins: Cryptocurrencies pegged to stable assets like fiat currencies, mitigating volatility risks.

Identity and Reputation Systems

Ethereum can power decentralized identity and reputation systems, allowing for secure and transparent management of personal data and online identities.

Decentralized Storage

Ethereum enables the development of decentralized storage solutions, leveraging users' unused storage capacity to provide a more cost-effective and resilient alternative to centralized cloud storage providers.

Decentralized Autonomous Organizations (DAOs)

DAOs are virtual entities governed by rules encoded in smart contracts, allowing for decentralized decision-making and resource allocation. Examples include:

• Decentralized autonomous corporations (DACs): Mimicking traditional corporations but with decentralized ownership and governance.

• Decentralized autonomous communities: Emphasizing equal participation and decision-making power among members.

DAOs represent a novel approach to organizational structures, offering transparency, automation, and greater autonomy.

Ethereum Mining and Profitability

Supply and Mining Duration:

• Initial supply: 72 million ETH

• Annual issuance: Approximately 15 million ETH (subject to change)

• Expected transition to PoS (no mining) in 2018

Ethereum Mining Hardware:

Ethereum mining primarily relies on Graphics Processing Units (GPUs). Miners assemble multi-GPU rigs comprising:

• GPUs: Determine the mining speed.

• Motherboard: Influences stability and the number of GPUs supported.

• Power supply: Provides stable power to the system.

• CPU, RAM, Storage: Basic components for running the mining software.

GPU Selection:

• Hashrate: The number of hash calculations per second.

• Power consumption: Impacts electricity costs.

• Memory: At least 4GB of GDDR5 memory is recommended.

Profitability:

Ethereum mining profitability depends on:

• Hashrate

• Electricity costs

• Ether price

Mining Pools:

Joining a mining pool combines computing power with other miners, increasing the chances of finding blocks and earning rewards.

Conclusion

Ethereum has emerged as a transformative platform, extending the capabilities of blockchain technology beyond cryptocurrency. Its smart contract functionality, combined with a vibrant developer community, has led to the creation of innovative applications across various sectors. As Ethereum continues to evolve and address scalability challenges, its potential to revolutionize industries and reshape the digital landscape remains immense.