Ethereum is another piece of the blockchain system. It is a decentralized computing system running on multiple machines around the world at the same time. There is no centralized authority or owner in control of this system. It is distributed and available equally to everyone.
Ethereum facilitates the transfer of digital currencies. Besides, the system has many other applications. For example, it allows you to build smart contracts using codes. Subsequently, the programs can run across the network and interact with other apps on the platform. The contracts control digital assets and other valuable things on the ethereum platform. Application created using smart contracts are also known as dApps (Decentralized Applications).
Origin of Ethereum:
A young programmer Vitalik Buterin issued Ethereum white paper in November 2013. Later on, in 2014, Ethereum ICO raised 18.4 million dollars. Finally, the platform was released in 2015. Nonetheless, it had its own share of challenges ever since. For instance, as a result of the DAO hack in June 2016, the news about Ethereum spoke to the world that the platform has lost 50 million dollars worth of Ether (Etehreum’s native currency).
History of Attack and Ethereum Classic:
Decentralized Autonomous Organizations (DAO) provide an avenue for collaboration over the internet.DAOs are governed by computer programs. The first of its kind was ‘The DAO’. It constituted smart contracts running on ethereum that function as an autonomous venture fund. For ownership stake, DAO tokens were given to individuals in an ICO.
Hackers, the nightmare of the tech community, took advantage of DAO’s vulnerability. They were able to successfully drain near to 1/3rd of funds. At that time (2016), the attack was devastating for Ethereum’s reputation. However, the network soon got back on its feet.
In the aftermath of the attack, Ethereum chain was hard forked (split into two). The hacking attack was reversed in the first chain which subsequently recovered the stolen funds. The second chain was the original one where no reversion took place. It came to be known as Ethereum Classic.
The malicious attack was a lesson for decentralization advocates. It taught us how an open place of transaction over the internet can aggravate the challenges. Additionally, autonomous code can pose a threat when trusted with a large amount of wealth.
How it Works:
Ethereum has record of all transactions, account balances, and smart contracts in an available state. The current state is updated when a change takes place. For example, Ethereum smart contracts get alerted by transactions between users or other contracts. The contract’s code runs on every node in the network. Resultantly, the node also saves a record of the transaction. You can read the nitty-gritty of this process in this article related to blockchain. Lastly, the Etherum Virtual Machine (EVM) transforms smart contracts into readable instructions for computers.
There is so much talk on smart contracts when it comes to discussing Ethereum. Here we will explain the concept of Ethereum smart contracts in detail.
Nick Szabo, a computer scientist, is usually given the credit for introducing smart contract. The man used a vending machine in the 1990s to put forth the idea of modern-day smart contracts.
A smart contract is an agreement containing terms and conditions. It is in the form of code and exists within a whole decentralized network. The transaction carried out through ethereum smart contracts are trackable as well as irreversible. Developers with a certain level of experience can write smart contracts. For instance, a developer may enter a code output of ‘Hello world’ should generate when the exchange of an ETH happens between two parties. EVM can read the code. Anyone using blockchain can take advantage of an Ethereum smart contract. One can remove it only by meeting certain conditions specified by the developer.
Ether is the currency used on the Ethereum platform. It is digital money just like bitcoin. You can transfer value using (ETH) on the Ethereum platform. According to Cointelegraph, the recent ether price is 336 USD. Currently, the total supply of coins stands at 112 million. Like BTC, new ether also adds to blockchain after the mining process.
The ETH miners (computer sitting at nodes) have to solve a cryptographic puzzle. It is the process of hashing (giving number) to transactions. There are multiple miners working simultaneously and competing with each other to hash transactions at a fast rate. Computing power facilitates the whole process. Mining is expensive. However, it makes the Ethereum network secure. Therefore, miners get ether as a reward for their labor. The fresh ether becomes part of the platform and joins digital asset circulation.
The average timer for hashing of a transaction information block is 12-19 seconds. This is pretty fast in comparison to many other cryptocurrencies. Due to fast transaction validation time, ETH is popular among crypto users.
How Ethereum is Different from Bitcoin:
Ethereum is more than a digital currency. It features smart contracts, dApps, EVM, and ether coins for peer-to-peer value transfer. While bitcoin is a first-generation of blockchain, Ethereum is second-generation. It is a notable platform after bitcoin.
Unlike bitcoin, Ethereum is open to developers. anyone can build decentralized apps (dApps) on it. People can make their own codes and make it available to users across the globe. Nevertheless, the programmability has made Ethereum more complex than bitcoin. But, it still has an appeal among crypto users.
Ether (ETH), the platform’s native currency, is second to bitcoin (BTC) only on the coin market cap. Investors use it frequently for trading and profit-making. Consequently, the coin has high trading volume and liquidity in the market.
The aim of Ethereum is to emerge as the support base for a decentralized financial system. However, it has some limitations at the present stage. For instance, the transaction verification time should be reduced. Additionally, there must be more openness for nodes to enter the platform. This will keep it truly distributed and decentralized.
Some circles also criticize the mining process for Ether. Like BTC, Ether mining requires a lot of electric power to do solve complex computational puzzles. This makes it power-hungry.
In order to address all of these issues an upgraded version of Ethereum is here. It is called Ethereum 2.0. According to proposals Ethereum 2.0 will release in different phases during 2020. With time, it will improve to provide users better experience in multiple ways.
Ethereum has proven its potential since its inception. The platform is extremely useful for organizations and institutions outside of the crypto community. In today’s world when many are critical of central authority, this distributed ledger poses an excellent alternative. However, the system is still in its infancy. Inevitably, many consider it risky. Nevertheless, the future looks bright for Ethereum as well as other blockchain technologies.