Ethereum Blockchain - Part 1
Ethereum to Surpass Bitcoin in 2018You have probably heard about Bitcoin, the cryptocurrency and payment system that uses the blockchain technology.
However, an emerging blockchain known as Ethereum is foreseen by some experts to equal or even surpass Bitcoin in 2018.
Ethereum is an open-source decentralized public blockchain that enables users to create and process smart contracts, conduct computing on the Ethereum Virtual Machine (EVM), create tokens and exchange cryptocurrency/tokens among other uses. The Ethereum Foundation, a Swiss non-profit organization, manages Ethereum with expert advice from visionary minds from across the world.
Ethereum provides developers the means to deploy and employ all kinds of decentralized applications or dApps that are basically programs that run on the Ethereum blockchain.
Ethereum uses Ether or ETH as its native cryptocurrency, ETH does so much more than just be a store or transfer of value, it also enables users to use ETH as the gas to power various transactions and computations.
Two accounts are made available through Ethereum: externally owned accounts (managed by private keys influenced by human users) and contract accounts.
Unlike Bitcoin which is just a blockchain to store and transfer value, Ethereum has a far wider range of applications which only mean that it is more adaptable and programmable which could potentially make Ethereum superior to Bitcoin in adoption and value.
Learn about privacy protocols for future blockchain applications here!
History of Ethereum
One of the most visible founders of Ethereum is Vitalik Buterin, he was made aware of and was charmed by blockchain technology when he was associated with Bitcoin as a 17-year-old programmer in 2011. His love affair with Bitcoin also led him to co-found Bitcoin Magazine. Seeing the limitations of Bitcoin, Vitalik began to imagine a platform that had more use cases than simply being a currency. He and his team wrote a white paper in 2013 narrating what would become Ethereum which would be powered by a new scripting language known as Solidity.
What sets Ethereum apart from Bitcoin is Ethereum’s ability to trade more than just cryptocurrency and be a platform for smart contracts and performing computational jobs on the blockchain.
It was in 2014 when Buterin and the other proponents of Ethereum first initiated a crowd sourcing campaign where they sold Ether (Ethereum tokens) to participants in order to kickstart their vision. The campaign collected more than $18 million.
In 2015, Frontier was launched as the first ever live release of Ethereum. Ever since then, the platform has been constantly improved thanks to the involvement of hundreds of developers.
Issues and Limitations of Ethereum
One issue that arose sometime after the launch of Ethereum was The DAO (Decentralized Autonomous Organization) incident. The DAO was conceived as a sort of completely autonomous venture capital fund with the initial funds for investment contributed by investors.
The smart contract where the Ether cryptocurrency was deposited was exploited by an unknown hacker in June 2016 which resulted in $50 million worth of Ether being stolen. This incident raised concerns about the security of Ethereum and cast a doubt about its future viability. Ethereum then decided to conduct a fork or split of its blockchain to free the stolen Ether. This fork ended up birthing Ethereum Classic (ETC) which contains the “original” blockchain of Ethereum but with the funds still in the possession of the hackers.
Ethereum (ETH) and Ethereum Classic (ETC) are now two completely different blockchains with Ethereum (ETH) continuing on and being developed by its original developers and Ethereum Classic (ETC) being developed by a separate team.
Similar to other cryptocurrencies, Ether has also experienced fluctuations in price, but it is notable that Ethereum grew by more than 13,000 percent in 2017. In spite of its volatility in price, Ethereum’s growth has attracted a fair share of investors and participants in its ecosystem.
While Ethereum is still a blockchain platform in an early stage, its potential and uses are constantly maturing.
Ethereum is still plagued by issues very similar to Bitcoin, most notably in its scalability in that it can only process around 15 transactions per second which thanks to the growing popularity of Ethereum often means that there is a backlog or a delay in transactions specially when ICOs or other high traffic events are ongoing. To address this, the Ethereum foundation have laid out a roadmap of upgrades to increase the number of transactions per second, these upgrades also include a move to a more ecologically efficient proof of stake system but it remains to be seen when these upgrades will take effect.
Learn more about the history of cryptocurrency here!
Important Ethereum Terminology
Ethereum adds a new dimension to crypto and blockchain with its addition of smart contracts, the Ethereum Virtual Machine and dApps. To help understand Ethereum her are some key terms that are frequently used in Ethereum
Ethereum's potential seems endless in all applications. Moreover, Ethereum does not just provide a platform. Ethereum assists developers in creating markets, store registries of debts as well as process assets in agreement with past directives. It is set to change the global technological foundation as we know it.
Gasoline powers most modes of transportation in the modern world. In the case of Ethereum, Ether is a new mode of fuel something that is essential in powering these new and exciting applications. Ether is a platform-exclusive cryptographic token. Think of it as a boarding pass that gets you through the gates of an airplane.
Some Key Ethereum terms:
- Ethereum – is a blockchain with smart contracts, the ability to issue your own tokens and so on.
- Ether - also called ETH. Ethereum’s own cryptocurrency that can be used to power dApps, smart contracts or perform computations on the Ethereum blockchain.
- Gas - Ether spent for processing transactions or transfers. Complex transactions or computations require higher gas to push through.
- Decentralized Application (dApp) – a program or app that runs on the Ethereum virtual machine. The decentralized nature comes from the fact that no centralized computer or server is running the app and serving it to users.
- DAO – acronym for a Decentralized Autonomous Organization, it is a group of smart contracts on the blockchain which is tasked to catalogue and/or automate the apparatus of an organization.
- Identity – is a testable interaction and/or equity that identifies its author.
- Ethereum Client – software used to access the blockchain on a computer when dealing with Ethereum.
- Ethereum Wallet – is a file, application or device that stores public, private keys and your cryptocurrency. This gives users the ability to create and transact Ethereum accounts and Ethereum based tokens with one another.
- Ethereum Address – Ethereum accounts are comprised of a blockchain public address with 40 hex characters and a private key.
- Smart Contract – is computer code where rules are set that can process the specifications of a contract. It is a system designed to execute autonomously with minimal human intervention.
- Miners – computers or nodes in the Ethereum network that perform transactions and help secure the Ethereum blockchain by running an algorithm. Miners are rewarded with ETH for work performed. Miners are a vital component of the total infrastructure without which Ethereum cannot survive.
Read part 2 of the Ethereum overview here!