A dive into the second largest cryptocurrency platform in the world - Ethereum
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- Which cryptocurrency made its creator a billionaire 8 years after its creation?
- Why will Ethereum jump to the Ice Age?
- What's the deal with the ticking bomb hidden in the code?
I invite you to the next lesson in which we will explore the secrets of the second largest cryptocurrency in the world.
The Ethereum platform
Ethereum is a decentralized open-source platform that is built on blockchain technology and supports peer-to-peer contracts (smart contracts) and decentralized applications (Dapps). Its native crypto token is Ether, i.e. ETH that allows transactions between users and or applications and the payment of related fees, that result from the computing power needed to process them.
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Thank you for your attention. You already know what Ethereum is but perhaps you don't know or don't understand. After reading the definition above, I also had to think for a moment, so let's tackle this topic one by one, from the perspective of a beginner.
The idea of creating Ethereum was born in Vitalik 's head Buterin, a Russian-born Canadian developer in 2013, which resulted in a briefing paper titled "Ethereum: The Ultimate Smart Contract and Decentralized Application Platform". Vitalik had 19 years and a pen when he created the Ethereum white paper. You can find a link to this document in the video description - https://ethereum.org/en/whitepaper/
Buterin was interested in programming based on the Bitcoin source code, but he quickly saw new opportunities that the Ethereum technology could offer, which BTC does not offer. This was due, among other things, to the lack of use of a scripting programming language. Generally, it is about the possibility of creating smart contracts and decentralized applications.
Fundraising for the project
Using the so-called ICO (Initial Coin Offering), i.e. collections where contributors receive tokens in return. The public sale of tokens lasted 42 days. It started on July 22 and ended on September 2, 2014. The tokens were sold for BTC, with the initial price being 2,000 ETH for 1 BTC, which was about 30 cents for one token at the time. Yes, this is the place where you can divide the current ETH rate by 30 cents and check how much you would have earned if you had already invested in the idea of a 20-year-old.
The sale was carried out by a company registered in Switzerland. They managed to collect over 31.5 thousand BTC, which then meant a collection of around USD 14 million. It is worth adding that Vitalik Buterin did not act alone, and it would be really wrong if Gavin Wood was not mentioned, CTO of Ethereum, who had a huge impact on the development of the network.
Attention!
The official name of this cryptocurrency is Ether (ETH), and the blockchain of this cryptocurrency is Ethereum. Although on exchanges and various crypto listings you will meet the name Ethereum, which is a fairly generally accepted simplification.
Launching of the Ethereum network
The Ethereum network launched on July 30, 2015 with a 6-month delay. Now, what exactly is Ethereum ?
First of all, it is a separate blockchain from the blockchain Bitcoin, so it is a new separate cryptocurrency. If you don't know what a blockchain is, I encourage you to watch a video based on it or read up more on the concept. In simple terms, Bitcoin is compared to a ledger in which subsequent transactions are recorded. If we would like to use a term or comparison adequate to that of Bitcoin, Ethereum can be compared to, for example, Excel, i.e. a program for performing various types of calculations.
In Ethereum, we are able to write a formula in a single cell (an analogy would be a single key in Bitcoin) that determines what should happen to the money that will flow in there. These are just smart contracts, of which there are a lot. Hence, these smart contracts can be analogous to, for example, notarial contracts. Ethereum is a proposal to build a block chain that has its own scripting language that allows you to write programs, although not like computer games, but such as, for example, various types of economic systems. In Bitcoin, nodes process transactions, while Ethereum network nodes process programs. Ethereum can therefore be described as a decentralized and distributed computer that can perform calculations and execute computer programs.
The Ethereum blockchain system
The programming language on which Ethereum is based allows for a lot, basically everything, but what is possible can also be inherently problematic. In October 2016, the network was divided into two blockchains, known as the hard fork. Why did it happen? It was due to the problem of The Dao organization based on the Ethereum smart contract.
This organization raised $150 million and just 3 days later it was stolen. More than 1/3 of the collected funds were lost, due to hackers that took advantage of a minor bug in the code. If the system is decentralized like Ethereum, a smart contract once written cannot be changed. So if we transfer funds to such a smart contract, such an error can be exploited, but we are unable to fix such an error. The fraud caused a split in the cryptocurrency society - some users wanted to return the Ethereum network to the state before the theft, thus recovering the victims' funds, but others preferred not to interfere with the course of blocks and stay with the current state of the platform. This led to a split in the network, the so-called Hard fork. The cryptocurrency now known as Ethereum is the blockchain that brought the network back to its pre-fraud state. The cryptocurrency known as Ethereum Classic continued without intervention.
But what is the ticking time bomb and ice age mentioned in the introduction?
Ethereum was to strive to develop technological possibilities that would allow resignation from mining in favor of a consensus algorithm, the so-called Proof-of-Stake. In short, instead of mining, an inflation model is to be introduced, or otherwise a model based on a classic deposit. So we deposit funds that generate new ETH for us. For this purpose, an algorithm was implemented to gradually increase the difficulty of mining ETH (mining difficulty) until it becomes completely unprofitable. This algorithm was called Difficulty Bomb, and the moment when the difficulty of mining reaches a level too high for miners - Ice Age. It is possible that by the time you watch this video, the Ethereum network is already operating based on the aforementioned consensus.
Bitcoin vs Ethereum
Finally, let's compare Ethereum to Bitcoin, both cryptocurrencies are open source and give us a degree of anonymity. The main use of Bitcoin is to store value and conduct transactions within the digital currency. In addition to these activities, Ethereum also allows you to create and run decentralized contracts and applications. Bitcoins will be 21 million units, the number of Ethers is unlimited.
