Ethereum

Ethereum logo

Ethereum (ETH) is an open-source, public, blockchain-based distributed computing platform featuring smart contract (scripting) functionality. It provides a decentralized Turing-complete virtual machine (Ethereum VM), the Ethereum Virtual Machine (VM), which can execute scripts using an international network of public nodes. Ethereum also provides a cryptocurrency token called “ether”, which can be transferred between accounts and used to compensate participant nodes for computations performed.[1] “Gas”, an internal transaction pricing mechanism, is used to mitigate spam and allocate resources on the network.

Contents

As an open source platform, Ethereum greatly simplifies the implementation of blockchain technology, which explains the interest of not only new startups, but also major SOFTWARE developers, such as Microsoft, IBM and Acronis. Also conventional companies such as VTB banks, Sberbank, Lufthansa and S7 airlines, as well as international charitable organizations showed interest in the platform.

Ethereum was proposed in late 2013 by Vitalik Buterin, a cryptocurrency researcher and programmer. Development was funded by an online crowdsale between July and August 2014. The system went live on 30 July 2015, with 11.9 million eth coins “premined” for the crowdsale. This accounts for approximately 13 percent of the total circulating supply.

In 2016, as a result of the collapse of The DAO project, Ethereum was forked into two separate blockchains – the new forked version became Ethereum (ETH), and the original continued as Ethereum Classic (ETC).[2]

History

Ethereum: the World Computer

Origin

Ethereum was initially described in Ethereum white paper by Vitalik Buterin, a programmer involved with Bitcoin Magazine, in late 2013 with a goal of building decentralized applications. Buterin had argued that Bitcoin needed a scripting language for application development. Failing to gain agreement, he proposed development of a new platform with a more general scripting language.

At the time of public announcement in January 2014, the core Ethereum team was Vitalik Buterin, Mihai Alisie, Anthony Di Iorio, and Charles Hoskinson.[3] Formal development of the Ethereum software project began in early 2014 through a Swiss company, Ethereum Switzerland GmbH (EthSuisse). Subsequently, a Swiss non-profit foundation, the Ethereum Foundation (Stiftung Ethereum), was created as well. Development was funded by an online public crowdsale during July–August 2014, with the participants buying the Ethereum value token (ether) with another digital currency, bitcoin. While there was early praise for the technical innovations of Ethereum, questions were also raised about its security and scalability.

Milestones

Several codenamed prototypes of the Ethereum platform were developed by the Foundation, as part of their Proof-of-Concept series, prior to the official launch of the Frontier network.

“Olympic” was the last of these prototypes, and public beta pre-release. The Olympic network provided users with a bug bounty of 25,000 ether for stress testing the limits of the Ethereum blockchain.

“Frontier” marked the tentative experimental release of the Ethereum platform in July 2015.[4]

Since the initial launch, Ethereum has undergone several planned protocol upgrades called milestones, which are important changes affecting the underlying functionality and/or incentive structures of the platform.

“Homestead” is the current milestone, and is considered stable. It includes improvements to transaction processing, gas pricing, and security.

There are at least two other protocol upgrades planned in the future:

“Metropolis” is intended to reduce the complexity of the EVM and provide more flexibility for smart contract developers. Metropolis also adds supports for zkSnarks (from Zcash); with the first zksnarks transaction occurring on testnet on September 19, 2017.

Ethereum mining

“Serenity” should include a fundamental change to Ethereum’s consensus algorithm to enable a basic transition from hardware mining (proof-of-work) to virtual mining (proof-of-stake). Improvements to scalability, specifically sharding, are also said to be a key objective on the development roadmap.[5]

Version Code name Release date
o|0 Olympic May, 2015
o|1 Frontier 30 July 2015
o|2 Homestead 14 March 2016
c|3 Metropolis (vByzantium) 16 October 2017
p|3.5 Metropolis (vConstantinople) TBA
p|4 Serenity TBA
Version |l |show=011101

How to buy Ethereum

Ethereum was originally described in one of Buterin’s publications at the end of 2013. In April 2014, Ethereum was formally described by Gavin wood in the so-called “yellow book”. Around the same time, Ethereum was informally described as a “next generation Bitcoin” (or “Bitcoin 2.0”) platform.

In the second half of 2014 fund raising for development started through crowdfunding. Ethereum was the first cryptocurrency to use an Initial Coin Offering for their crowd funding. The Ethereum presale took place from Tuesday, 22 July 2014 to Tuesday, 2 September 2014, a total of 42 days. 31,500 bitcoins or equivalently $18.4 million USD was raised.[6] After that, Ethereum drew the attention of many banks as a testing platform for studying smart contracts and bonds. The Ethereum blockchain platform was launched on the 30th of July 2015.

On March 14, 2016, Ethereum released an early alpha version of Frontier in which developers did not guarantee security. The new version of the Protocol is called Homestead and also refers to the early, but already stable version.

Securing the network with hashing is assumed only at the initial stage. In the future Ethereum plans to complete the transition to the method of protection proof-of-stake with a hybrid model at the intermediate stage. Despite this, there is protection against the creation of ASIC due to the high requirements for video memory GPU, which is constantly growing (2.04 GB in July 2017).

Ethereum price

The price of ETH token or Ether is always chaining, however, BitcoinWiki gives you a chance to see the prices online on Coin360 widget.

The DAO and the branch of the block chain

In June 2016, an error was detected in the software code of the DAO, a platform for Autonomous investment capital management. On June 16, this vulnerability allowed unknown people to move about one-third of the ether available in The DAO (at that time in the amount of 50 million US dollars) to one of ChildDAO, which was controlled only by the attacking party. However, due to the peculiarities of the implementation of the DAO, these funds were not available for withdrawal within a month.

The Ethereum community discussed whether to return the ether to investors and in what way to implement the return, and the developers of the DAO from Germany tried to counter attack the hacker, since the decentralized nature of the DAO and Ethereum means the absence of a Central body that could take a quick action and require user consensus. After a few weeks of discussion, on July 20, 2016, a hard fork was produced in the Ethereum blockchain, to reverse the hacking and return to investors the funds stolen from the DAO. This was the first branch of the chain of blocks to return stolen funds to investors.

As a result of rejection of transaction history rollback and rule changes by a part of the community, Ethereum Classic was formed, which continues to work as a project “the DAO”.

Hard Forks

After the hard fork related to The DAO, Ethereum subsequently forked twice in the fourth quarter of 2016 to deal with other attacks. By the end of November 2016, Ethereum had increased its DDoS protection, de-bloated the blockchain, and thwarted further spam attacks by hackers.

Architecture

Ether

The value token of the Ethereum blockchain is called ether. It is listed under the code ETH and traded on cryptocurrency exchanges. It is also used to pay for transaction fees and computational services on the Ethereum network.

Tokens can be volatile per circumstances, such as ether’s plunge from $21.50 to $8 when The DAO was hacked on 17 June 2016. As of June 2017, the value of ether had risen to more than $400, a 5,000% rise since the beginning of the year.[7]

Price volatility on any single exchange can exceed the volatility on Ether token prices more generally. A “flash crash” triggered by a large sell order on one exchange briefly dropped the price on that exchange to $0.10 as every offer to buy was absorbed, after which the price quickly recovered to more than $300.

ERC20

The ERC-20 standard protocol is a technical standard for smart contracts on Ethereum. It defines a set of rules to be followed in the creation of new tokens on the blockchain, allowing for exchanges and wallets to better (more seamlessly) integrate new tokens that follow the standard. Most major tokens on the Ethereum blockchain are ERC-20 compliant.[8]

Ethereum Virtual Machine

The Ethereum Virtual Machine (EVM)[9] is the runtime environment for smart contracts in Ethereum. The formal definition of the EVM is specified in the Ethereum Yellow Paper, original version by Gavin Wood. It is sandboxed and also completely isolated from the network, filesystem or other processes of the host computer system. Every Ethereum node in the network runs an EVM implementation and executes the same instructions. Ethereum Virtual Machines have been implemented in C++, Go, Haskell, Java, JavaScript, Python, Ruby, Rust, and WebAssembly (currently under development).

Ethereum Smart contracts

Smart contracts are deterministic exchange mechanisms controlled by digital means that can carry out the direct transaction of value between untrusted agents. They can be used to facilitate, verify, and enforce the negotiation or performance of procedural instructions and potentially circumvent censorship, collusion, and counter-party risk. In Ethereum, smart contracts are treated as autonomous scripts or stateful decentralized applications that are stored in the Ethereum blockchain for later execution by the EVM. Instructions embedded in Ethereum contracts are paid for in ether (or more technically “gas”) and can be implemented in a variety of Turing complete scripting languages.

Contracts on the public blockchain

As the contracts can be public, it opens up the possibility to prove functionality, e.g. self-contained provably fair casinos.

One issue related to using smart contracts on a public blockchain is that bugs, including security holes, are visible to all but cannot be fixed quickly.[10] One example of this is the 17 June 2016 attack on The DAO, which could not be quickly stopped or reversed.

There is ongoing research on how to use formal verification to express and prove non-trivial properties. A Microsoft Research report noted that writing solid smart contracts can be extremely difficult in practice, using The DAO hack to illustrate this problem. The report discussed tools that Microsoft had developed for verifying contracts, and noted that a large-scale analysis of published contracts is likely to uncover widespread vulnerabilities. The report also stated that it is possible to verify the equivalence of a Solidity program and the EVM code.

Programming languages

Smart contracts are high-level programming abstractions that are compiled down to EVM bytecode and deployed to the Ethereum blockchain for execution. They can be written in Solidity (a language library with similarities to C and JavaScript), Serpent (similar to Python), LLL (a low-level Lisp-like language), and Mutan (Go-based, but deprecated). There is also a research-oriented language under development called Viper (a strongly-typed Python-derived decidable language).

Performance

In Ethereum all smart contracts are stored publicly on every node of the blockchain, which has trade-offs.[11] The downside is that performance issues arise in that every node is calculating all the smart contracts in real time, resulting in lower speeds. Ethereum engineers have been working on sharding the calculations, but no solution had been detailed by early 2016. As of January 2016, the Ethereum protocol could process 25 transactions per second.[11] In September 2016, Buterin presented proposals to increase scalability. Buterin and Joseph Poon (a co-author of Bitcoin’s lightning network whitepaper) announced in 2017 their plan to launch a scaling solution called Plasma which creates “child” blockchains to the “main” parent blockchain.[12] The plasma project is not without skeptics, specifically Vlad Zamfir (Ethereum’s lead researcher on proof of stake) has publicly questioned the plasma project’s viability.

Ether supply increase rate

The supply of Ether was projected to increase by 14.75% in 2017, with an algorithm in place to gradually decline to 1.59% by 2065. However, a new implementation of Ethereum named “Casper” based on proof-of-stake rather than proof-of-work is expected to reduce the inflation rate to between 0.5% to 2%.

Proposed uses

Many uses have been proposed for Ethereum platform, including ones that are impossible or unfeasible. Use case proposals have included finance, the internet-of-things, farm-to-table produce, electricity sourcing and pricing, and sports betting. Ethereum is (as of 2017) the leading blockchain platform for initial coin offering projects, with over 50% market share.[13]

Ecosystem

Introducing ConsenSys Academy: Why We Code on Ethereum

The projects listed in this section are not exhaustive and may be outdated.

Ethereum wallet

These cryptocurrency wallets support Ethereum:

Decentralized applications

  • Digital signatures that ensure authenticity and proof of existence of documents: the Luxembourg Stock Exchange has developed such a system[14]
  • Slock.It is developing smart locks
  • Digital tokens pegged to fiat currencies: Decentralized Capital. Spanish bank Santander is also involved in such a project
  • Digital tokens pegged to gold: Digix
  • Improved digital rights management for music: Imogen Heap used the technology
  • Platforms for prediction markets: Augur, GnosisStox
  • Platforms for crowdfunding: the DAO
  • Social media platforms with economic incentives: Backfeed,Akasha
  • Decentralized marketplaces: FreeMyVunk,, Etheropt,, TransActive Grid
  • Remittance: Everex
  • Online gambling: Etheroll
  • Electric car charging management: RWE
  • Secure identity systems for the Internet: uPort
  • Labour economics: Blocklancer,[15]Ethlance

Enterprise software

Ethereum-based customized software and networks, independent from the public Ethereum chain, are being tested by enterprise software companies. Interested parties include Microsoft, IBM, JPMorgan Chase, Deloitte, R3, Innovate UK (cross-border payments prototype).

Enterprise Ethereum Alliance (EEA)

In March 2017, various blockchain start-ups, research groups, and Fortune 500 companies announced the creation of the Enterprise Ethereum Alliance (EEA) with 30 founding members.[16]

By May, the nonprofit organization had 116 enterprise members—including ConsenSys, CME Group, Cornell University’s research group, Toyota Research Institute, Samsung SDS, Microsoft, Intel, J.P. Morgan, Cooley LLP, Merck KGaA, Deloitte, Accenture, Banco Santander, BNY Mellon, ING Group, and National Bank of Canada.

The purpose of the EEA is to coordinate the engineering of an open-source reference standard and private “permissioned” version of the Ethereum blockchain that can address the common interests of enterprises in banking, management, consulting, automotive, pharmaceutical, health, technology, mobile, entertainment, and other industries, while working with developers from the Ethereum ecosystem. Certain members of the alliance have also indicated a desire to investigate and collaborate on hybrid architectures to potentially anchor private blockchains to the public Ethereum blockchain in the future, although concerns remain over the security, compliance, and regulations involved in bridging such permissioned and “permissionless” blockchains.

By July 2017, there were over 150 members in the alliance, including recent additions MasterCard, Cisco Systems, and Scotiabank.[17] (Mastercard wanted their name excluded from the press release.[18])

Permissioned ledgers

Ethereum-based permissioned blockchain variants are used and being investigated for various projects.

  • J.P. Morgan Chase is developing a permissioned-variant of Ethereum blockchain dubbed “Quorum.” It’s designed to toe the line between private and public in the realm of shuffling derivatives and payments. The idea is to satisfy regulators who need seamless access to financial goings-on, while protecting the privacy of parties that don’t wish to reveal their identities nor the details of their transactions to the general public.
  • Royal Bank of Scotland has announced that it has built a Clearing and Settlement Mechanism (CSM) based on the Ethereum distributed ledger and smart contract platform.[19]

Economic sense

Ethereum technology makes it possible to register any transactions with any assets on the basis of a distributed base of contracts such as blockchain, without resorting to traditional legal procedures. This possibility is competitive in relation to the existing system of registration of transactions. According to the Economist, the technology of “smart contracts” marks a new era in financial technology.

Bacchanalia technologies can be successfully combined with the remote banking services of the type provided through SMS messages. Due to its low cost, this opportunity is particularly attractive for developing countries, according to The Economist.

Software implementation

Smart contracts in Ethereum are presented in the form of classes that can be implemented in various languages, including visual programming and compiled to bytecode for a virtual machine Ethereum (Ethereum Virtual Machine, EVM) before sending it to the blockchain. The state change of the virtual machine can be recorded in the full Turing scripting language.

Unlike the scripting language in the bitcoin Protocol, EVMS support loops, so the platform uses a mechanism called gas to limit contracts that can take a long time to execute.

Academic and Professional Reception

Dan Boneh of Stanford and Vipul Goyal of Carnegie Mellon told CNBC that some of their respective students are starting their own cryptocurrency projects. Cornell University, UC Berkeley, and Technion – Israel Institute of Technology formed the Initiative for Cryptocurrencies and Contracts (aka IC3) and that entity joined the Enterprise Ethereum Alliance.

Criticisms

Criminal use

A finance blogger on FT Alphaville has pointed out that criminals are using Ethereum to run Ponzi schemes and other forms of investment fraud. The article was based on a paper from the University of Cagliari, which placed the number of Ethereum smart contracts which facilitate Ponzi schemes at nearly 10% of 1384 smart contracts examined. However, it also estimated that only 0.05% of the transactions on the network were related to such contracts.

Speculative bubble

CBS noted in 2017 that price hikes in Ethereum, (as well as Litecoin and Bitcoin), are creating most of the excitement, rather than technology.

Interesting facts

  • In Ethereum, the Namecoin analogue is implemented by five lines of code.
  • In 2014, Ethereum ranked second in terms of the amount collected through crowdfunding.
  • Fractions of ether is named after Wei Dai, Hal Finney and nick Szabo.
  • Vitalik Buterin argues that “the creation of Ethereum was not a matter of money, it was a mission, the idea behind which you want to go “and that the role of mining will decline and decline. This direction is not very promising”.
  • The name of the cryptocurrency and its emblem is a reference to the anime heavenly castle Laputa, in which the crystal is of the same shape as the emblem of the cryptocurrency. This was the main source of energy of the castle Laputa.
  • In English dubbing crystal material is called aetherium.

See Also on BitcoinWiki

External links

References

  1. ↑ Cryptocurrencies: A Brief Thematic Review. Social Science Research Network. Date accessed 28 august 2017.
  2. ↑ CoinDesk Research: Ethereum Hard Fork Had Little Impact on Sentiment
  3. ↑ Ethereum: Now Going Public
  4. ↑ Getting to the Frontier
  5. ↑ How Will Ethereum Scale?
  6. ↑ 15 insights on how Ethereum did its ICO in 2014, URL: https://www.applancer.com/blog/15-insights-on-how-ethereum-did-its-ico-in-2014
  7. ↑ Ethereum hits another record high after bitcoin and is now up over 5,000% since the start of the year
  8. ↑ Amy Castor, “Ethereum ‘Tokens’ Are All the Rage. But What Are They Anyway?”, Coindesk.com, 17.06.17. Retrieved 03.04.18.
  9. ↑ What Is Ethereum?—Ethereum Homestead 0.1 documentation
  10. ↑ Ethereum’s $150-Million Blockchain-Powered Fund Opens Just as Researchers Call For a Halt
  11. ↑ 11.011.1 How are banks actually going to use blockchains and smart contracts?
  12. ↑ Ethereum + Lightning? Buterin and Poon Unveil ‘Plasma’ Scaling Plan
  13. ↑ ICO Market Research: The Leading Blockchain Platforms Of 2017 – ICO Watch List Blog
  14. ↑ Luxembourg Stock Exchange introduces blockchain into reporting service
  15. ↑ Can Blockchain Supercharge the Gig Economy?
  16. ↑ Business Giants to Announce Creation of a Computing System Based on Ethereum
  17. ↑ https://www.inc.com/brian-d-evans/the-enterprise-ethereum-alliance-just-got-a-whole-.html
  18. ↑ Enterprise Ethereum Alliance Joined By Mastercard, Cisco, Et Al.
  19. ↑ Proving Ethereum for the Clearing Use Case