A brief history of Ethereum
Ethereum is a global open-source blockchain platform for decentralized applications (DApps), powered by smart contracts and embedded with the native digital currency Ether (ETH). On Ethereum, code can be written to control the transfer of digital value based on programmed conditions. Ethereum is mainly used for three purposes: one is to store value in ETH, the other is for users to send or receive payments in ETH to settle transactions, and the third is to promote network operations through transaction fees paid in ETH (that is, to empower DApps). These charges are calculated based on the cost of executing the code.
In November 2013, Vitalik Buterin released a white paper conceptualizing Ethereum, and with contributions from seven co-founders and other developers, the network launched in June 2015. Initial development was led by Ethereum Switzerland GmbH (EthSuisse), and it is currently overseen by the Ethereum Foundation, a non-profit organization based in Switzerland.
Prior to its founding, Ethereum aimed to extend the primary functionality of Bitcoin and the like as peer-to-peer (P2P) digital currencies by incorporating a platform capable of deploying smart contracts and more complex structures such as DApps and Distributed Autonomous Organizations (DAOs). Its progress is driven by the combined efforts of its global developer community, which is considered the largest of any digital currency network. Currently, Ethereum is in its fourth stage of development, called Serenity or Ethereum 2.0, which will be rolled out in several stages and is expected to be completed after 2022.
A brief history of Ethereum
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Part 1: Before Network Launch (Early 2013 to July 30, 2015)
In 2013, early Bitcoin contributor and Bitcoin Magazine co-founder Vitalik Buterin first presented Ethereum as a "world computer" proof of concept in the original white paper. An early adopter of Bitcoin, Buterin made the point that the digital currency and its associated blockchain could be more convenient than simple peer-to-peer electronic value transfers. To realize this grand vision, he set out to create a complete virtual ecosystem, which includes a global blockchain and smart contract programming platform. Both will be backed by the native digital currency ETH.
By integrating programmatic functionality directly into the Ethereum protocol, developers around the world will be able to automate payments using Ethereum ETH to design new types of decentralized applications hosted on public blockchains. By using smart contracts, applications on Ethereum can automatically transfer information and value under dynamic conditions, thereby providing customized business models for the new Internet economy (i.e. Web3.0)
In late 2013 and early 2014, Buterin co-founded Ethereum with Mihai Alisie, Amir Chetrit, Charles Hoskinson, Anthony Di Iorio, Dr. Gavin Wood, Joseph Lubin, and Jeffrey Wilke. Shortly thereafter, Gavin Wood coded Ethereum's first functional implementation in the Yellow Paper, detailing the technical details of the protocol, including the Ethereum Virtual Machine (EVM) and the smart contract programming language Solidity. On a parallel path, two entities were formed to oversee the development of Ethereum: the for-profit EthSuisse in February 2014 and the not-for-profit Ethereum Foundation in July 2014.
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Part 2: The DAO Hack (June 17, 2016)
On April 30, 2016, blockchain and Internet of Things (IoT) solutions company Slock.it announced the launch of "The DAO" on Ethereum. Positioned as a decentralized venture capital fund, The DAO raised over $150 million during its 28-day crowdfunding window. DAO grants voting rights to members according to their investment ratio, and members can vote to fund projects. If a project proves to be profitable, members will be rewarded according to the terms of the relevant smart contract and their stake in the DAO.
However, the DAO did not work as planned. On June 17, 2016, an anonymous hacker exploited a bug in the smart contract code that built the DAO to withdraw approximately $60 million in ETH to segregated wallet addresses. As a result, the ETH market experienced a massive sell-off as investors dumped their holdings.
Given the inability to recover stolen funds, there has been debate within the digital currency community about how best to rectify the situation. Ultimately, it was decided to perform a hard fork on July 20, 2016 and create a new version of the Ethereum blockchain. This version will be called Ethereum, delete all records of the theft and restore the stolen ETH to the original owner. The original Ethereum protocol was renamed Ethereum Classic and its original token was renamed ETC. Ethereum Classic preserves transaction history, including DAO theft, to maintain the fundamental principles of decentralized governance and immutability.
Today, the Ethereum and Classic Ethereum networks coexist and in many ways are only just beginning to interoperate. Although the two networks are similar in functionality and actual application functionality, the underlying separation between them since the hard fork has resulted in significant differences in technical architecture, development philosophy, and governance principles.
Part 3: The Four Phases of Ethereum (July 30, 2015 -?)
The development of Ethereum is divided into four main phases, some of which are subdivided into multiple phases. Each stage is integrated into the main protocol like a hard fork, and features are fully tested in the testnet. Over time, the roadmap has evolved to reflect community consensus. The contribution to the Ethereum project is to reach its final stage, Serenity, where the goal is to become a globally scalable payment network and smart contract platform, resistant to centralized governance.
Phase 1: Frontier - On July 30, 2015, the Ethereum network was launched, enabling users to mine ETH and test basic functionality.
Phase 2: Homestead - March 14, 2016 Updated Solidity and added dimensions for several parameters, including gas price and cost.
Phase 3: Metropolis – Byzantium - October 16, 2017 Increased privacy and security by adding zk-SNARKs and a difficulty bomb as the basis for an inflationary ETH issuance.
Phase 3.5: Metropolis – Constantinople - February 28, 2019 Improved smart contracts and explored scalability solutions using state channels.
Phase 4: Serenity - Ethereum 2.0 - expected after 2022? Will be implemented in several phases, converting Ethereum to a Proof of Stake (PoS) protocol, including Ethereum Web Components (eWASM) for network performance and scaling Supported smart contract programming languages.
See EthHub for a comprehensive description of the features introduced in each of the four phases.
Defining the characteristics of Ethereum
The Ethereum network is designed to expand the use cases of Bitcoin and serve as a decentralized world computer. While Bitcoin uses a limited scripting language that only allows for P2P value transfers, Ethereum is designed to be computationally general and Turing complete, facilitating more advanced types of programmable data interactions with ETH.
Nonetheless, Ethereum and Bitcoin share some of the following characteristics, albeit to varying degrees:
• Decentralization: Ethereum currently employs PoW, effectively eliminating the need for central authorities (such as governments and financial institutions) to verify transactions or operate the network based on smart contracts. Buterin claimed that blockchains are politically and architecturally decentralized but logically centralized, where nodes have equal power in the network and must collaborate to verify transactions. It is worth warning that while the governance design is decentralized, there may be risks associated with how decentralized mining pools are in the Ethereum network. As of February 12, 2020, the two largest mining pools control over 50% of the network hashrate
• No authorization required: anyone can participate in the network.
• Security: In the PoW protocol, the network is "secure as long as honest nodes control more [energy] than collective attacker nodes". An attacker trying to make a fraudulent transaction on the blockchain must find the desired block, change the transaction data, and then mine each successive block until the fraudulent block is confirmed by the network, which is known as a 51% attack. The main barrier to these attacks is that they are computationally expensive and have uncertain payoffs, making them unlikely. Although the 2016 DAO hack raised concerns about Ethereum security, Atzei et al. (2016) found that the main cause of the attack was a vulnerability in Solidity (the programming language used to design Ethereum smart contracts), rather than the network itself loopholes. However, it is worth noting that with the completion of Serenity, Ethereum will transition from a PoW network security model to a PoS network security model. As a major update to the Ethereum network, any failure to properly implement such changes could have a material adverse effect on the value of Ethereum.
• Open source: The source code of the Ethereum project is available on the Internet, and anyone can freely access, contribute or fork. This is an important feature for building trust and accumulating users, as evidenced by the Ethereum project having the most active developers of any digital currency community. Users can propose Ethereum Improvement Proposals (EIPs), which are feature proposals aimed at improving the network and following strict technical guidelines.
• Transparent: All transactions are recorded on the Ethereum blockchain and are publicly viewable anywhere in the world.
• Pseudo-anonymous: Public wallet addresses are not directly linked to any personally identifiable information. However, in its current state, complete anonymity is difficult to achieve. This is because the addresses involved in any Ethereum transaction are permanently and publicly visible on the blockchain. Information like multiple transactions from one wallet or a data breach of a custody solution or exchange can basically be traced back to an individual.
Main features of Ethereum
Main features of Ethereum
Ethereum (ETH)
Ethereum (ETH)
smart contract
smart contract
A smart contract is a line of code that facilitates the exchange of anything of value, such as money, information, property, or voting rights. They are uploaded to the blockchain and the executed transactions cannot be tampered with. Using smart contracts, users can send or receive ETH, create markets, store registered debts or commitments, represent ownership of property or companies, transfer funds under a logical set of instructions, and form new digital assets in compliant offerings or issuances . The concept of smart contracts was first coined by Nick Szabo, a renowned computer scientist specializing in digital currencies and founder of BitGold, and discussed it in a 1997 white paper.
Solidity
Solidity is the main programming language of Ethereum. It is used to write smart contracts, develop DApps, build DAOs, and operate Internet of Things (IoT) devices based on Ethereum technology. Other languages of the Ethereum network, such as Vyper, still exist today, while others, such as Serpent and Mutan, have been deprecated.
Decentralized Applications (DApps)
Decentralized Autonomous Organization (DAO)
Decentralized Autonomous Organization (DAO)
A Decentralized Autonomous Organization (DAO) is an organization independent of a central governing body. Unlike traditional corporate ownership where ownership is divided among shareholders, the DAO is owned by those who provide tokens, who also gain voting rights. Furthermore, the rules of a DAO are determined by its accompanying smart contract.
Ethash Algorithm
Ethereum Virtual Machine (EVM)
Ethereum Virtual Machine (EVM)
EVM was created by Dr. Gavin Wood in 2014. For details, see the original Ethereum Yellow Paper, which is the technical version of the white paper. A virtual machine (VM) is software that simulates the behavior of a computer, essentially an operating environment for performing any activity on an ordinary computer. It allows users to test functionality and eliminates the risk of attack and failure on the host computer hosting the virtual machine. If a virtual machine is compromised and some functionality is compromised, the user can simply exit the virtual machine.
The EVM handles the state of the Ethereum blockchain and executes all smart contracts, DApps and DAOs on the network. It is Turing complete, which means that given enough time and memory, the program will run until completion. This is a major innovation in blockchain technology, as it allows complex conditional logic and provides the basis for more complex programs. Other virtual machines, such as SputnikVM, are being developed and increasingly utilized in Ethereum blockchain projects.
mining rewards
In the beginning, 72 million ETH was created and distributed to the public, the Ethereum Foundation, and developers. Ethereum is equipped with an inflation-inhibiting mechanism to control the rate of new ETH issuance, currently capped at 16 million ETH per year. The consideration behind this is to prevent arbitrary creation of money, leading to hyperinflation or manipulation.
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Figure 2: Mining Reward Schedule for Ethereum Proposals
Since its inception, the history of block rewards is as follows:
• Block #0 to Block #4,369,999: 5 ETH
• Block #4,370,000 to Block #7,280,000: 3 ETH (changed by EIP-649)
• Block #7,280,000 to date: 2 ETH (changed via EIP-1234)
Potential advantages of Ethereum
The Ethereum protocol is designed to have three potential advantages over traditional financial institutions, payment channels, and other digital currency networks:
1. Groundbreaking smart contract function: Ethereum is the first digital currency network to integrate a smart contract platform. Because of this feature, real world use cases are starting to emerge and sustain value (e.g. DeFi). Considering Ethereum’s status as the second largest digital currency network over the past few years, it’s important to recognize Ethereum’s impact in both the digital asset class and traditional finance.
2. Active developer community: Ethereum is one of the most popular digital currency networks across all metrics of Github activity, including number of commits, total contributors, total project watchers, and total stars
3. Institutional and corporate support: The Enterprise Ethereum Alliance (EEA) is an organization dedicated to promoting the adoption and use of Ethereum by businesses and individuals. It is also working to build enterprise blockchain solutions and potentially private, consortium versions of the Ethereum blockchain to address previously unmet business needs. It is made up of more than 450 multinational companies, including Microsoft, JP Morgan, Toyota and Intel. More and more companies joining the EEA is a trend, under this trend, established companies are exploring the value of blockchain technology and investing a lot of time and resources in related plans.
Potential Risks of Ethereum
scalability issues
scalability issues
Like many digital currencies, Ethereum faces limitations in scalability. Currently, the network can only process an average of 15 transactions per second, while traditional payment channels, such as VISA, process approximately 1,700 transactions per second. Ethereum has made several adjustments to accommodate the scaling challenges posed by its original design. However, scalability remains one of the biggest challenges facing the Ethereum network and remains an active area of research by developers.
Two approaches are currently being researched to address Ethereum’s scalability issues: One is on-chain, or Layer 1 (referring to the main blockchain). The second is off-chain, or Layer 2 (referring to the implementation of functions outside the main blockchain, such as Plasma, side chains, payment channels, and state channels).
degree of decentralization
degree of decentralization
compete
compete
Ethereum faces stiff competition from many general-purpose platform digital currency networks, including Ethereum Classic, Horizen, Eos and Tezos, among others. Each of these could be considered a direct or indirect competitor to Ethereum, and it remains to be seen whether DApps, smart contract functionality, or other use cases are better served by one or some of these use cases. It is also possible that these networks fail en masse, or that some combination of them succeeds simultaneously due to the forces of market competition. However, compared to the aforementioned (and other) competing networks, Ethereum has a higher rate of adoption and expansion to developers, exchange listings, applications, and underlying network infrastructure such as wallets and front-end payment processing software.
Smart Contract Instability
Since transactions generated by smart contracts can be difficult to stop or reverse, any bugs in the underlying code could cripple the network. For example, a vulnerability in The DAO in 2016 allowed unknown attackers to transfer approximately $60 million worth of ETH to segregated wallet addresses. The incident sparked controversy on ethereum, causing it to fork into two networks: ethereum and ethereum classic. In 2017, Parity, the multisig wallet software developed by Parity Technologies, was affected by two hacks. The first was in July 2017, resulting in the theft of $30 million in ETH, and the second was in November 2017, resulting in approximately $160 million in ETH being frozen indefinitely. Smart contract technology is relatively new and still under open source development.
monetary policy concerns
regulatory uncertainty
regulatory uncertainty
Summarize
Summarize
Ethereum ushered in a second wave of innovation in blockchain technology, extending the use cases offered by Bitcoin and cementing itself as a unique player in the digital currency ecosystem. The ultimate goal of Ethereum is to become the leading smart contract compatible digital currency platform. Despite the controversy over the Ethereum Classic hard fork caused by the DAO hack in 2016, Ethereum maintained its position as the second largest network in the digital currency ecosystem by market capitalization and proved its resilience with the support of many supporters . Ethereum has a global network of users, developers, and enterprises, and has a huge momentum of development in technology and community, which is difficult for competing platforms to replicate.
