The Ethereum blockchain is a scripting language platform for general purpose applications; Its network connects a gallery of decentralized applications, many of which serve as disruptive business models attempting to revolutionize industries from banking to Real Estate, forcing them to adapt and take on innovative ways to improve labor efficiency, quality of service, and customer relations and abandon outdated business methods.
The spread of its global outreach has been seen in every social class and demographic, and is shaking the core of even the most protected global industries, specifically large corporations, and banks. Even the blockchain business model is shifting from those who create the platforms to innovative service providers.
In late July 2015, 21-year-old Vitalik Buterin deployed the Ethereum virtual machine to the public and developers began writing smart contracts and decentralized apps. In addition to Buterin, other co-founders include Mihai Alisie, Anthony Di Iorio, and Charles Hoskinson. It is notable to add that Buterin also has mentioned that he was working with developer Dr. Gavin Wood and Joseph Lubin.
The team formally began development of the Ethereum software project in early 2014 under the business name, Ethereum Switzerland GmbH (EthSuisse). The official four co-founders raised investments through an Initial Coin Offering — a cryptocurrency crowdfunding campaign, promoting early investments, usually in exchange for discounted tokens. Initial tokens can be exchanged post-ICO through an exchange market.
Ethereum Vs. Bitcoin
Today, the price of Ethereum’s trails bitcoin, giving it a 2nd place rank in cryptocurrency market capitalization. Ethereum’s popularity has influenced many new business models that will continue to bridge the consumers to startup gap. Dapp’s and smart contracts give efficiency and convenience to every industry on a global scale industry. They will continue to grow in popularity, applying pressure and threatening to disrupt even the largest corporations. Banking and financial service industries have seen the biggest impact, causing many corporations to abandon traditional ways of attracting and competing for customers and turn to a more user-friendly and mobile-focused approach.
While the Bitcoin blockchain is used to track ownership of digital currency (bitcoin), the Ethereum blockchain adds functionality by giving the market and platform for any decentralized application. Often referred to as Bitcoin 2.0, Its consensus via contract based transactions stored on a public blockchain operates on a distributed open-source Proof-of-Stake protocol. Its design was initially thought to be an energy efficient bitcoin alternative and has grown to be the most popular and second most valuable cryptocurrency.
The most notable distinction between Bitcoin and Ethereum is that Ethereum was planned from its conception to run contracts on the network. While the Bitcoin blockchain is used to track ownership of digital currency (bitcoins), the Ethereum blockchain focuses on running the programming code of any decentralized application.
Bitcoin is solely a digital money, the Bitcoin blockchain only stores and handles all past transactions since the very start of its network. This ensures transparent accounting and transfer of value (i.e., money) Ether endures to fund these transactions on the blockchain, but they are secondary to executing smart contracts.
Ethereum is as powerful yet uses less energy than bitcoin does and has proven to offer a better purpose and more potential uses, specifically bitcoins inability to self-execute contracts.
Ethereum Virtual Machine
The trustless quality of the blockchain reduces friction for all parties involved. Smart contracts run exactly as their programming commands them to run. You can trust doing business with a stranger from the other side of the world knowing that your contract cannot be changed.
They also add a layer of efficiency, ensuring that the contract will execute itself once agreed upon terms are met. The contract will automatically pay the correct amount, on time, and without any human action beyond digitally signing the contract.
Ethereum’s core innovation, the Ethereum Virtual Machine (EVM) is a Turing complete software that runs on the Ethereum network. EVM is a distributed ledger platform which hosts thousands of decentralized applications and holds the entire records of transactional history on its blockchain, running independently from bitcoin.
The platform can execute code and is often described as a comprehensive decentralized computer having millions of objects, called “accounts,” which can support an internal database, execute code, and talk to each other. The capabilities of self-executing contracts are growing and multiplying by allowing one contract to call on and communicate with another through the EVM.
What is a “Smart Contract”
As mentioned previously, Smart Contracts are the first and foremost of Ethereum unique attributes. A smart contract is a contract written and executed in a computer programming language that automatically performs a payment or other terms that two or more parties have committed to under an agreement. The transparency, immutability, and cryptographic security of the blockchain qualify it as the ideal place to store such contracts.
The idea of smart contracts was conceived in 1994 by acclaimed legal scholar and cryptographer, Nick Szabo who proposed the concept of a self-executing smart contract was first introduced by Nick Szabo in 1997 when he described them with a real-life theoretic example of a simple vending machine.
Ethereum used this concept to enable “smart contracts “which are self-executing contracts that bind two or more parties to a trackable and irreversible agreement. Smart contracts allow the automatic execution of pre-programmed payments or events. No human action is needed to initiate the contract. There are several types of Smart Contracts.
Financial contracts which stipulate what the seller will pay to the buyer the difference between the current value of an asset and its value at contract time. When the agreed upon work is completed, the smart contract program triggers an instant payment to be released to the contracted parties. A worker’s salary can be delivered more efficiently, and quickly, therefore, the company saves money and can deliver pay on a more regular basis without human involvement to error or slowing down payroll.
Two mutually-untrusting entities can engage in commerce by passing funds through Ethereum and instruct a smart contract to send the funds to the payee only when specified terms are met. This reduces friction by eliminating the trust factor from fear of payee committing fraud. In essence. This instance describes a self-executing p2p escrow model contract.
Smart Escrow like Contracts brings many sellers and buyers into the same virtual location, giving sellers the deepest pool of buyers and vice versa. Bonds, deeds, and other documents claiming ownership of an asset or property can be stored on the blockchain and released when a specified condition has been fulfilled. A notary or governing third-party is not needed to legitimize paper document.
Other common use cases include assurance contracts like Crowd Funding, auctions apps, and economic games which award players for reaching specific milestones or discovering something within the game.
Ethereum Ecosystem and D’Apps
Ethereum is a decentralized platform used for storing and executing smart contracts. Ethereum enables thousands of Applications to be the development all on one platform.
A DApp is a Decentralized application that runs on a peer-to-peer network and sits on top of the blockchain. They are powerful tools for people and organizations on different sides of an interaction used to come together without any centralized intermediary.
Many FinTech companies are getting involved in the funding and development of Blockchain technology, and supporting the development of more advanced DApps; The combination is proving to be a disruptive challenge for industries who still support outdated business methods.
Beyond a tradeable cryptocurrency, developers also use Ether to pay for transaction fees and services on the Ethereum network. Ether offers a foundation for an entire ecosystem of Smart Contracts and DApps. Successful applications are built to disrupt industries including Security, Payments, Banks, Exchanges, Business Services, Travel & Leisure, and Real Estate.
Developers need to spend Ether if they want to build and deploy apps that interact with the Ethereum blockchain. As of today, The Ethereum network connects over 1200 decentralized applications on the and dozens of startups bringing innovations each month. If a script is willing to pay for execution, then it can run on top of Ethereum.
Ethereum Mining (Validating contracts)
Ethereum mining is more than increasing the volume of Ether in circulation. It is also necessary for securing the Ethereum network as it creates, verifies, publishes, and propagates blocks in the blockchain. On average, miners validate one Ethereum block every 12 seconds. It is estimated that Half of Ethereum’s total supply of 90 million coins will be mined by 2021.
The Ethereum blockchain does not enforce a block limit; Miners decide the number of records in each block. Ethereum mining can be profitable using only common hardware while mining on the Ethereum blockchain. The blocks are created or mined by some participants and distributed to other participants who confirm them. Validation blockchain consensus does not go by the same Proof-of-Work (PoW) protocol as bitcoin. Instead, Ethereum Mining uses Ethash to solve each hash puzzle.
Ethereum blocks are validated using Ethash, based on the Dagger-Hashimoto algorithm. The Ethereum PoW consensus algorithm combats mining centralization is by its use of a Proof of Work function that is ASIC resistant. The Ethash algorithm blocks the unfair advantages of specially produced mining hardware, putting Ethereum as the dominant centrifugal force in cryptocurrency. By guarding the decentralized nature of the mining process, independent miners can compete to earn Ether by putting to use any readily available processing power found in a graphics card, and CPU’s.
The World Computer
The end goal for Ethereum is to create and connect a network of decentralized apps. Every app must run on a node to stay operational, by connecting thousands of nodes Ethereum could potentially become a “world computer”, providing infrastructure to people all over the world. Upon reaching this goal we would be living in a world which no one power would have control over another’s personal data, and it would, therefore, be much less vulnerable to hacks or shutdowns. This futuristic dream of a totally decentralized world may not be very far off. Although it almost sounds like a geeky sci-fi book, this plan is in effect and is approaching the final of 4 planned development stages.
Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible. Ethereum developers plan on a switch from a Proof-of-Work consensus to the Proof-of-Stake consensus model during the Serenity phase.
A growing number of smart contracts offer significant potential in the form of streamlining the purchase and sale of land & buildings, as it cuts human error and prevents data loss. In an industry that has undergone minor change to date, this view forms by the need for businesses to adjust for higher land and input costs as well as to adapt to secular shifts in the construction labor force. The Ethereum Blockchain is on course to revolutionize real estate in ways of simplifying property ownership and give greater transparency.
Scalability is a barrier for certain types of adoption. There are many ongoing research and development initiatives in the Ethereum ecosystem which are trying to address scalability through proof of stake and sharding. Outside of the Ethereum ecosystem, various blockchain protocols are experimenting with innovative solutions that could also share across blockchains. Even before these solutions are integrated, it takes around 10 minutes to transfer and confirm the transfer of digital tokens on a decentralized exchange. Besides the stock market, there are many legacy financial transfers like corporate bonds, private equity, and real estate that take hours—or even days or years—to transfer.
4 Phases of Ethereum Development
Each stage brings new features and improves the user-experience and security of the platform while boosting Ethereum’s ability to scale.
Frontier (July 2015)
Essentially was a beta test for developers to learn, experiment, and begin building Ethereum decentralized apps and tools. The focus of Frontier is the Go implementation of an ethereal full node, with a command line interface codenamed “Geth.” First, live release of the Ethereum network. It allowed developers to experiment, mine Ether, and begin building apps and tools.
Homestead (March 2016)
The first production release of Ethereum that brought many protocol improvements which lay the foundations for future upgrades and for speeding up transactions.
Metropolis (Oct 2017)
Improves upon the speed, efficiency, and security of Ethereum and is broken down into two releases: It will implement further protocol upgrades as well as set preparation for the Casper upgrade, including a new interface for nontechnical users, with hopes to increase Ethereum’s rate of adoption by attracting new developer innovation.
Byzantium (Oct 2017)
As its name hints on, Metropolis opened introduced blockchain to the masses. GitHub is the first platform to host and store Metropolis just a matter of time before it goes live.
The second part of the Metropolis hard fork will introduce new features and may finally include the foundations for the Casper Proof-of-Stake.
As described by Vitalik Buterin, the founder of Ethereum. Casper is a partial consensus mechanism combining proof-of-stake algorithm research and Byzantine fault-tolerant consensus theory,”
The last phase of Ethereum network will include the highly anticipated switch to a more energy-efficient Proof of Stake using the Casper consensus algorithm. This milestone will offer advanced capability in smart contract execution, enabling smart contracts to be more self-sufficient through the use of UTXO tree token management.
Note: Constantinople will introduce Casper, a major protocol upgrade designed to transition Ethereum to a new method for reaching consensus: proof-of-stake (PoS). They are also investigating scalability solutions and how to store secrets on the blockchain.
Even though it shares some of the same terminology used to describe functionality, its disruptive capabilities far surpass that of its predecessor. By measuring the rapid growth of popularity since launching, you can see why some may think it could overtake the undisputed cryptocurrency champion within the next few years.
Ethereum has incredible momentum and a quickly growing network. However, it is still an evolving project that does face multiple challenges. Ethereum is in agile development with many protocol enhancements on the roadmap to ease implementation of more advances in technology as developers create them.