Ethereum, the second cryptocurrency on the MarketCap today in terms of value, and it was the third coin to emerge in the cryptocurrency sphere.
July 30, 2019 | AtoZ Markets – Over the years, the coin made major advances, asserting its position in the market, amid a frenzy competition!
Today is Ethereum’s birthday, and together, we are recounting in this article important stations in Ether’s road.
Identification and purpose
As a public open source and blockchain-based distributed computing platform, Ethereum started like an operating system to introduce smart contract (scripting) functionality, being looked at as a modified version of Nakamoto consensus via transaction-based state transitions.
It is a token the Ethereum platform generates, and allows transferring between accounts, providing a decentralized virtual machine known as the Ethereum Virtual Machine (EVM).
The machine is capable of executing scripts using international public nodes.
Ether is a token generated by the Ethereum platform. Ether can be transferred between accounts and used to compensate participant mining nodes for the computational process performed. Ethereum provides a decentralized virtual machine, the Ethereum Virtual Machine (EVM), which can execute scripts using an international network of public nodes.
How did the idea of Ethereum all come up?
The Ethereum cryptocurrency was first proposed seven years ago by Vitalik Buterin, a cryptocurrency researcher and programmer.
In late 2013, Vitalik Buterin described the concept of ethereum for the first time. Buterin was previously a Bitcoin programmer, familiar with the advantages and disadvantages of its system, and began to seek to create a similar Blockchain system with improvements.
Later that year, he wrote a white paper describing the concept of ethereum, and then suggested developing this new platform using a generic programming language.
Between July and August 2014, the development process took place and was funded by an online crowdsale that took place, but the system did not go live until 30 July 2015, with 72 million coins “pre-mined”. This accounts for about 68 percent of the total circulating supply in 2019, as the records document.
The first Ethereum hardfork
A hardfork is technically an update that occurs to the crypto in question, as it is in fact a computer software anyway, if we can bring this image to simplify understanding what a hardfork is and why does it even exist.
Now, as any other software we use on our PCs, usually updates impose themselves when the necessity demands, meaning, when security issues float to the surface.
Here, with the Ethereum scenario, a flaw in The DAO project’s smart contract software, and subsequent theft of $50 million worth of ether in 2016, proved the need for a software update to fill that security gap.
The update resulted in Ethereum being split into two separate blockchains – the new separate version became Ethereum (ETH), while the original continued as Ethereum Classic, and that was Ether’s first hardfork.
What is the Smart Contract Ethereum innovated?
Although the hype of smart contracts has grown with the growth of blockchain technology, the term smart contract actually appeared more than 20 years ago. Computer scientist and cryptographer Nick Szabo wrote an article on smart contracts in 1995.
The concepts provided by Szabo are exactly the same as those currently offered by smart contracts, including the idea of implementing and storing smart contracts in distributed ledgers.
A smart contract is an application that runs on an Ethereum virtual machine. This is a distributed “world computer” with computing power provided by all Ethereum nodes. Any node that provides computing power will be paid an Ether digital currency.
More specifically, a smart contract is a piece of software that stores rules for negotiating terms of an agreement, automatically verifies fulfillment, and then enforces agreed terms.
They are named smart contracts because you can write “contracts” that are automatically executed when they meet the requirements.
How smart contracts work
A smart contract is a program, or more simply a code. The code behind a smart contract contains specific terms that are executed when triggered by a specific contract event.
Let’s look at an example of how a smart contract works, if Alice rents a house in Los Angeles, and Bob in New York wants to rent a house to travel there.
An example on using Smart Contracts:
As an example on how a smart contract works, we can say that if Cynthia rents a house in Los Angeles, and James in New York wants to rent a house to travel there.
Usually, Cynthia and James will use some platforms that connect the owner and the guest to agree to rent. This platform will act as a third party and will be responsible for complying with the agreed terms. However, both Cynthia and James will be charged by the platform. In addition, if either of them fails to meet its commitments, the dispute resolution may be time consuming and requires detailed scrutiny.
If Cynthia and James instead use smart contracts to reach an agreement, the smart contract will perform logical operations based on its algorithm and guarantee that all agreed terms and conditions are met. Smart contracts are immutable, this is the DNA of smart contracts, it will not make Alice or Bob cheat.
Therefore, the following terms and events can be listed in the smart contract between Cynthia and James:
- 1. Created a separate storage area, both Cynthia and James can be assigned, but cannot be changed.
- 2. James saves money in the store.
- 3. Cynthia puts her apartment address and code in the store.
- 4. Cynthia receives the payment confirmation and James receives the address and apartment code.
- 5. If James comes to Los Angeles and Cynthia provides the correct address and code, then Cynthia will receive the payment.
- 6. If it seems that the address or code Cynthia provided is wrong, James will withdraw his money.
- 7. If James does not come to Los Angeles, Cynthia will get liquidated damages and James will get the rest of the payment.
- 8. At the end of the agreement, the smart contract is considered fulfilled and still stored in the blockchain network.
Once Cynthia generates a smart contract that can rent her apartment to James and work transparently for her, she might consider creating a general agreement for all other tenants so she does not have to create a new guest for each new guest. A new smart contract.
Under this general agreement, anyone on the blockchain network can rent Cynthia’s apartment according to the above algorithm: potential customers transfer rent, get the address and apartment code, and then if everything runs according to the contract terms of both, Cynthia will accept to pay.
Why to trust smart contracts?
Smart contracts are designed and implemented in the blockchain, so they inherit some of the attributes of the blockchain:
- They are immutable, which means that smart contracts never change, no one can tamper with or violate contracts.
- They are distributed, which means that the outcome of the contract needs to be verified by everyone on the network, just like any transaction on the blockchain. Distributed makes it impossible for an attacker to force control over the release of funds because all other participants will detect such attempts and mark them as invalid.
Smart contracts can be used for many different things. Developers can create smart contracts that provide functionality for other smart contracts, similar to how software libraries work. Alternatively, smart contracts can simply be used as applications to store information on the Ethereum blockchain.
In order to actually execute the smart contract code, someone must send enough Ethernet tokens as a transaction fee – depending on the computing resources required. This comes at a price for the Ethereum node to participate and provide computing power.
What will Ethereum bring next?
It is the Ethereum 2.0 that the community is waiting for of course, which is expected to arrive in 2020, as the crypto programmer Vitalik Buterin, who stressed out it would not be delayed beyond the specified date, as AtoZ Markets reported.
One of the first features it will introduce, as we learned, is the “proof-of-stake”. Staking is a function that will serve the same as mining currently does in Ethereum 1.0, and it will give Ethereum coinholders a way to earn a return on their investment.
- The basic advantages Staking will come up with over mining are:
- It’s energy-efficient, helping to reduce Ethereum’s inflation rates.
- Staking is considered more secure and decentralized than mining.
On the fourth birthday of the Ethereum cryptocurrency, we cannot help but wishing the project all the best, toward more success and innovation we expect and are thrilled to see.
From the AtoZ Markets’ family, we say to Ethereum and the crypto community: many happy returns!