The Rise of Ethereum: History and Future
Since the start of 2020, Ethereum, the second-largest cryptocurrency by market capitalization (ETH), has risen by more than 70%.
While its recent growth could have been expected as its price movements are strongly correlated to those of Bitcoin, its strength also comes from its underlying vision and technology, as well as from the way it has been at the cutting edge of innovation.
To reach this point, it has been a long road for Ethereum with much more coming ahead for the project.
Here, we’ll take a close look at the history of the blockchain project, while exploring the most critical future upgrades on the Ethereum roadmap.
What is Ethereum and how is it different from Bitcoin?
While Bitcoin and Ethereum are popular among crypto users, some may lose sight of the fact that the purpose of the two blockchain projects is different.
Created in the wake of the 2008 financial crisis by the mysterious Satoshi Nakamoto, the goal of Bitcoin is to operate a decentralized, peer-to-peer (P2P) electronic payment system that allows people to take full control over their finances (as opposed to the traditional finance industry).
Bitcoin is the name for both the blockchain network and the native cryptocurrency (BTC) that fuels the ecosystem. While Bitcoin’s main purpose is to facilitate decentralized payments between users, it is also considered by many as a digital store-of-value.
Alternatively, — despite the fact that it has its own native cryptocurrency, Ether (ETH) –, Ethereum is not a blockchain platform that is exclusively used for payments.
According to Ethereum co-founder Vitalik Buterin, blockchain technology has more utility than being only a payment service provider. Based on this statement, Buterin created Ethereum with the goal to build decentralized applications (DApps) on top of the blockchain.
Ethereum can run DApps via the use of smart contracts. Simply put, a smart contract is a computer code that executes itself automatically after the conditions of a contract between two parties have been met.
In summary, Bitcoin features a decentralized payment system, while Ethereum is a blockchain platform that allows users to create and run DApps and smart contracts on top of it.
From concept to a successful token sale
Ethereum’s history starts with co-founder Vitalik Buterin’s rejected proposal to create a new scripting language for Bitcoin that would allow applications to be developed on the BTC blockchain.
In late 2013, following his unsuccessful proposal, Buterin proposed the development of Ethereum, publishing the project’s official whitepaper in November 2013.
In January 2014, the founders announced Ethereum and created the non-profit company Ethereum Foundation later that year to support the development of the blockchain platform and its ecosystem.
Since the Ethereum team needed funds to develop the platform, they decided to hold a crowdsale shortly after the Foundation was formed.
Taking place between July and August 2014, the Ethereum team raised 31,529 BTC (about $18 million at the time) that allowed the project’s development to start.
Testnet, launch, and “stable version”
Named Olympic, Ethereum’s open testnet was launched in May 2015 for developers to explore, test, and find flaws in the network.
To make things easier for developers, the Ethereum team has divided the development process into four stages: Frontier, Homestead, Metropolis, and Serenity.
In late July 2015, Ethereum mined its genesis block and launched Frontier, its mainnet. While Frontier featured an early build of the platform, the 1.0 version allowed users to experiment with the blockchain, mine ETH, and build DApps.
In March 2016, as the first planned hard fork (a major network upgrade that is not compatible with previous versions of the chain), Ethereum advanced to the Homestead stage.
As the first stable release, Homestead introduced numerous protocol improvements and features that laid the foundations for future network upgrades.
The DAO hack and the ETC split
It’s hard to explore Ethereum’s history without mentioning the DAO incident. Following a token sale that raised $150 million for the Decentralized Autonomous Organization, a hacker exploited a flaw in the DAO’s code to steal about $70 million.
To refund the stolen money, the majority of the Ethereum community decided to initiate a hard fork.
As a result of the DAO hard fork, the Ethereum blockchain was split into two: the ones supporting the fork (Ethereum) and others who opposed it (Ethereum Classic).
While Ethereum supporters were fine with the solution, the Ethereum Classic group argued that the blockchain is supposed to be immutable, and the community shouldn’t have modified the chain via a hard fork to reclaim the lost funds.
Stage three: Metropolis
Metropolis is Ethereum’s third stage that consists of a series of hard forks (Byzantium, Constantinople, Istanbul, Muir Glacier) to initiate the transition of the blockchain network’s consensus model from Proof-of-Work (PoW) to Proof-of-Stake (PoS).
Currently, Ethereum is using the PoW algorithm, which requires tens of thousands of cryptocurrency mining hardware devices to be running continuously in order to maintain and secure the network.
Due to the energy-intensity of PoW, Ethereum developers decided to transition to the more efficient PoS algorithm. Furthermore, by requiring validators to stake some of their ETH, the network will be less prone to one of the most dangerous threats to blockchain systems, the 51% attack.
Important upgrades include the introduction of zkSNARKs — a protocol used by the cryptocurrency Zcash to allow for private transactions in the ecosystem –, increasing PoW mining difficulty (to encourage the transition to PoS), fee adjustments, and smart contract upgrades.
The road to Ethereum 2.0 (Serenity)
Starting between late 2019 and early 2020, Ethereum 2.0 (also called Serenity), the final stage in the project’s development, will focus on fixing the underlying issues of the blockchain platform.
Currently, one of the most burning issues of Ethereum is limited scalability. Compared to payment giants like Visa and Mastercard that can process around 60,000 transactions per second (tx/s), Ethereum only has the capabilities to process 15 tx/s.
As a possible solution, Ethereum developers will create a new blockchain (Ethereum 2.0) alongside the current one to introduce new upgrades.
One of the most important upgrades is sharding, a process that divides data processing between several nodes, allowing parallel transactions, information processing, and storing, a new cryptocurrency (ETH2).
Ethereum 2.0 will also feature the implementation of the PoS consensus algorithm and a new virtual machine (eWASM) that allows developers to code in multiple languages (other than Solidity).
While the fate of the current blockchain (Ethereum 1.0) is still undecided, developers expect that Serenity will boost the security, efficiency, and scalability of the network.
It’s been long road, but there’s still much ahead
Ethereum developers have been consistently upgrading the blockchain network’s ecosystem, expecting to proceed to the final stage this year.
As the leading platform for smart contracts and decentralized applications, Ethereum plays a crucial role in the cryptocurrency industry as it encourages projects to build new, innovative solutions on top of the ETH blockchain.
Since Ethereum allows applications to be built on top of its blockchain, it has also become a hub for Decentralized Finance (DeFi), a movement, where traditional financial products are transformed into trustless and transparent systems and platforms that operate without any third-parties or intermediaries.
Originally published at https://academy.aax.com on February 7, 2020.