Inside ETHEREUM (ETH), a second-generation blockchain and the first smart contract platform
Overview, founders & team, tech, use case, governance, roadmap, current sitrep, supporters, competition, conclusion.
We seldom have had an opportunity to witness quantum leaps in technological and societal advancements in such rapid succession throughout history.
Just four years after the release of Bitcoin, Vitalic Buterin, a programmer and Bitcoin Magazine’s co-founder, published a whitepaper, describing a new generation of blockchain that enables the creation of decentralized applications users can interact with.
Together with:
> Anthony Di Iorio, who initially funded the project,
> Charles Hoskinson, tech entrepreneur,
> Mihai Alisie, co-founder of Bitcoin Magazine who oversaw legal framework setting and business infrastructure development vital for the success of Ethereum,
> Programmers Amit Chetrit, Gavin Wood, and Jeffrey Wilcke, and the eighth founder,
> Joseph Lubin, software engineer, serial entrepreneur, and a major financial supporter in the early stage,
Vitalic unleashed the full power of blockchain, effectively creating an ecosystem that expands beyond digital currencies and stores of values.
Ethereum brought:
· An upgraded version of smart contracts that allow input of more complex information and conditions; thus, making it possible to embed both physical and virtual assets into a digital contract (e.g., real estate, financial instruments, digital art, music, etc.).
· A platform where those smart contracts can be seamlessly executed,
· And probably the biggest improvement — the hosting of third-party’s tokens[1] or other cryptocurrencies along with the native digital currency, Ether.
To date, close to 300,000 ERC20 tokens have been created with almost fifty of them ranked among the top 100 cryptocurrencies.
Trading at $2,691,02 (August 5, 2021.), Ethereum is the second-largest cryptocurrency by market capitalization ($314,787,396,153) with a circulating supply of 116,976,938 ETH.
Ethereum is also the most actively used blockchain.
But unlike Bitcoin that is predominantly utilized as a digital currency and, recently, as a store of value and tradable asset, Ethereum, besides sharing the first two features with BTC, also enables a host of additional applications:
· ERC20 (Ethereum Request for Comment 20) standard that implements tokens’ APIs within smart contracts; hence, allowing anyone to, for instance, create a new cryptocurrency and/or a crypto startup and seek funds through initial coin/token offering.
· ERC721-compliant non-fungible tokens (NFTs) that are undividable and unique; mostly used to represent digital items such as art, music, and sports memorabilia.
On March 11, 2021, a self-taught digital artist, Mike Winkelmann, also known as Beeple, sold a digital collage “EVERYDAYS: THE FIRST 5000 DAYS” at the online Christie’s auction for a staggering $69.3 million; a bid higher than any offered for Frida Kahlo’s, Dalí’s or Gauguin’s artwork.
· Decentralized finance (DeFi) that offers traditional financial instruments without companies’ and governments’ control through decentralized architecture.
· Enterprise software solutions or Ethereum-based networks that are independent of the public chain.
IBM, Microsoft, JP Morgan Chase, Barclays, Visa, Amazon, and four other global companies are currently developing and testing Ethereum’s enterprise software solutions.
· Permissioned ledgers that differ from public and private blockchains since they include an additional access control layer that allows actions to be executed by certain participants exclusively.
Another significant difference between Bitcoin and Ethereum is that there is not a fixed total supply cap of Ether, Ethereum’s native cryptocurrency.
And while social governance is largely decentralized, with a minor advantage given to those users who are more actively involved in the network, development is governed through EIP or Ethereum Improvement Proposal established in 2015.
It is, effectively a document where a certain upgrade or a new feature is proposed to the Ethereum community that becomes executable after a consensus has been reached.
Since then, Ethereum has gone through 12 major upgrades, the most significant one being the hard fork in 2016 that split the blockchain on Ethereum (a new version of the blockchain) and Ethereum Classic (ETC, the legacy version). It was the consequence of a major exploit when an unknown hacker stole approx. $50 million in DAO[2] tokens.
The new version has quickly taken roots and already in 2017, a group of thirty Fortune 500 companies, blockchain startups, and research groups formed the Enterprise Ethereum Alliance[3]. By July that same year, the alliance had over 150 members.
Since March 2021, Visa Inc. has begun settling transactions in stablecoins using Ethereum. A month later, UBS, JP Morgan Chase, and Mastercard announced a $65 million investment in ConsenSys, a software development company that is building Ethereum-based infrastructure.
All these developments and massive enterprise adoption are making it extremely hard for competing blockchains, namely Binance Smart Chain, NEO, EOS, Solana, Polkadot, and Cardano to catch up; although BSC is currently on top of the competitors’ list after seizing 15% of the Ethereum’s direct market namely in the DeFi segment.
However, the thing that plays in Ethereum’s favor is the sheer number of the competing blockchains that, consequently, dilutes the user base, spreading them across dozens of ecosystems that are, at least partially, mimicking Ethereum’s goals and mission.
But the most significant upgrade that will come with Ethereum 2.0 (a.k.a. Serenity) and make the lives of competitors even harder is the transition to the proof-of-stake consensus that will, ultimately, enable the network to process tens of thousands of transactions through sharding[4] while making it too expensive for any kind of an exploit[5].
The process is currently underway, and the so-called, Phase Zero has already been rolled out.
Launched in December 2020, Phase 0 created the Beacon Chain, a proof-of-stake blockchain that will serve as a central coordinator and consensus hub between shard chains, effectively connecting them to the Beacon Chain. Phase 1 will create those shards. Ultimately, Phase 2 will implement state execution in the chains where Ethereum 1.0 becomes a shard chain in Ethereum 2.0.
Conclusion
> Transition to the proof-of-stake consensus could negatively affect the Ether’s market price in the short term because the current proof-of-work consensus creates the perception of exclusivity like that of Bitcoin.
> However, the throughput of tens of thousands of transactions per second may easily counter that consequence since it will attract new startups and thus, high-cap investors.
> Even if Cardano and other close competitors manage to complete the development of their respective blockchains, it is reasonable to believe that it won’t be hard for Ethereum’s development community to create a global cross-chain solution and prevent drop-offs.
> Ether is an essential cryptocurrency of the global blockchain industry and Ethereum is the network that breathes life into thousands of blockchains built on top of it.
[1] There are five main types of blockchain tokens: platform, security, transactional, utility, and governance tokens. Platform tokens handle DApps; security tokens prove the ownership of an asset; transactional tokens are units of account used in market exchange; utility tokens enable access to specific on-chain protocols, and governance tokens are utilized in voting systems.
[2] The DAO (decentralized autonomous organization)- a stateless cryptocurrency software venture capital fund launched in April 2016 that raised a record of $120 million through crowdsale in May just to default that same year as a consequence of the attack.
[3] Some of the most prominent names of the alliance are ConsenSys, CME Group, Cornell University’s research group, Toyota Research Institute, Samsung SDS, Microsoft, Intel, J. P. Morgan, Deloitte, Banco Santander, National Bank of Canada, Visa, MasterCard, Cisco Systems, Sberbank, and Scotiabank.
[4] Sharding is a partitioning technique that splits a blockchain network into the so-called, shards or small partitions of the network; thus, making the blockchain more scalable through reduction of the network’s latency.
[5] Since shard chains will share a common consensus proof-of-stake blockchain, Beacon Chain, any malicious attempt toward any single chain would require an attacker to alter the common consensus. Such an attempt would cost far more than the possible gain from an attack.
