Over the last few years, developers have begun using Bitcoin’s underlying technology – the Blockchain – for creative new applications. Ethereum is a next-generation platform that allows anyone – both developers and consumers – to easily take advantage of decentralized networks and realise the benefits of blockchain technology.
Ethereum incorporates many features and technologies that will be familiar to users of Bitcoin, while also introducing many modifications and innovations of its own.
What is Decentralized Networks?
Decentralized networks redistribute functions and powers away from a central server, enabling peer-to-peer communication.
- No central point of failure
- Highly reliable
BitTorrent, used for file sharing, is an example of a decentralized network.
Whereas the Bitcoin blockchain was purely a list of transactions, Ethereum’s basic unit is the account. The Ethereum blockchain tracks the state of every account, and all state transitions on the Ethereum blockchain are transfers of value and information between accounts. There are two types of accounts:
- Externally Owned Accounts (EOAs), which are controlled by private keys
- Contract Accounts, which are controlled by their contract code and can only be “activated” by an EOA
For most users, the basic difference between these is that human users control EOAs – because they can control the private keys which give control over an EOA. Contract accounts, on the other hand, are governed by their internal code. If they are “controlled” by a human user, it is because they are programmed to be controlled by an EOA with a certain address, which is in turn controlled by whoever holds the private keys that control that EOA. The popular term “smart contracts” refers to code in a Contract Account – programs that execute when a transaction is sent to that account. Users can create new contracts by deploying code to the blockchain.
Like in Bitcoin, users must pay small transaction fees to the network. This protects the Ethereum blockchain from frivolous or malicious computational tasks, like DDoS attacks or infinite loops. The sender of a transaction must pay for each step of the “program” they activated, including computation and memory storage. These fees are paid in amounts of Ethereum’s native value-token, ether.
Bitcoin uses Blockchain technology to record and verify transactions without the need for a central bank.
Mist will be Ethereum’s end user interface to bring blockchain technologies to non-technical users.
The Mist browser is the tool of choice to browse and use Ðapps.
It will include a catalog for decentralized applications and an assortment of other tools.
Mist will work similar to app stores and browsers that consumers are already familiar with.
Ether is the native token of Ethereum, and serves two key purposes. First, by requiring applications to pay ether for every operation they perform, broken or malicious programs are kept from running out of control. Second, ether is given as a reward to those who contribute their resources to the decentralized network.
Ether: The “fuel” that runs on the Ethereum network.
What will Ethereum be used for?
Decentralizing Existing Services
Services that are traditionally centralized can be decentralized using Ethereum. This will lead to reduced costs and fees by connecting individuals directly and removing 3rd parties.
Imagine a service like Uber or eBay without a company in the middle collecting fees!
What is being built on Ethereum?
There is a rapidly growing ecosystem being developed.
Here is a few notable projects:
- Maker: Autonomous bank & market maker.
- Slock.it Rent, sell or share anything without a middleman.
- Uport: Cryptographic digital identity solution: relocates trust to peers.
- Augur: Decentralized prediction market platform.
Bringing Science Fiction to Life
Using Ethereum, IBM and Samsung worked on a proof of concept where
a washing machine could:
- Order its own detergent when it runs out
- Call its own repairman when it breaks down
- Do the laundry when electricity is cheapest
Funding The Vision
On July 22, 2014, the non-profit Ethereum foundation launched a public crowdsale of Ether. The funds collected have helped carry out the development of the project. The sale lasted for 42 days and raised 31.591 BTC, or $18.439.086, making it (at the time) the largest completed crowdfunded project of all time.
- 42 days
- 31 thousand BTC collected
- $18 million equivalent
- 5th largest crowdfunded project in the history (current)
- 9 thousand participants
ICO – Initial Coin Offerings
Initial Coin Offerings, also known as ICOs is the cryptocurrency version of crowdfunding and are a part of the crypto world that is most likely here to stay. It’s one of the easiest and most efficient methods for companies and individuals to fund their projects and for regular users to invest in projects they see value in. An Initial Coin Offering is an event that usually extends over a period of one week or more and in which everyone is allowed to purchase newly issued tokens in exchange for established cryptocurrencies like Bitcoin (BTC) or Ether (ETH).
In an ICO, there can be a specific goal or limit for project funding, meaning that every token will have a pre-designated price that will not change during the Initial Coin Offering period, which also means that the token supply is static.
It is also possible to have a static supply with a dynamic funding goal, in which the distribution of tokens will be made according to the funds received, meaning that the more funds the project receives the higher the token price will be.
You can also have a dynamic token supply that will be determined by a number of funds that are received, meaning that the price for each token is static (e.g 1 ETH – 1 token) but every time one Ether is sent a new token is created. A limit can be set in terms of goals or time frame.
Who’s Vitalik Buterin?
Vitalik Buterin is the creator of Ethereum. He was born in Kolomna, Russia and lived in the area until the age of six when his parents immigrated to Canada in search of better employment opportunities.
While in grade three of elementary school in Canada, Buterin was placed into a class for gifted children and started to understand that he was drawn to math, programming, and economics. He also had the ability to add three digit numbers in his head at twice the speed of his peers.
Buterin learned about Bitcoin from his father at 17. In 2012, he obtained a Bronze Medal in the International Olympiad in Informatics. In 2013 he visited developers in other countries who shared his enthusiasm for code. He returned to Toronto later that year and published a white paper proposing Ethereum. He attended the University of Waterloo but dropped out in 2014, when he received the Thiel Fellowship in the amount of $100,000, and went to work on Ethereum full-time.
Buterin currently resides in Singapore.