What is Ethereum?
A brief history of the project and its future.
Cruxpool is an Ethereum mining pool that first only proposed ETH as part of our coin portfolio, and as we are about to propose new coins in the system, we thought it would be a nice idea to go back to the basics of this project!
1. From Bitcoin to Ethereum
We all know that Ethereum is a project whose birth was closely tied to the very existence of the Bitcoin blockchain. It indeed borrowed to Bitcoin the concepts of decentralization, distributed consensus and cryptographic proof-of-work. While Bitcoin still is the #1 top-of-mind cryptocurrency for miners and traders, the Ethereum project is considered as an evolution of this technology. For the analogy, Bitcoin could be seen as “the floppy disk of blockchain, while Ethereum is the CD”.
Vitalik Buterin, its founder-inventor, is the one who produced the concept and the white paper that goes with it. The idea behind Ethereum was to be more than just a cryptocurrency, hence the introduction of the concept of smart contracts and decentralized apps (Dapps). The technology was already there thanks to the Bitcoin environment. Buterin used that and enhanced its capabilities to an all-new level. Vitalik Buterin wanted his blockchain to be a multi-tasking tool with functions only limited by human creativity, and taking as an example the revolution that smartphones were, he said:
“So [what I did is] basically taking that same kind of [smartphone] idea of increasing the power of the system by making it more general purpose and applying it to blockchains.”
A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract.
If you want examples of smart contracts, how it works and what purpose could they serve, I suggest you take a look at our article “A brave new blockchain world” and see for yourself.
2. How does Ethereum work?
Ethereum network can be viewed as a programmable blockchain on which you can create and run applications, smart contracts, create tokens, make transactions etc. The structure of that blockchain is, as we said earlier, very similar to bitcoin’s. They share the same idea that every transaction is available and public and stored in a great ledger for everyone to see.
It would be pointless to rewrite what some other already wrote to perfection, so here’s a list of great articles that will help you understand what it is. Some of these are easy to grasp and some are a bit more technical.
What is the Blockchain: https://www.investopedia.com/terms/b/blockchain.asp
What is Ethereum:
3. Ethereum and Ethereum Classic
For a time, there was only Ethereum and its blockchain kept stacking. As we wrote earlier, the Ethereum network allows applications to run and execute certain types of contracts when they meet specific conditions (on a “IF/THEN” basis). All of this changed when a decentralized organization that ran on Ethereum got hacked: the DAO (Decentralized Autonomous Organization).
In a nutshell, the DAO intended to provide a voting system to decide which Dapps would be founded. Users had to buy DAO token by using Ether. Holders of this token were voters and gave the approval required for funding. This project raised more than $150 millions in Ether in just a month. Problem was this project was not secure enough, and this led to a massive hack (about 30% of the initial funds disappeared).
This caused a massive backlash within the Ethereum community, divisions of opinions and instability. This required to rework Ethereum, imagining a fork somewhere in the original chain in order to create a new viable and more secure chain. More than just that, it was a solution to get back the stolen $50 million. This division is what we call a “fork”. The Ethereum branch became the new chain, and Ethereum Classic the “original” and “immutable” blockchain of the Ethereum. Note that the vast majority of the community voted for and followed the Ethereum fork instead of the Ethereum Classic (ETC)
4. Moving forward with Ethereum.
After these events, another phase began and introduced several updates and fixes, but also major changes such as:
Tangerine Whistle: In order to make DoS attacks on low gas much more expensive and therefore less appealing to hackers (reminder: gas is the unit of cost required to operate transactions on the network). This resulted in an increased gas price for some operations and make them more adequate compared to the computational complexity.
Spurious Dragon: Made to counter another type of attack. At that time, it was possible to create an account by transferring 0 ETH to an address. These accounts, although empty were still stored on the blockchain. Spurious Dragon intend to disable and remove empty accounts that were present on the blockchain in order to prevent any multi-account attacks using that breach.
Metropolis: Byzantium and Constantinople
At this stage, Ethereum operated with a proof-of-work concept and the idea was to switch to a Proof-of-Stake concept, step by step. To prepare for the transition, they began with a set of updates. Without going too much into details, there was for instance an update made to delay what we call the difficulty bomb. Within Ethereum, mining is set to naturally become harder and harder as the blockchain progresses, this is what we call the difficulty bomb, a peak in the complexity. Also, in order to optimize gas costs again, Ethereum founders planned more modifications and fixes.
5. Ethereum 2.0 aka Serenity.
To address the problems of the actual network, the last phase of Ethereum development include major changes in the code. These changes will be rolled out gradually within the next months and years. Ethereum should become more efficient, faster, more secure and scalable. It will for instance allow the platform to handle thousands of transactions per second. Here are some of these evolutions:
From Proof-of-Work to Proof-of-Stake
On the current form of Ethereum, validators of transactions are called miners. They lend their computing power to produced shares (link article) in the hope that it will become a block to encapsulate transactions and add it to the blockchain.
The concept that lies behind PoS is that the validation model virtually reproduces the mining process not according to the computing power, but based on the stacking of tokens. Validator that creates a block will have to prove he is indeed the owner of the stacked tokens. The more tokens he possesses, the higher the chance that he becomes a validator, and eventually get the reward.
The switch from PoW to PoS will not be abrupt, and thus it will require a smooth transition. To this end, the Beacon chain will be introduced in parallel to the current PoW chain.
Transition to beacon chain: “The Beacon Chain is a brand-new, Proof-of-Stake blockchain. It is the spine that supports the whole of the new Ethereum 2.0 system”. In brief, the key idea behind the beacon chain is to run and manage the PoS protocol on the network.
Beacon chain explained: https://www.mycryptopedia.com/ethereum-beacon-chain-explained/
The concept of Sharding
This concept basically means we split a large database into separate parts, called “shards”. This will address the problem of scalability by speeding up transactions and avoid apps from slowing down the network. As a result, validators will have to handle and store a much smaller amount of data and will require less power. This will undoubtedly slow down the need to upgrade often their hardware (which represents a significant cost, with major influence in profitability calculations).
This is a view of how Ethereum Blockchain will look like after the next updates.
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