Ethereum

Origin

Ethereum was initially described in a white paper by Vitalik Buterin, a programmer involved with Bitcoin, in late 2013 with a goal of building decentralized applications. More specifically, Buterin "had argued to the Bitcoin core developers that the platform needed a more robust scripting language for developing applications." Failing to gain agreement, he proposed development of a new platform with a more general scripting language. Buterin believes that many applications could benefit from Bitcoin-like software.

The Ethereum software project was initially developed in early 2014 by a Swiss company, Ethereum Switzerland GmbH (EthSuisse). Subsequently, a Swiss non-profit foundation, the Ethereum Foundation (Stiftung Ethereum) was set up as well. Development was funded by an online public crowdsale during July–August 2014, with the participants buying the Ethereum value token (ether) with another digital currency, bitcoin. While there was early praise for the technical innovations of Ethereum, questions were also raised about its security and scalability.

Launch

Ethereum's live blockchain was launched on 30 July 2015. The initial version of Ethereum—called "Frontier"—uses a proof of work consensus algorithm, although a later version is expected to replace that with a proof of stake algorithm.

Ethereum versions

Since the initial version, the Ethereum network has accomplished several so-called hard forks, important changes because they are backwards-incompatible.

The first hard fork introduced a difficulty bomb to incentivize an upgrade to proof of stake when this system will be ready.

The second hard fork was made in Spring 2016 and marked the first Stable release: Homestead.

In June 2016, The DAO, a platform for the autonomous governance of investment capital, was found to contain an unexpected code path which would allow any sophisticated user to withdraw an arbitrary amount of funds from the DAO. This was exploited by an unknown party on the 16th of June, who managed to move about one third of the Ether held then by the DAO (at the time valued at 50 million USD) into a clone of the DAO, a "ChildDAO" whose control was held by only this party. As a consequence of the way the DAO was programmed, these moved funds would remain unavailable for withdrawal for about a month.

The Ethereum community debated how and whether to reclaim the ether, and whether to shut down The DAO, as the decentralised nature of The DAO and of Ethereum meant a lack of a central authority that could take quick action, instead requiring community consensus. After a few weeks' discussion, on 20 July 2016 Ethereum hard-forked (a backward-incompatible change) creating a new fork to reverse the hack and return The DAO funds, with the original chain adopting the name Ethereum Classic. This was the first time any mainstream blockchain was forked to reverse a transaction in order to make reparations to investors in a failed enterprise.

After The DAO fork, Ethereum and Ethereum Classic have both subsequently forked multiple times to deal with other attacks.

Towards the end of November 2016, a fourth hard fork took place. This hard fork successfully de-bloated the blockchain and attempted to prevent further spam attacks by hackers.

Ether

The value token of the Ethereum blockchain is called ether. It is listed under the diminutive ETH and traded on cryptocurrency exchanges like any other cryptocurrency; it is also used to pay for transaction fees and computational services on the Ethereum network.

Tokens can be volatile per circumstances, such as ether's plunge from $21.50 to $8 when The DAO was hacked on June 17, 2016.

Smart contracts

smart contracts are applications with a state stored in the blockchain. They can facilitate, verify, or enforce the negotiation or performance of a contract. Ethereum contracts can be implemented in various Turing complete scripting languages. The Ethereum system has been described by the New York Times as "a single shared computer that is run by the network of users and on which resources are parceled out and paid for by Ether."

Contracts on the public blockchain

As the contracts can be public, it opens up the possibility to prove functionality, e.g. self-contained provably fair casinos.

One issue related to using smart contracts on a public blockchain is that bugs, including security holes, are visible to all but cannot be fixed quickly. One example of this is the 17 June 2016 attack on The DAO, which could not be quickly stopped or reversed.

There is ongoing research on how to use formal verification to express and prove non-trivial properties. A Microsoft Research report noted that writing solid smart contracts can be extremely difficult in practice, using The DAO hack to illustrate this problem. The report discussed tools that Microsoft had developed for verifying contracts, and noted that a large-scale analysis of published contracts is likely to uncover widespread vulnerabilities. The report also stated that it is possible to verify the equivalence of a Solidity program and the EVM code.

Programming languages

The Ethereum Virtual Machine (EVM) works on a protocol defined in the Ethereum Yellow Paper by Gavin Wood. Smart contracts can be Written in Solidity, Serpent and Viper (derivatives of Python), and LLL. The EVM also runs on Mutan (deprecated). Smart contracts written in various languages are subsequently compiled into bytecode and deployed to run on the Ethereum blockchain.

Performance

In Ethereum all smart contracts are stored publicly on every node of the blockchain, which has trade-offs. The downside is that performance issues arise in that every node is calculating all the smart contracts in real time, resulting in slower speeds. Ethereum engineers have been working on sharding the calculations, but no solution had been detailed by early 2016. As of January 2016, the Ethereum protocol could process 25 transactions per second. In September 2016, Buterin presented proposals to increase scalability.

Uses

The Ethereum platform has multiple proposed uses. Bloomberg describes it as "shared software that can be used by all but is tamperproof." Ethereum is used as a platform for decentralized applications, decentralized autonomous organizations and smart contracts, with "dozens of functioning applications built" on it by March 2016 according to the New York Times. The intended scope of applications include projects related to finance, the internet-of-things, farm-to-table produce, electricity sourcing and pricing, and sports betting. Decentralized autonomous organizations may enable a wide range of possible business models that were previously impossible or too costly to run.

Adoption

The New York Times noted in March 2016 that Ethereum adoption was still at an early stage and that Ethereum could encounter technical and legal problems that would slow its growth. Some Bitcoin advocates say that Ethereum may "face more security problems than Bitcoin because of the greater complexity of the software." The article also said, "The system is complicated enough that even people who know it well have trouble describing it in plain English".

Microsoft announced a partnership with ConsenSys, a blockchain startup focused on Ethereum technology. Customers of popular cloud-based business service Microsoft Azure have access to third-party tools that "allow them to experience and build with cloud-based blockchain applications, from securities trading to cross-border payments".

Market capitalization

In May 2016, the market capitalization of the token ether was more than US$1 billion and Vox noted that the relatively new digital currency was challenging bitcoin by offering a range of services that are not possible using bitcoin.

The all-time high was reached on 16 June 2016, with US$1.6B of market capitalization. The capitalization then dropped following the DAO hack and a string of spam attacks, reaching a low of US$600M (US$0.6B) on 6 December 2016 before edging back closer to US$1B after corrective measures were taken.

Applications

This list is not exhaustive and some elements can be outdated.

Enterprise software

Ethereum is being tested by enterprise software companies for various applications. Interested parties include Microsoft, IBM, JPMorgan Chase, Deloitte, R3, Innovate UK (cross-border payments prototype)

Wallets

Permissioned ledgers

Ethereum is used and being investigated as a permissioned blockchain in various projects.

Ethereum Classic

Ethereum Classic is a separate blockchain that came into existence as a result of DAO hard-fork, consolidating members of the Ethereum community who rejected this fork on philosophical grounds. People who hold Ether from before the hard-fork have a possible balance of ETH in addition to an equal amount of Classic Ether (ETC). Exchanges that hold customer funds are also in control of the ETC in proportional quantity to their ETH holdings prior to the hard-fork. Users at most ETH exchanges are demanding their ETC be made available to them. As of 1 February 2017, both Ethers are actively traded.

Ethereum Classic community does not reject all hard forks, only the ones that supposedly violate blockchain principles. ETC underwent a technical hard fork to adjust the internal pricing for running various op codes on the Ethereum Virtual Machine (EVM) on 25 October 2016, similar to the hard fork the ETH chain did a week earlier. The goal was to more rationally price various compute-intensive and external reference commands to reduce the incentive for spammers who had conducted a month-long distributed denial-of-service attack on the ETC network. Another hard fork is planned for late 2017 to change unlimited token emission to a fixed-cap monetary policy similar to Bitcoin.

Classic Ether

Ethereum Classic blockchain tokens are called classic ethers. They are traded on most cryptocurrency exchanges under ticker ETC, and use currency symbol ⟠. Their function in the system is to pay for transaction and computational services on the Ethereum Classic network.