An article that will make you understand how the main alternative to Bitcoin works and the purposes for which it was created
Ethereum was conceived in 2013 and implemented in 2014 by Vitalik Buterin. There is a first and fundamental difference between Ethereum and the Bitcoin network: this was designed only for currency transactions in Bitcoin while Ethereum is a “do-it-yourself” platform for decentralized applications (or Dapps) that use “Smart Contracts”.
Ether is the real currency of the Ethereum network and is used to perform Dapps.
Bitcoin and the Blockchain network
Before getting into the merits of Ethereum, the foundations on which Bitcoin is based are useful, as many of the technological choices of the implementation of Ethereum took their cue from the first and most famous crypro currency.
Let’s remember how before the birth of Bitcoin, the only way to use digital money was to make use of an intermediary, for example a bank or Paypal. However, the whole thing was based on a currency issued and controlled by a government institution.
Everyone knows that Bitcoin is a currency whose transactions are stored on a decentralized register, this has changed the view of many by allowing individuals to carry out currency transactions without the need (or rather the weight) of an intermediary. Every Bitcoin transaction is validated and confirmed by the entire Bitcoin network. There is no single point of failure, so the system is practically impossible to shut down, hack or control.
The Blockchain is the decentralized register on which currency transactions are stored in Bitcoin, but the whole world has been wondering for years what other functions that are currently centralized ie “controlled” could do without managers and operate on a decentralized system.
- Political voting is currently controlled by a central authority that accounts for and validates each individual vote
- Public land registers represent a centralized registration authority for real estate
- Social networks like Facebook rely on centralized servers that control all the data uploaded to them
The question everyone is asking is therefore: why not use Bitcoin technology, more commonly known as Blockchain, to decentralize other registers, such as those mentioned above?
In practice, the main “by-product” of Bitcoin, namely the Blockchain represents one of the most interesting and fascinating developments for mankind!
But how was the Blockchain born and from which previous experience and disciplines?
The technology on which Blockchain is based has been developed using already existing technologies such as encryption, “proof of work” and decentralized network architecture in order to create a system capable of operating regardless of a central authority. Blockchain was born with Bitcoin but, once Bitcoin became reality, people started to notice how and why it works.
A famous phrase says that “Blockchain is for Bitcoin what the Internet is for e-mail”, a global system on which applications can be created. In short, the Bitcoin currency is only the first of these.
This has thrilled many people and workgroups around the world to start exploring what else can be decentralized. Always taking into account the main feature of the Blockchain or a generic decentralized network, that is that a system of this type needs a large computer network to be managed safely and efficiently.
Let us now dwell on the semantics of Bitcoin: this consists of a limited series of constructs, for example of the type “who sent how much money to whom”. If you aim to create a more expressive and complex system to support human activities that require more extensive and articulated semantics, you will need a different language and network protocol.
Now let’s see what Ethereum is
We said that Ethereum was implemented between 2013 and 2014 by such Vitalik Buterin, at the time co-founder of Bitcoin magazine.
Ethereum is the “Do It Yourself” platform for decentralized programs also known as Dapps – or decentralized applications.
If you want to create a decentralized application that no one controls (not even its creator), all you need is to learn the Ethereum programming language, called “Solidity”, and start writing code.
The Ethereum platform has thousands of independent computers running it, which means that it is completely decentralized. Once a program is deployed on the Ethereum network, these computers, also known as nodes, will ensure that decentralized applications run smoothly.
Many people mistakenly believe that the Internet is already decentralized, but in reality real giants of the new economy such as Amazon, Google, Facebook, Netflix and other control most of the World Wide Web as we all know it. There is practically no activity on the Web that takes place without a third party that controls it (and earning on it), often also in a fraudulent way, for example by selling our personal data.
But now that the concept of digital decentralization is taking shape, we can finally begin to imagine and design an Internet that connects users in direct “peer” ways and without the need for centralized third parties.
Any other examples? Anyone could “rent” disk space, making Dropbox obsolete. Who want to be a driver could offer services directly to passengers and remove the “intermediary” Uber.
All this and much more is possible with the Ethereum network which allows people to connect directly with each other without any central authority taking control and speculating on the activities.
How Ethereum works
We have seen what Ethereum does and how you differ from Bitcoin, let’s now explore how it does it.
Ethereum’s language, Solidity, is used to write “Smart Contracts” which represent the logical units that manage Dapps. Doing a parallel with real life: a contract is, in substance, a sequence of rules, conditions, actions and alternatives. The semantics we use in contracts use words such as “If”, “Then”, “Otherwise”. In essence an ordered sequence of conditions and actions.
Example of the rental contract: if I pay my landlord $ 500 every 1st of the month, then I can use the apartment; if the payment of the rent is delayed for more than three months, the landlord drives me out.
Well, smart contracts on Ethereum work the same way. Ethereum developers write the conditions for their program or Dapp and then the Ethereum network runs it.
They claim to be called “smart contracts” because they cover all contractual aspects: execution, management, execution and payment.
But there are advantages, if we go back to the contract that for the rent, if it were implemented with a Smart Contract, the owner would not need to actively collect the money but it is the contract itself to know if the money has been sent.
Can smart contracts have negative sides? The answer is YES because they are by their nature too “formal and rigorous”. Returning to the lease, a “human” contract would also take into account other factors, such as mitigating circumstances, and due exceptions can be made between humans if justified.
From this point of view, an “intelligent contract” on Ethereum is not at all “human”, but behaves without compromise, acting with a spirit distant from the context. That is, he follows the rules and does not know how to take into account circumstances as commonly happens with contracts between people.
Once a smart contract is distributed on the Ethereum network, it cannot be changed or corrected, even by its original author. It is immutable.
This creates a problem because with Ethereum I can create complex contracts, therefore full of rule, consequences, eventualities.
The more complicated a contract is, the more difficult it is to foresee all the clauses necessary to face any contingency. This means having to manage every possible event with the utmost accuracy.
Ethereum was born with a precise basic rule: the concept according to which “the code is law”, that is, a contract on Ethereum is the maximum authority and nobody can intervene to modify or cancel. This principle of “inviolability” of the contracts lasted for about 2 years, ie until the DAO case took place.
The DAO – smart contracts .. but also not!
The DAO (symbol Đ) was a decentralized autonomous digital organization, an investor-led form of venture capital fund launched in April 2016 after a crowdfunding campaign.
The DAO aimed to provide a new decentralized business model for the organization of commercial and non-profit enterprises. It was instantiated on the Ethereum blockchain and did not have a conventional management structure or board of directors. The DAO code has been distributed as Open Source.
The DAO was stateless and not tied to any particular nation state. The DAO was crowdfunded through a token sale in May 2016 and set the record for the largest crowdfunding campaign in history.
In June 2016, some users exploited a DAO code vulnerability to allow them to transfer a third of The DAO funds to a subsidiary account. As a result of this, on July 20, 2016, the Ethereum developer community created an Ethereum blockchain hard-fork to restore almost all of the funds from the original contract.
This operation was highly controversial and led to a new fork of Ethereum, where the original unmanaged blockchain was maintained as Ethereum Classic, thus breaking Ethereum into two separate active blockchains, each with its own cryptocurrency.
At the end of 2016, the DAO was canceled from trading on major markets such as Poloniex and Kraken
What happened in the DAO case is not conceptually different from when a creative lawyer takes advantage of a gap in the law to get a benefit for his client. However, it had the consequence of making Ethereum change, when the community decided that the “code was no longer law” by changing the rules. In other words, the authors of the DAO contract were wrong and the Ethereum developers decided to save them.
The small minority who disagreed with this line acquired the original Ethereum Blockchain before its protocol was modified and thus the Ethereum Classic (which is actually the original Ethereum!) Was born.
Ether – The currency of Ethereum
We understand that the Ethereum network is made up of computers that work to execute the Dapps code. However, this costs money: money to buy the machines, to turn them on, store them and cool them if necessary.
That’s why Ether was invented. When people talk about the price of Ethereum, they actually refer to Ether, the currency that incentivizes people to run the Ethereum protocol on their computer.
This is very similar to the way Bitcoin miners are paid to maintain the Bitcoin blockchain.
To distribute a smart contract on the Ethereum platform, its author must pay to do it. This payment is made in the form of Ether.
Ether was first released in the Ethereum Original Coin Initial Offering in 2014.
At the time, it took about 40 cents to buy an Ether. Today, an Ether has been valued in hundreds of dollars since the use of the Ethereum network has grown immensely since 2017.
Is Ethereum a currency?
Ethereum is the infrastructure for running Dapps in all. It is not a currency, it is a platform. The currency used to power the network is called Ether.
How much is Ethereum worth right now?
Currently (January 18, 2020) 1 Ether ~ 176 USD
What is the difference between Bitcoin and Ethereum?
The main difference between Bitcoin and Ethereum is that Bitcoin is used as an application to decentralize currency transactions while Ethereum is used to execute Smart Contracts. However, they are both crypto currencies, although they have differences:
Total supply – Bitcoin has a total supply of 21m while Ether is not limited in its supply.
Hash algorithm: Bitcoin uses the Sha256 algorithm while Ethereum uses Scrypt.
Avg. Block Confirmation Time – Bitcoin has a blocking time of 10 minutes while that of Ethereum is 15 seconds.
Mining hardware – Bitcoin is mined with ASIC while Ethereum is mined with GPU.
Initial Distribution – Bitcoin always relied on mining while Ethereum conducted an ICO.
How is Ethereum created?
Ether is created through the mining process, just like Bitcoin. This means that computers all over the world compete to solve a mathematical problem.
The first computer to solve the problem comes to extract the next Ethereum transaction block. In return he is assigned 2 new Ether from the network.
We hope this post contributes to a better understanding of what Ethereum is: if you still have some questions or comments to make, leave them in the comments section below.