How exactly did Ethereum become the second most popular cryptocurrency next to Bitcoin? While Bitcoin revolutionised the payment industry, Ethereum has a completely different motive, which we’ll explore in our Story of Ethereum.
Most people (if not all) who regularly follow finance news have heard of Bitcoin. The first real crypto-graphic secured digital currency has been covered throughout the news and followed by outlets across the globe.
Ever since Bitcoin's "rise to fame" in the second half of 2017 and its notoriety for price fluctuations, Bitcoin and blockchain have made waves in popularity.
Since its inception, Bitcoin and blockchain have mostly been used synonymously. However, Bitcoin is not the only blockchain cryptocurrency. Ethereum is the second most popular cryptocurrency by marketcap, known for smart contracts and decentralised apps. Some argue Bitcoin is rather digital cash or simply a store of value, whereas the Ethereum network is a decentralised supercomputer and offers more programmable capabilities than Bitcoin. Let’s take a quick dive into Ethereum’s history.
How it all began – The Blockchain App Platform
In 2013, after Bitcoin’s decentralized network had already been running successfully for four years, a young computer scientist, Vitalik Buterin came up with the idea to try programming on Bitcoin.
Being an early adopter of cryptocurrencies and blockchain technology himself, Vitalik aimed to build decentralized apps - known as dapps, on top of Bitcoin Core. After unsatisfying attempts using Mastercoin – now known as Omni, home of the stablecoin Tether, the most popular coin pegged to USD – he quickly discovered that programming on Bitcoin and the network itself was not sufficient for what he needed to enable dapps.
He was looking for better conditions for the development of dapps, primarily a blockchain with more than Bitcoin’s 7 transactions per second. Vitalik also wanted an easy, and broadly used programming language. The code of a dapp runs on a decentralized network like Bitcoin or Ethereum, whereas “normal” apps run on centralized servers, which could potentially be manipulated or censored.
Getting ready for launch
A few months later, at the end of 2013, Vitalik published and shared the Ethereum whitepaper. The whitepaper contains a detailed description of the rationale and technical design for the protocol and its architecture.
In December of the same year, Vitalik and a small group of selected developers, including Gavin Wood and Joseph Lubin, set to work. Nick Szabo’s take on smart contracts was taken to the next level adding Solidity, a programming language enabling Turing complete developments, the ground was laid for smart contracts on blockchain.
What is a smart contract?
Imagine a vending machine. The kind you see in train stations or shopping malls, packed with nicely cooled drinks. The way a vending machine works is pretty simple. Cold hard cash releases your beverage otherwise you’re left thirsty. The machine enforces this protocol. Plain and simple.
Generally speaking, a third party enforces protocols – even in the case of the vending machine – hardware is also the third-party that enforces a contract. But, for smart contracts on Ethereum, it’s not necessary to have a device or even hardware that implements an agreement. A smart contract on Ethereum is a computer protocol controlling the digital asset and if the protocol indicates a transfer is required, money is sent. Issuance of insurances, special rents or freelancer salaries are examples where this would be useful, removing third-party arbiters of claims.
Since the underlying network is decentralized, the apps are decentralized and called dapps. Dapp code is stored on the distributed ledger which is a huge benefit in terms of security and censorship resistance.
After a successful ICO, raising 16 million USD in August 2014, the development took off until the first block was mined on the 30th of July in 2015. The launch of the Ethereum network concurred with the birth of the world computer.
Ethereum builds up the world computer
In less than five years, Ethereum developed into a global network of thousands of connected computers and even more enthusiastic developers. What Bitcoin enables in regards to payments, Ethereum offers for anything that can be programmed. Just like Bitcoin, the Ethereum Network consists of connected miners and nodes all around the world. They provide the computational power for smart contracts and dapps built on Ethereum. Just like in Bitcoin, miners are incentivised to mine, due to the block reward paid in Ether.
If you imagine Ethereum being a huge, decentralized supercomputer, Ether is the fuel that’s needed to get the computer running. Any transaction, that engages in a protocol with the supercomputer – to execute a smart contract, for instance – needs some amount of Ether in order to be executed.
Ether is the second biggest cryptocurrency in regards to market capitalisation. According to a well-known blockchain explorer etherscan.io, there are more than 220,000 different tokens on Ethereum. However, it’s not only tokens, there are roughly 3,150 dapps – a constantly growing list. Especially fascinating is the DeFi movement, short for decentralized finance. For a closer look at the most prominent DeFi applications on Ethereum take a look here. DeFi is a strong possible contender to be the killer blockchain application and has the power to revolutionise the world of finance.
Ethereum 2.0 - The future of Ethereum
The launch of Ethereum 2.0 is planned for early 2020, which will be huge for the future development of Ethereum. Since the Cryptokitties hype blocked the Ethereum network, which in turn, blocked any other transactions, the scalability and block size discussion has been ongoing. Currently, Ethereum is capable of 15 transactions per second, which is too few to allow millions of people to enjoy a smooth user experience with dapps.
The upcoming update is going to change Ethereum from ground up, effectively increasing the block size, which would allow more transactions. This includes a move on the consensus level from Proof-of-Work to Proof-of-Stake, decreasing the energy resources of securing the network and potentially allowing more users of the network.
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