There has been a lot of talk about Ethereum after its announcement by Vitalik Buterin in early 2014 at the North American Bitcoin Conference. Then, about a half year later, it became the centre of community’s attention as no. 2 most crowdfunded project of all times. Many call it Bitcoin 2.0 and believe that Ethereum might be the future of cryptocurrencies.
“Bitcoin 2.0” is the common name for a crypto protocol, such as blockchain-based Bitcoin, but whose application goes beyond that of a currency. We have already talked about the idea of Crypto 2.0 and mentioned Ethereum among the new promising projects.
Blockchain, the nerve system of the Bitcoin body, is a universal protocol offering so many features and possibilities that it can be used for any kind of purpose. The blockchain serves as an environment for data circulation, in which these data can be labelled and used accordingly.
In one of his articles, Vitalik Buterin suggested that Bitcoin protocol is like SMTP of the Internet, rather than a more fundamental TCP/IP. To his mind, there is a need for something foundational, a base on which anything can be built. Ethereum aims at filling this niche by allowing developers create a variety of applications in areas that include law, finance, communication, etc.
The overview of Ethereum
The project Ethereum was introduced in January 2014 by a group of developers, one of whom is the abovementioned Vitalik Buterin. In his Bitcoin Magazine article published slightly more than a year ago, Vitalik mentioned the emergence and growing popularity of specialised crypto projects. As an alternative to those, he suggested a generalised system.
Ethereum is presented as a platform for decentralised contracts and applications. It operates using the principle very similar to Bitcoin’s blockchain, but with some differences (the most important of which will be outlined below). Apart from a platform, the Ethereum developers position their creation as a Python-like programming language, on the top of which just about any application can be built.
Like its name suggests, Ethereum is something of a universal nature, a software development platform which contains a “Turing-complete universal scripting language” – a language like this is fit for solving any type of computational problem. This is the core feature of the project.
Just like Bitcoin, along with other crypto projects, Ethereum has its own currency, Ether, which is often described as “cryptographic fuel”. Within its temporary availability (July through September 2014), the Genesis Sale stage, people invested about $18 million buying a total of 60,102,216 Ether. In this way, buyers both contributed to the project and acquired an asset to use in the future, once the official launch is concluded. This 42-day sale made Ethereum the second most crowdfunded project ever.
For those who wish to understand Ethereum, there is a number of concepts to pay attention to. For example, it is the GHOST protocol that the platform uses. Its main advantage is that the block confirmation time lies within the range of 3 to 30 seconds – this is not the 10 minutes of the Bitcoin protocol!
A bunch of developments have also been associated with Ethereum, such as EtherBrowser, Whisper messaging, Serpent language, or Dagger Hashimoto mining algorithm. A number of them remains, while others are either modified or continued as side projects. The final Ethereum release was planned for the winter 2014-2015. The term is coming to an end, but the project is undergoing its multiple transformations and adapting to the needs of the new world.
Bitcoin and Ethereum
There is a number of similarities between Bitcoin and Ethereum. Both are decentralised and use the blockchain principle: peer-to-peer confirmations of some data exchange. Both are platforms that use currency as a ‘fuel’ – Bitcoin and Ether, respectively. Their purposes, however, differ. While Bitcoin has established itself as a peer-to-peer payment system, Ethereum has been created as a platform for peer-to-peer contracts.
Some of the underlying features of Ethereum and Bitcoin differ as well. For example, Bitcoin developers have never positioned it as a new programming language, while Ethereum provides one. Apart from that, the two systems use different mining algorithms. In Bitcoin, it is SHA-256, and in Ethereum it is currently a blend called Dagger Hashimoto. It makes Ethereum minimally dependent on hardware, which makes it ASIC-resistant. Another improvement of Ethereum compared to Bitcoin is that it allows lights clients verify the blocks by eliminating the necessity of hosting the entire blockchain to perform the verifications. The average block confirmation time is also reduced – it lies within the range of 3 to 30 seconds, with an average of 12 sec. Ethereum developers are constantly looking for ways to reduce any disadvantages platforms like Bitcoin might have.
Ethereum is the new law
As it has already been highlighted, Ethereum was created specifically for enabling decentralised peer-to-peer contracts with a maximum level of trust, but with no need of a trusted third party. Coordination and trust should be the underlying principles for the platform to replace the existing centralised institutions and eliminate both corruption and bias. In a system like this, financial incentives are necessary, as they make people more interested in participation – thus a need for Ether as currency.
With developments like Ethereum, anything is possible in the nearest future. Although it hasn’t even been released yet, the projects emerge like mushrooms on top of it covering a variety of areas, including civil rights, finance, law, consumer protection, and many more. Like it has been concluded by Primavera De Filippi, Bitcoin has established itself as the new currency, and it is the chance for Ethereum to take its place as the new law.