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Cryptocurrency and Blockchain
One of the most exciting developments in recent times has been the Blockchain network. Most of us tend to believe that cryptocurrency and blockchain are synonymous but there’s differences. Cryptocurrency is just one of the many applications of blockchain. It is a mode of digital payment which does not rely on any third party applications. Blockchain is one of the technologies under the hood that allows cyptocurrencies like Ethereum to work.
Sally Davies, FT Technology Reporter, explains, “Blockchain is to Bitcoin, what the Internet is to E-mail.”
All the information that you save on the internet while browsing websites or using apps are generally stored on a central server. Any attack on the central server leaves your data vulnerable. Brian Behlendorf, the creator of Apache Web Server, calls it the ‘original sin’ of the Internet. He further goes on to claim that the Internet was always meant to be decentralized, and now we are working towards this goal through the development of blockchain and other new technologies as a splintered movement has embraced the technological world.
Blockchain can help to significantly decentralize the internet. Blockchain is normally used in the context of cryptocurrencies and other financial transactions, but it also has immense potential in other use cases like supply chain, identity management, e-governance, legal compliance, and so on.
Ethereum is helping us extract maximum benefits out of blockchain by providing a platform for the development of decentralized applications (Dapps). What is Ethereum? What are Dapps? What made Ethereum so popular? What went behind its development and what does the future hold for it?
Let’s take a deeper look into the world of Ethereum and understand it in detail.
What is Ethereum?
Ethereum is much more than just a cryptocurrency. It is an open source platform which incorporates blockchain technology and enables developers to build decentralized applications, and deploy on the network. It also helps us execute smart contracts, which are highly beneficial when it comes to financial transactions between two parties.
It was created in 2015 by Vitalik Buterin, Charles Hoskinson and others, to exploit the potentials that blockchain holds for the technological world. According to Vitalik Buterin:
“I thought [those in the Bitcoin community] weren’t approaching the problem in the right way. I thought they were going after individual applications; they were trying to kind of explicitly support each [use case] in a sort of Swiss Army knife protocol.”
This led to the creation of Ethereum, a platform which provided endless possibilities for the creation of shared ledgers, markets, digital organizations and other systems using immutable data without the need for any third party.
If Ethereum reaches it’s potential, it will provide significant advances in making the Internet a ‘World Computer’ which would disrupt the existing client-server model.
What’s the Main Difference Between Bitcoin and Ethereum?
Bitcoin and Ethereum are both distributed public blockchain networks. However, there lies a stark difference in their purpose and capability. Bitcoin uses blockchain technology for an electronic peer-to-peer system of payment. Ethereum has this capability, but can also be utilized to run the programming code of decentralized applications.
Excerpts from the introductory article on Ether published on Ethereum’s official website:
“Ethereum would never be possible without bitcoin—both the technology and the currency—and we see ourselves not as a competing currency but as complementary within the digital ecosystem.”
The Ethereum Blockchain
Smart contracts, that is, contracts which self-execute was first proposed by Nick Szabo, who coined the term. Ethereum was developed to allow the storage and execution of these smart contracts.
The Ethereum Virtual Machine(EVM) is a distributed machine which runs on the Ethereum network and allows people to run any program regardless of the complexity and the programming language. This allows developers to create blockchain applications in a much easier and efficient manner. Prior to the development of the EVM, each application had to create a new blockchain of its own, but thanks to EVM, an infinite number of applications can now be created on a single network.
There are two types of accounts that can be used on Ethereum, Externally owned accounts (EOA) and Contract Accounts. Any action on the Ethereum blockchain is triggered by the transactions fired from externally owned accounts. Externally owned accounts can send transactions by directly transferring ether or triggering the contract code.
An externally owned account is controlled by private keys and does not have an associated code like Contract Accounts where every contract has an associated code which is executed through a trigger from other contracts. When a contract is executed, it performs a set of arbitrarily complex operations for Turing Completeness. It can then have its own permanent state by manipulating its own persistent storage and then call other contracts.
Dapps, Solidity and DAO
What is a Dapp?
Every decentralized application (Dapp) consists of code which is not owned or controlled by a single entity. This eliminates the need for a middleman for things like loans, title registries, regulatory compliance, and even voting systems as has been proven recently in Brazil.
What is Solidity?
What is a DAO?
Ethereum can enable the development of Decentralized Autonomous Organizations(DAOs) which can function entirely without the need of a central leader. DAOs contain a collection of smart contracts written on the Ethereum network, which are run by programming codes granting full autonomy to it.
If we explain this in simple terms, then consider the DAO to be an organization like a bank, but without the rules, structures, and people. It is you, your money and the other party with which you want to perform the network. It has the potential to eliminate conglomerates and grant people the desired autonomy and anonymity.
Stephen Tual, former CCO of Ethereum, explains:
“A DAO consists of one or more contracts and could be funded by a group of like-minded individuals. A DAO operates completely transparently and completely independently of any human intervention, including its original creators. A DAO will stay on the network as long as it covers its survival costs and provides a useful service to its customer base.”
The Economics of Ethereum and Mining
The entire Ethereum network runs on Ethereum Gas. Any transaction that is performed on the EVM costs gas, and so does the execution of a smart contract. It is simply the execution fee that the senders of transactions need to pay for every operation that is made on the Ethereum Blockchain. The complexity of a transaction, that is the amount of computational resources that it consumes is determines the gas price.
Similar to Bitcoin, miners maintain and secure the Ethereum network. Every miner that works on the Ethereum network is rewarded with an Ethereum token known as Ether.
In the Bitcoin blockchain, miners work to ‘mine’ Bitcoin, but in Ethereum, miners earn Ether, the crypto token that fuels the network. It is not only tradable but also used by app developers to pay for transaction fees and services on the Ethereum network. The amount of gas that developers spend on the execution of smart contracts impacts the rate of validation, as generally, if a developer pays higher gas, there are high chances that their contract would get validated first by miners.
The EVM creates a schedule for miners to carry out specific tasks at the desired level of efficiency, to keep the machine running at an optimum level. Thus, Ethereum gas can be considered as minimum wages to extract mining contributions.
The primary function of Ethereum is not to act as a form of money but work towards the execution of smart contracts for the development of decentralized applications.
Ethereum in Numbers
As per recent numbers, the number of Ethereum in circulation has crossed the 100 million mark. Bitcoin has its supply capped at 21 million, while Ethereum does not have any upper cap.
There has been a rise of approximately 10 percent every year since Ethereum came into existence. In 2015, 72 million Ether was generated when it launched. In the next three years, 28 million Ether was mined in three years.
Nathan Worsley, CTO of CoinSwap, stated,
“When you invest in any cryptocurrency you should invest in the technology behind it. Crypto is not a get-rich-quick scheme, it’s a technological revolution with the potential to disrupt the fundamental tenets of global financial systems.”
Investing in Ethereum is similar; it is a technology that is causing significant disruptions in the tech space and may hold the key for further technology advancements. You can buy Ether through most of the major cryptocurrency exchanges that sell Bitcoin.
What is Ethereum Classic (ETC)
Ethereum Classic (ETC) is the original Ethereum blockchain and came into existence after the DAO hack and the subsequent technical and philosophical differences relating to the response to the hack. The DAO successfully raising $150 million in ether before the hack and in 2016, the DAO was hacked, and over $50 million of its funds were displaced. The Ethereum community decided to fork Ethereum’s code to return the funds to investors. A minority disagreed with this and upheld the immutability of the original blockchain. ETC is supported by a community of developers and also by IOHK.
We recommend reading https://ethereumclassic.org/ for complete info on Ethereum Classic.
Ethereum is a blockchain network which not only can act as a mode of payment but also allows the development of decentralized applications and DAOs through the execution of smart contracts. It has the potential to disrupt the traditional business processes in a major way.
For further reading, we suggest you take a look at Ethereum Book.
If you want to buy Ether with cash you can use one of our Bitcoin ATMs