The next update of Ethereum 2.0 is coming nearer. But before that let’s find out more about what is Ethereum? After Bitcoin, Ethereum is frequently referred to be the second most popular cryptocurrency. Unlike Bitcoin and most other virtual currencies, however, Ethereum is meant to be far more than a means of trade or a store of wealth. Ethereum, on the other hand, refers to itself as a decentralized computer network based on blockchain technology.
The history of Ethereum
In late 2013, Vitalik Buterin, a programmer and co-founder of Bitcoin Magazine, presented Ethereum in a whitepaper with the purpose of constructing decentralized apps.
Buterin argued to the Bitcoin core developers that Bitcoin and blockchain technology may benefit from uses other than money and that a more robust language for application development was needed, which could lead to the blockchain storing real-world assets such as stocks and property.
Buterin collaborated briefly with eToro CEO Yoni Assia on the Colored Coins initiative in 2013, writing a whitepaper explaining potential use cases for blockchain technology. However, after failing to reach an agreement on how to proceed with the project, he recommended the creation of a new platform with a more robust scripting language a Turing-complete programming language that would later become Ethereum.
In January 2014, Ethereum was announced during the North American Bitcoin Conference in Miami. Gavin Wood, Charles Hoskinson, and Anthony Di Iorio (who funded the project) leased a house in Miami alongside Buterin during the conference to get a better feel of what Ethereum may become. Di Iorio summoned buddy Joseph Lubin, who summoned reporter Morgen Peck. Peck later wrote about the encounter in Wired.
Six months later, the founders reconvened in a residence in Zug, Switzerland, where Buterin informed them that the project would be run as a non-profit. At the time, Hoskinson had departed the project.
Ethereum’s founders are exceptionally numerous. Anthony Di Iorio penned: “In December 2013, Vitalik Buterin, myself,Charles Hoskinson,Mihai Alisie, and Amir Chetrit (the original 5) launched Ethereum. In early 2014, Joseph Lubin, Gavin Wood, and Jeffrey Wilcke were added as founders.” The software’s formal development began in early 2014 through a Swiss business, Ethereum Switzerland GmbH. (EthSuisse).
Following that, a Swiss non-profit foundation, the Ethereum Foundation (Stiftung Ethereum), was established. From July through August 2014, an online public crowd sale was held, with participants purchasing the Ethereum value token (Ether) with another digital currency, Bitcoin. While Ethereum’s technological advances were first praised, concerns were expressed regarding its security and scalability.
An unnamed hacker stole $50 million in Ether in 2016, raising concerns about the platform’s security. This sparked a schism in the Ethereum community, resulting in the formation of two blockchains: Ethereum (ETH) and Ethereum Classic (ETC). The price of Ether has fluctuated dramatically, yet the Ethereum currency increased by more than 13,000% in 2017. Many investors are drawn to the great growth, but the volatility makes other investors wary.
In terms of market value, Ethereum was the second biggest cryptocurrency in January 2018, after only Bitcoin. It maintains that relative status as of 2021. The US authorities detained Ethereum Foundation staffer Virgil Griffith in 2019 for presenting at a blockchain conference in North Korea. The blockchain underwent a temporary fork on August 27, 2021, as a result of clients running conflicting software versions.
What is Ethereum?
Ethereum is a blockchain that provides a significant amount of functionality for developers that use Ethereum as a foundation for their solutions. The Ethereum blockchain contains a native token known as Ether (ETH), which is used to pay for Ethereum network activities.
The coin is also traded on cryptocurrency exchanges and its value swings. Other Ethereum-based assets, such as ERC-20 tokens, need ETH as payment for fees connected with any transactions using those assets.
The Solidity programming language was used to create the Ethereum blockchain. The Ethereum Foundation, a non-profit organization, is one of the Ethereum project’s overseers.
An example transaction (between accounts A and B) involving the transfer of ethers from one wallet to another under an account-based approach operates as follows:
Debit from account A.
Credit to account B.
All accounts in Ethereum are converted into balances. As a result, a send activity decreases the balance of one account while increasing the balance of another.
In comparison, a UTXO transaction works as follows: an individual gives money and receives change(i.e., unspent amount).
The account model benefits include:
Significant space savings (transactions require a single signature and produce one output)
Increased fungibility (harder to blacklist funds)
Simplicity (easier to build DApps)
Constant light client reference (light clients can read information from the state tree in any specific direction)
Despite these benefits, the account approach may make double-spending and replay attacks easier.
Global State and Account Structure
Ethereum Classic is a transaction-based state system at its core. A Merkle tree, which maps account addresses and account statuses, represents the state of Ethereum at any given time.
The inclusion of a new block updates the state of Ethereum Classic. Each block contains legitimate transactions and is linked to the block before it via its header. In simpler terms, a block contains a header as well as all valid transactions that are added.
Ethereum has two types of accounts: public and private.
Externally owned accounts (EOA)
Externally owned accounts (EOA) are governed by private keys and do not have a code associated with them. Individuals utilize their private keys to perform actions.
An EOA consists just of the nonce (the number of transactions sent) and the accompanying balance (i.e., number of ethers owned by the account).
Contract accounts are managed via their contract code, which is unchangeable once deployed. Aside from nonce and balance, a contract account additionally keeps its storage hash (i.e., a hash of the Merkle Tree’s root) and code hash(i.e., the hash of the EVM code for this specific account)
EVM and Smart Contracts
Ethereum Virtual Machine (EVM)
The following is a typical process for deploying contract accounts on the Ethereum blockchain:
The contract is written in a formal language (e.g., Solidity, Vyper).
ABI is created after the code is compiled to bytecode.
These are deployed onto the Ethereum blockchain via a transaction (with gas fees) after being relayed from nodes.
The Ethereum Virtual Machine (EVM) is the computer software (or computation engine) that interprets Ethereum blockchain bytecode instructions. The EVM, in particular, handles all aspects of smart-contract logic, from deployment to execution. The EVM has a simple stack-based architecture with multiple data components based on 256-bit word format:
Program code ROM: an immutable program with the bytecode deployed for execution of the contract.
Memory: a component to store data temporarily.
Storage: a permanent component to store data.
An ERC-20 token is a token that implements an EIP-20-defined standardized interface. An example of Consensys’ implementation can be found here. Despite the fact that Ethereum’s token standards are fully compatible with Ethereum Classic, third-party adoption and interest has been much lower.
Auction contracts are a natural fit for an Ethereum/Ethereum Classic smart contract. For example, one can set up a blind auction in which any EOA can submit bid offers to the contract. It is won by the highest bidder. An example of an open auction implementation can be found in the Solidity documentation.
Ethereum 2.0: PoS, beacon chain, side-chains, and sharding
Ethereum 2.0 is nearing completion. The upgrade to the decentralized blockchain-based computing platform was originally scheduled for 2019, with the first phase launching on December 1, 2020.
Based on existing information, Ethereum 2.0 will introduce additional elements such as:
Beacon Chain: It serves as a “bridge” between shard chains and the main chain (the equivalent of the present ETH 1.0 chain), providing staking incentives. The Beacon Chain will keep track of historical shard chain reference points.
Shard Chains: Since sharding is used for scalability, each shard chain is obligated to run independently (of one another) with unique states and independent transaction histories. The principal link between shards will be recorded on the Beacon Chain.
eWASM: Each shard is planned to have its own dedicated virtual machine called “eWASM” (i.e., Ethereum-WebAssembly Machine). It is expected to be released alongside the standard Ethereum Virtual Machine, but few specifics have been provided so far.
In terms of the future validation algorithm modification, the new PoS is built on Casper: a “PoS finality gadget.“
Economics and Supply
Ethereum’s economics is based on a three-phase model:
Phase 0 – Initial Coin Offering (ICO): In the first part of 2015, an ICO for 60 million ethers was held. The ICO was one of the first, with monies gathered in BTC.
Phase 1 – Proof of Work (current): reliance on the Ethash function: a function (based on Keccak) designed to prohibit ASIC participation due to memory hardiness. However, since then, ASIC devices have dominated block mining.
Phase 2 – Proof of Stake: In the final (Serenity) phase, Ethereum blocks will be validated through staking, and validators will be rewarded.