An overview — Ethereum
Introduction
Bitcoin was the first ever public blockchain to launch back in 2009, and it featured groundbreaking innovation, that became the start of something new. Ethereum was the second, founded in 2015, and should soon prove to turn the blockchain industry up side down. For someone new to the cryptocurrency space, the logical question to ask might be how they differ, considering they’ve probably seen Ethereum and its native token, Ether, next to Bitcoin everywhere on exchanges and in the news. However, it’s not fair to consider Ethereum to be in direct competition with Bitcoin. It has different goals, features and even technology.
Ethereum is a Layer-1 blockchain, that allows you to run programable applications in its trusted open-source eco-system. This is the biggest difference compared to the Bitcoin blockchain, which only allows you to manage your cryptocurrency. The Ether token enables users to make transactions, earn interest on their holdings through staking, use and store non-fungible tokens (NFTs), trade cryptocurrencies, play games, use social media and so much more. Ethereum is considered to be the next generation of the internet. If centralized platforms like Apple’s App Store represent Web 2.0, a decentralized, user-powered network like Ethereum represents Web 3.0. This “next-generation web” supports decentralized applications (DApps), decentralized finance (DeFi) and decentralized exchanges (DEXs), for instance.
Ethereum uses a virtual machine, called the Ethereum Virtual Machine (EVM). Some say this is the heart of Ethereum. The EVM allows code to be verified and executed on the blockchain, providing guarantees it will be run the same way on everyone’s machine. This code is contained in “smart contracts” (more on these below).
Beyond just tracking account balances, Ethereum maintains the state of the EVM on the blockchain. All nodes/validators process smart contracts to verify the integrity of the contracts and their outputs.
What is “Smart Contracts”?
You can’t mention Ethereum without mentioning smart contracts. This is what really differentiated Ethereum from Bitcoin upon its launch, and what became the most important invention for blockchain since Bitcoin itself. A smart contract is a piece of computercode that runs on the EVM. Smart contracts can accept and store ether, data, or a combination of both. Then, using the logic programmed into the contract, it can distribute that ether to other accounts or even other smart contracts automatically, without any third parties involved. The code becomes law.
Let’s take an example. Here’s a smart contract example with John and Maria. Maria wants to hire John to build her a patio, and they are using a smart contract, also known as an escrow contract (a place to store money until conditions in an agreement is fulfilled) to store their ether (native token on ethereum) before the final transaction.
John and Maria agrees on terms and conditions of building her patio. They agree to settle the agreement using a smart contract. John puts collateral to Maria if John were to fail to build the patio or if he performs a poor job.
Maria agrees on terms and John starts working on the patio.
John receives payment upon finishing the patio if terms are fulfilled.
This is of course a very simplistic illustration of how smart contracts work. Nonetheless, it shows how smart contracts are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss and hold parties accountable for the agreed terms.
History and roadmap for Ethereum
The mastermind behind Ethereum is Vitalik Buterin. Along with his team, he created this project as an answer to all of Bitcoins shortcomings. The so-called Ethereum whitepaper was released in 2013 and detailed the description of smart contracts — enabling the development of decentralized applications, also known as DApps. Thus, Ethereum 1.0 was born.
In many ways, you can think of Ethereum as Apple’s App Store but for blockchain applications instead. One space for thousands of application, all govern by the same set of rules. However, one big difference is that there is no central party enforcing these set of rules, like Apple on App Store. Instead, that ruleset is coded into the network and enforced autonomously with developers able to enforce their own rules within DApps. The power is in the hand of the people that acts as a community.
Ethereum became a reality after the team held a token presale among its community and were able to raise $18.439.086 in Ether, to help building Ethereum’s present and future developments. Shortly after the token presale, the group founded the Ethereum Foundation in Switzerland, with the mission to develop and maintain the network. Shortly after, Buterin announced that the foundation would run as a non-profit organization, which caused some co-founders to leave the project. During the next couple of years, many developers came into Ethereum with their own decentralized ideas, challenging status quo in the network by creating “The DAO”, a democratic group that voted on network changes and proposals. Unfortunately, the DAO suffered from an exploit hack, having $40m of funds stolen in Ether, which ultimately led to a split, or what is known as a “hard fork”, of the Ethereum blockchain. The network was split in two separate chains with Ethereum moving to a new blockchain, while the old chain was rebranded to Ethereum Classic. A new era began!
Ethereum 1.0 Vs. Ethereum 2.0
If you have followed the industry over the last couple of years, you might have read or heard something about Ethereum 2.0. The switch from Proof of work to Proof of stake has been the most discussed topic in the industry in this period, and is arguably the most significant and impactful event in the blockchain industry since the invention of Bitcoin and Ethereum itself. It marks a new era of Ethereum and the start towards its ultimate goal. The switch from Ethereum 1.0 to Ethereum 2.0, also called “the merge”, finalized on september 15, 2022, and was the end of Proof of work on Ethereum and the start of Proof of stake, cutting energy consumption on the network with 99.95% and representing a complete different way of how the network is run and secured.
Among many obvious reasons for this upgrade, energy consumption and scaling was one of the most important things to solve with this move. With proof of work, Ethereum had faced many scaling issues over the course of its life-span and not to mention its intensive energy consumption, but with Proof of stake, they removed the energy consumption issue and laid the framework to solve the scaling issue on the network, to be able to better meet the increasing demand of transactions on the network. This solution is called Sharding.
Sharding is a proces of spreading transactions across multiple, smaller blockchain networks. These smaller networks can be run by users with weaker hardware compared to miners, as they only need to store information from one shard, rather than the entire network. Essentially, sharding makes Ethereum validation more accessible and helps to decongest the main network. Finally, another argument for moving to proof-of-stake, is that it is a faster and more accessible form of blockchain consensus. It doesn’t require special hardware like mining does, meaning anyone with Ether and a device can participate in the network. In theory, that accessibility should grow the network. The more validators, the more blocks get validated. Extra validators also decentralize Ethereum even more, increasing security as the role expands.
Staking is now possible on Ethereum
As a staking provider in the industry, we are very excited by Ethereum’s move to Proof of stake. Myrmidon Staking will soon be able to offer our clients ETH staking in a trusted and decentralized way. Our clients counts both private investors and institutional investors, and we would love to hear from you, if you plan to stake your ETH and earn staking rewards in ether. At the moment, current APY sits around 5% and is expected to increase over the years. We expect to be able to offer ETH staking in January 2023, so now it’s the right time to reach out and plan your ETH staking journey with us. Please reach out to support@myrmidon.dk
We are here to help you.
