CryptoNoobs

Ethereum





Ethereum platform has recently been on the march, partnering Microsoft to present its BaaS toolkit, releasing software and much more. CoinFox looks into the platform’s distinguishing features.

Ethereum is commonly referred to as a brainchild of a Russian-Canadian programming prodigy Vitalik Buterin who, then a 19-year-old enthusiast of information theory, cryptography, sociology, epistemology, politics and economics, released the initial white paper in late 2013. 

Calling his invention a “next-generation cryptocurrency and decentralised application platform,” Buterin explained that, unlike all of the protocols designed earlier to meet specific needs of specific industries, the project developed by him and his colleagues was intended to be “as generalised as possible,” enabling anyone to create specialised applications on top of it “for almost any purpose imaginable.”

Buterin argued that, although excellent for its initial purposes such as storing and transferring value, bitcoin was “less effective” as a low-level protocol or, to put it simple, a universal platform on top of which all kinds of decentralised applications could potentially be built. Thus, he decided to develop an alternative protocol that would enable smart contracts (“applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference”) both for financial and non-financial purposes.

In April 2014, Buterin’s colleague Dr Gavin Wood released what is now known as the “Yellow Paper”, a 32-page draft containing all the necessary computations and substantiations to describe the Ethereum Virtual Machine (EVM). The paper explains Ethereum as a sophisticated and “very specialised version of a cryptographically secure, transaction-based state machine” which can potentially ensure trust between transacting parties, which otherwise would be unachievable due to geographical separation, interfacing problems, “or perhaps the incompatibility, incompetence, unwillingness, expense, uncertainty, inconvenience or corruption of existing legal systems,” wrote Wood. To fix these human factor obstacles, Ethereum team developed their system as a “disinterested algorithmic interpreter” able to track any step and show exactly how a state or a judgement came about. 

Formally announced on 25 January 2014, the project was crowdfunded in August same year by donations from all over the world. After the crowdsale, Ethereum Foundation was established in Zug, Switzerland, as a non-profit organisation encouraging developers to build “next generation decentralised applications” (dapps) on Ethereum through supporting their education and research.

July 2015 saw Ethereum's live blockchain launched. The currency unit for the blockchain called ether had been crowdsaled beforehand in a 42-day public round. The unit, exchangeable to bitcoin cryptocurrency, is described as a “fuel” for the platform rather than digital money and was not initially intended to be used as currency, asset or share:

“Ether is a necessary element - a fuel - for operating the distributed application platform Ethereum. It is a form of payment made by the clients of the platform to the machines executing the requested operations. To put it another way, ether is the incentive ensuring that developers write quality applications (wasteful code costs more), and that the network remains healthy (people are compensated for their contributed resources).”

Ether, its creators assure, does not compete with bitcoin, the two of them being complementary to each other within the digital ecosystem. Moreover, Ethereum provides an opportunity to mint one’s own unique digital currency pegged to the market value of bitcoin, provided that all parties trust the source of price. To this end, one can address Solidity, a high-level language designed for the Ethereum Virtual Machine and similar to JavaScript, or any other language compatible with it.

The currency unit ether, thus, initially is not intended for market speculation, but made for developers who build apps on the Ethereum blockchain or users ready to flirt with smart contracts.

The total supply of ether, as well as its rate of issuance, was defined during the 2014 presale. Then 60 mln ether were given out to the contributors, with 5 ethers created per block (roughly 15-17 seconds) to reward the miner of the block. During the presale it was agreed that ether’s issuance would be limited to 18 mln per year (25% of the initial supply). This maximum is promised to be a ceiling even when a new consensus algorithm called Casper is released (expectedly in 2017).

To limit contracts that might take a long time to run, the platform uses a mechanism called “gas” which is a measure of computational effort to evaluate transactions. Its value serves as the internal pricing for running a transaction or contract in Ethereum.

So what is Ethereum capable of?

For the time being, the platform provides the opportunity to create a contract that will hold a contributor's money until any given goal (or date) is reached. And when it is, the funds either return back to their contributors or, in case of success, are automatically given out to the project developers/owners. This enables crowdfunding, crowdsales and auctions without any third party to trust and with a predictable dispersal of possible outcomes.

Another and even more sophisticated possibility is using smart contracts to run an organisation. Instead of hiring managers and CFOs “to handle the accounts, run board meetings and do a bunch of paperwork” one can now leave all the work to an Ethereum contract. Since the robot is believed to be “immune to any outside influence,” executing only what it is programmed to, it would be able to collect and distribute proposals from the organisation members and submit them through a “completely transparent” voting procedure.

Overall, Ethereum is presented as a universal tool with an immense range of application possibilities.

“YOU CAN BUILD:

A virtual organization where members vote on issues

A transparent association based on shareholder voting

Your own country with an unchangeable constitution

A better delegative democracy,”

reads the official website.

The “invoices that pay themselves when a shipment arrives or share certificates which automatically send their owners dividends if profits reach a certain level” are only the very few options out of what can potentially be built on Ethereum (either directly, or using its Blockchain-as-a-Service toolkit on Microsoft Azure). According to The Economist, these are true steps towards the Internet of Things and the decentralised world where, as the creator of Ethereum puts it, the only limit will be our imagination.