What is Ethereum?
Ethereum, or the Ethereum Virtual Machine (EVM), is an attempt to build a new version of the internet. Rather than centralized hubs (or private companies) that control massive troves of personal data, Ethereum is designed to enable more decentralized information networks enabled by a series of distributed nodes and Ethereum wallets.
The idea for Ethereum was developed in 2013 by Vitalik Buterin, who at the time was a computer programmer and contributor to Bitcoin Magazine. He was advocating for more functionality on the Bitcoin blockchain to make it easier for developers to build applications.
Watch the Crypto Bites episode below to hear more about Ethereum’s backstory and early development from Vital Buterin.
When his plan was met with resistance from the bitcoin community, he developed the framework for Ethereum, created a team, and published the Ethereum whitepaper. After a pre-sale to raise money to fund the development of the Ethereum Virtual Machine, the network went live on July 30, 2015.
If the internet is like a vast highway, then the current system has few on- and off-ramps. These existing ramps are also controlled by a toll of sorts, which either exists as actual fees or costs that require users to pay in the form of surrendering personal or financial data.
The goal of a decentralized internet is to give people control over their information, enable censorship-resistant technologies (these range from financial applications outside the control of corporations or governments, to better election technologies, to forms of gaming and data storage that aren’t stored on centralized servers), and remove the need/cost of third parties.
A decentralized internet replaces large, centralized gatekeepers that control the flow of information, with internet operating infrastructure that is spread all over the world. In other words, a decentralized internet provides many more on-ramps and off-ramps, which makes the internet more secure and more democratic.
Ethereum helps accomplish the vision of decentralized computing in two ways. The first way is to create a distributed system of nodes, which happens anytime a computer or miner joins the Ethereum blockchain — and anyone, with sufficient computing power, can become a node, which makes Ethereum a permissionless blockchain.
A node is any machine that contains a copy of the blockchain. The more nodes that exist, the more resilient Ethereum becomes to security breaches and outages.
A wide distribution of the network makes it possible for developers to build decentralized applications using open source smart contracts, which is the second way that Ethereum is enabling digital decentralization. A smart contract is basically a computer program that executes a transaction after a series of requirements are met. Most Ethereum apps are written using the Solidity language (there are also other Ethereum-specific languages).
Why is Ethereum important?
So far, there are three major uses for emerging for Ethereum: As a platform for initial coin offerings (ICOs), as a means to create ERC20 tokens, and as a way to create ERC271.
ICOs: As the name implies, an initial coin offering is very similar to when a traditional company would launch an initial public offering (IPO) to raise capital in order to grow. In the case of an ICO, a person or group of people get together, create a website or whitepaper explaining a project, and then launch a coin or token sale. While the ICO boom of 2017 helped fuel the meteoric rise of the cryptocurrency market and helped launch a lot of new and interesting projects, the ICO fundraising mechanism was also used to raise money for projects that were not developed enough to ever be successful, and/or were outright frauds.
In a lot of cases, some of the hundreds of ICOs that have been launched in the past two years were launched on Ethereum. It’s like the paradox of success, Ethereum developers did such a good job of building a means for people to launch decentralized projects without any kind of oversight or gatekeeper, that the many projects took advantage of the system and general euphoria about raising money in the crypto space.
However, despite the overdone ICO boom, the ability to quickly create and launch a project without having to raise capital through traditional channels has helped many really innovative and interesting projects get off the ground.
ERC20 tokens: While ERC20 tokens sound like something out of Star Wars, the concept is really pretty straightforward. An ERC20 token is a digital unit of account that is completely exchangeable with another unit of the same system.
In other words, ERC20 tokens are designed to be fungible. This aspect of fungibility allows the tokens to be traded back and forth, much the way dollars can be traded for dollars, or euros can be traded for other euros.
Zooming out, the creation of the ERC20 standard was really an important piece of infrastructure because it allows cryptocurrency projects to interoperate in a sense. For example, the 0x Protocol, which was built according to the ERC20 standards, is being used to build decentralized exchanges, which will allow other ERC20 token projects to exchange tokens and other forms of value.
Besides the infrastructure layer, the ERC20 standard also means that individual token projects can build independent token economies.
In the long-run, well-conceived and well-executed token economies will allow projects to support themselves and drive growth and adoption. Right now, token economies are sprouting up around new ways of sharing digital data, new ways of controlling personal identity, futures markets, and all kinds of interesting ideas that are made possible by ERC20.
ERC721 tokens: Kind of on the opposite end of the spectrum from the ERC20 tokens are tokens that fall under the ERC271 standard. Instead of being fungible, or one easily converted for another, ERC271 tokens are non-fungible. Having the ability to create and distribute non-fungible tokens opens the potential to use ERC271 tokens to create collectibles or tokenize (or make a digital representation) of anything that is unique and valuable. This could range from artwork to baseball card collections.
Non-fungible token models is still an emerging field, but interesting projects are developing to explore the possibility of using ERC271 as a means to secure digital property and rights, which could lead to applications that extend way beyond any current cryptocurrency use cases. Potential applications range from creating digital scarcity to enabling things like genetic algorithms, where one unique digital good could potentially be paired with other unique digital goods, leading to offspring of sorts, with the lineage verifiable and traceable via the Ethereum blockchain.
In the past 18 months, several other open source permissionless blockchains have launched (NEO, Tezos, Cardano, and EOS are examples), but one of the things that make Ethereum distinctive from its competitors is the size and engagement of its development community, which is working to build various kinds of decentralized apps in the hopes of demonstrating the value of Ethereum specifically and blockchain and cryptocurrencies more broadly.
What is the price of ether and why ether is valuable
As Ethereum grows to become a massive network, more and more Ethereum wallets are being created to hold ether, which is the Ethereum blockchain’s currency.
Ether’s main value is that it is the native token to the Ethereum blockchain. Just like on the Bitcoin blockchain, transactions on the Ethereum blockchain come at a cost. In the case of Ethereum, the transaction cost on Ethereum, which is known as gas, is paid in ether.
As mentioned previously, since Ethereum has utility outside of being a form of digital money, there are a lot of use cases for ether.
Ethereum currently uses the proof-of-work, which like bitcoin, relies on a system of validating the blockchain’s transactions and creating new coins through difficult computation. As the proof-of-work process becomes more difficult, it will require more resources to contribute to the network. For bitcoin this system works, and creates a deflationary effect, because there is a fixed supply of 21 million coins. With Ethereum, there is no fixed supply, so the proof-of-work and intense computation might make less sense. Instead, the Ethereum community will attempt to move to a proof-of-stake system, which is a means of using distributed consensus (rather than mining) to confirm transactions and keep the blockchain moving forward.
Ethereum blockchain’s currency ether is currently ranked number two by cryptocurrency market capitalization, and there are roughly 103 million ether in the circulating supply.
During the crypto market bull run of 2017, the price of one ether jumped to $1,448, reaching the all-time high price on January 13, 2018.
Ethereum wallet: Buy, sell, and hold ether
Ethereum is one of the cryptocurrencies that is “natively” supported by Abra, which means that Abra users can send ether directly from any Ethereum wallet to Abra. Users can also withdraw funds via ether to any other kind of Ethereum wallet.