The Blockchain Handbook - Chapter 2: Ethereum (ETH)

cryptaligator (28)in #cryptocurrency • 7 years ago

Ethereum (ETH) is a blockchain platform, and a rival of Ethereum Classic (ETC), which came about after a hard fork caused the two networks to split. ETC continues the original blockchain on which Ethereum is based, while ETH created a new chain to increase DDoS protections, "de-bloat" the system and reclaim funds affected by the catalyst for the community split. First conceived in a white paper by programmer Vitalik Buterin in 2013 and developed in 2014, Ethereum currently has a market cap of $82,955,265,383 and value equal to $850.01, or 0.09831670 BTC.

Designed with the goal of building on the successes of Bitcoin and creating a "smarter blockchain," Ethereum has climbed the ranks to the second most-valuable cryptocurrency in the world. Its current 24-hour volume is around $2,138,940,000, and Ethereum saw its value increase over 60-fold during 2017, with those increases continuing into January 2018. At present, the amount of Ethereum in circulation is at 97,593,856 ETH.

Ethereum: Competition, Pros and Cons

Ethereum was created to provide functionalities beyond those of cryptocurrencies like Bitcoin. As such, Ethereum bears its share of similarities, like the use of a public blockchain network and the fact that users mine for additional Ether to generate wealth.

Like Bitcoin, Ethereum operates on proof-of-work, meaning a complex mathematical problem must be solved in order for miners to gain Ether. Unlike, Bitcoin, however, Ethereum uses a "memory-hard computational problem," helping ensure that general computers are the ideal hardware for mining and that the network remains decentralized.

This only scratches the surface of how the two platforms vary, though. The larger difference can be seen in the capabilities and intentions for using Ethereum. CBInsights highlights this with an interesting series of questions:

"On the strength of blockchain, Bitcoin has grown into a trusted system for exchanging and storing value. But what if you want to negotiate an economic agreement or a future transaction? Put differently, where else might an unchangeable decentralized record prove useful?"

This, Ethereum's developers purport, is where it comes into play. The main strength of Ethereum is in a concept known as "smart contracts," which are contracts written in code and uploaded to the blockchain. When certain requirements are met, the program then executes on the terms stated in the contract. They are designed to run, according to Ethereum, "exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference." The smart contracts could be the exchange of money, property, shares -- anything of value.

Which isn't to say that certain functions don't benefit more than others on Ethereum's system. In particular, they note, "Ethereum is suited for applications that automate direct interaction between peers or facilitate coordinated group action across a network," examples of which include applications for coordinating peer-to-peer marketplaces, the automation of complex financial contracts, voting, asset-registries, governance and more. This puts the scope of Ethereum beyond the exchange of funds between individuals, and theoretically enables financial transactions of far greater complexity to occur using their platform.

Ethereum is not without its faults, however. Numerous criticisms, from outlets like Hackernoon to co-creator Vitalik Buterin himself, have been leveled at the platform. The most notable of these are the issues surrounding Ethereum's ability to scale and concerns over the idea of smart contracts. Ethereum's blockchain size is growing, and if the platform cannot accommodate the various transactions of its users fast enough, it may end up collapsing under its own weight.

Those concerns over smart contracts are detailed further in the Hackernoon article, but boil down to the fact that smart contracts will only function as well as they are written. They could contain mistakes -- accidental or intentional -- that prevent "regular" users from knowing if the contracts in question will do what they say they will. In such situations, it could be the case that non-technical adopters of Ethereum will end up on the bad side of a deal with no recourse, as was the case with the DAO Event.

The Uses of Ethereum

Ethereum notes that its power comes in the form of the smart contracts. Digital Trends provides a good example of how that might play out in a practical sense:

"As an example, say you want to rent a car from a service that uses Ethereum. A smart contract is generated, stipulating that if you send the required amount of funds, then the service will send you a digital key to unlock the car."

Since this process is automated and uses Ethereum's blockchain platform, everyone on the network can see when the various actions of the contract have been carried out, increasing the accountability of the involved parties.

Since there is no need for a lawyer or similar middleman in this scenario, the speed of such transactions could be increased, and fees to third parties eliminated. Proponents assert that this process could be used for other similar transactions, such as purchasing a home, transferring business assets, online gambling, crowdfunding, etc.

The Future for Ethereum

Experts like Fortune are adamant that Ethereum will likely be around for the long-term, in spite of the challenges that the platform faces. If they can weather the storm of fluctuations and potential crashes, then Ethereum's vision of shifting the balance of power from the "big guys" to the "little guys" may be one that comes to fruition. Changes that users can expect in the near future include technical improvements to transactional capacity and the introduction of Casper, Ethereum's proposed proof-of-stake system.

Sources:

#ethereum #blockchain #eth #crypto

7 years ago in #cryptocurrency by cryptaligator (28)

$0.00