Ethereum is arguably the second-best known cryptocurrency after Bitcoin, and for good reason. A pioneering project dreamt up by a man with a taste for unicorn t-shirts, it is the bedrock on which hundreds of cryptocurrency projects have been built and the one that really brought the theory of smart contracts into reality.
Those with a technical mind will tell you that the seeds of Ethereum were sewn by Nick Szabo in 1997. One of the cypherpunks whose work led to the creation of Bitcoin, Szabo is a pioneering cryptographer who coined the term ‘smart contract’, an immediately executed pre-agreed transaction that takes place the moment the terms of the contract are met. This simple yet revolutionary idea turned into a reality when an unknown teenager named Vitalik Buterin released a white paper in late 2013 entitled ‘A Next-Generation Smart Contract and Decentralized Application Platform’.
Russian-born Buterin was first introduced to Bitcoin in 2011 by his computer scientist father, and began to write for Bitcoin websites and online magazines. When his suggestions that Bitcoin should have a scripting language for application development were rebuffed, he created a new project. His platform, called Ethereum, would combine the principles of smart contracts with blockchain to create a platform on which anyone could create decentralized applications with smart contracts built in. It’s safe to say that upon launch it changed the course of cryptocurrency and blockchain forever.
The DAO and Ethereum Classic
After completing the ICO in 2014, Buterin and the Ethereum developers created the DAO in 2016, a digital decentralized autonomous organization, which was a form of investor-directed venture capital fund based on the Ethereum platform. Investors put money into the DAO in the form of ETH, in the hope that the projects that resulted from it would turn their investment into a profit. Six weeks after the launch of the DAO, and with $150 million worth of ETH in the pot, a hacker managed to find a way in and steal a third of the ETH, around 4 million, before the leak was stopped. The hack led to the Ethereum network experiencing a ‘hard fork’, resulting in a second coin, Ethereum Classic, being born. Like Coca Cola Classic, Ethereum Classic is the original version and Ethereum was the clone, although it seems in this case that people like the taste of the ‘new’ Ethereum enough to keep both.
Ethereum has grown into a platform that hosts a huge number of projects and is the primary method of fundraising for ICOs, even though many projects move onto their own blockchain later on. Any project on the Ethereum platform is part of the ERC20 token system, which has the benefit of being able to be stored in the same wallet as all the other ERC20 tokens rather than requiring a wallet for each one.
The ETH token fuels all the processes within the Ethereum network (this is sometimes referred to as ‘gas’). There are also several decentralized exchanges that run off the Ethereum platform, such as Etherdelta and IDEX, where Ethereum-based coins often get listed first.
The Future for Ethereum
Ethereum is currently going through something of an identity change. This has been brought on by the arrival of faster and more adaptable platforms, along with the wish to move away from the proof-of-work (PoW) verification method which is gradually becoming outdated. The process they wish to move to is called proof-of-stake (PoS), and the Ethereum developers are trying to manage the migration from one to the other, as well as scaling the protocol so the transaction rates can rival those of the competition. Technical problems have caused delays and pushed timescales back, whilst rumors that Buterin is about to step away from the project persist. Ethereum’s fortunes have not been helped by the 2018 bear market, which has seen the value of one Ethereum token crash from $1,400 in January 2018 to almost $100 eleven months later.
Ethereum has, without doubt, been key in helping to push cryptocurrency and blockchain to where it is now, but with newer projects challenging it as the premiere development platform, it is in urgent need of reform. If this doesn’t occur, it could soon be seen as a relic of days gone by in blockchain’s fast-moving story.