Ethereum

Ethereum and Bitcoins

Bitcoin and Ethereum differ substantially in purpose and capability. Bitcoin was created as a an alternative to regular money. It is also a medium for payment of transactions. Ethereum, on the other hand, was developed as a platform to execute peer-to-peer “smart contracts” and applications. It supports Turing-complete languages, meaning that it can perform general computation. In other words, any type of code that I run on a regular computer can also be run on Ethereum. Code execution on Ethereum is fueled by Ethereum’s internal token, called ether. In the Ethereum blockchain, instead of mining for bitcoin, miners work to earn Ether. Ether is not just a tradeable cryptocurrency. It may also used to pay for transaction fees and services on the Ethereum network.

Ethereum Timeline

Ethereum was first described in a whitepaper released in late 2013 by then 19-year-old Vitalik Buterin. Vitalik Buterin is a programmer from the University of Waterloo.

• The platform had a token sale between July and August 2014 and sold 7.4 million ether for 3700 BTC in the first 12 hours of the presale. At the time, this was equivalent to 2.3 million USD.
• The Ethereum blockchain officially went live on July 30th 2015.
• Around 2015, the idea of Decentralized Autonomous Organizations (DAOs for short) became hugely popular. DAOs are essentially programs on the Ethereum blockchain that create a distributed government. More on this below.
• By May 2016, the cumulative value of Ethereum tokens was more than $1 billion.

The DAO – Ethereum and Ethereum Classic

“TheDAO” was a specific project that would serve as a decentralized Venture Capital, allowing their investors to vote and decide on the distribution of funds between startups. However, in July 2016, these dreams came crashing down when a hacker exploited a bug in the underlying code, stealing about $120 million worth of Ether to from TheDAO smart contract. Outraged by the enormous theft, several voices in the community proposed to defy the protocol and undo the hack. The majority of community decided to simultaneously rewind their own chain and ignore all activity starting from the hack, but a small subset chose not to undo that activity with the belief that “code is law.” The split that rewinded history is the split that is currently branded as Ethereum. The remainder that believed that nothing – including catastrophic events like the DAO Hack – should be reverted stayed on the main chain, now known as Ethereum Classic.

The Rise of Cryptocurrencies – Public interest and investment

We have witnessed a rise in cryptocurrency exchange-traded-funds like the Winklevoss Bitcoin ETF. These funds have helped the average person to invest in cryptocurrencies. This too, without having to worry about dealing with exchanges and storing the tokens.

Initial coin offerings, or ICOs, have also been a huge factor in the price of Ether. In the third quarter of 2017 Q3’17, ICOs have raised $1.3B with 150 ICOs while seed/angel investing across all tech sectors has raised $1.4B across 1602 deals. Venture capital funds have also started investing into Ethereum technology. Either into the ICO like Blockchain Capital, or directly into the token like Polychain Capital.

FOMO, or “Fear of Missing Out” plays a role in many people’s investing decisions. People don’t want to miss out on the “next bitcoin”, and end up investing in cryptocurrencies like Ether. This drives the price in upin a positive feedback loop. Also, Bitcoin’s and other cryptocurrencies’ prices are starting to be broadcasted on public networks. And economic and political circumstances like Brexit, Trump’s election, or India’s war on cash can also contribute to driving up the price of cryptocurrencies, since they tend to undermine people’s trust in centralized systems and cause them to shift towards more decentralized systems like cryptocurrencies.

Popularity and CryptoKitties

Due to some economic and political situations, and Fear of Missing Out, cryptocurrencies became extremely popular, resulting in a massive hype train. In December 2017, cryptocurrencies started attracting much more “mainstream” attention. And led to a change in the demographic of the people who were invest, in particular, an increase in the number of millenials getting involved. A decentralized application built on top of Ethereum called CryptoKitties, an online marketplace for virtual cats, became so popular that at one point, it contributed to 10% of Ethereum’s total network transaction volume.

What is a smart contract?

Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. Smart contract is just a phrase used to describe computer code. The code and the agreements contained exist across a distributed, decentralized blockchain network. and facilitate the exchange of money, content, property, shares, or anything of value. Smart contracts, like self-operating computer programs, automatically execute when specific conditions are met. Because smart contracts run on the blockchain, they run exactly as programmed without any possibility of censorship, downtime, fraud or third party interference.

The Ethereum Difference

While all blockchains have the ability to process code, most are severely limited. Ethereum is different. Rather than giving a set of limited operations and controls, Ethereum allows developers to create whatever operations they want. This means developers can build different applications that go way beyond anything we have seen before.

What can Ethereum be used for?

Ethereum enables developers to build and deploy decentralized applications. As mentioned above, Ethereum gives more power and control to developers. Bitcoin, for example, is a Decentralised app that provides its users with a peer to peer electronic cash system that enables online Bitcoin payments. Because decentralized applications are made up of code that runs on a blockchain network, they are not controlled by any individual or central entity.

Any services that are centralized can be decentralized using Ethereum. Think about all the intermediary services that exist across hundreds of different industries. From obvious services like loans provided by banks to intermediary services rarely thought about by most people like title registries, voting systems, regulatory compliance and much more.

Ethereum can also be used to build Decentralized Autonomous Organizations (DAO). A DAO is fully autonomous, decentralized organization with no single leader. DAO’s are run by programming code, on a collection of smart contracts written on the Ethereum blockchain. The code is designed to replace the rules and structure of a traditional organization, eliminating the need for people and centralized control. A DAO is owned by everyone who purchases tokens, but instead of each token equating to equity shares & ownership, tokens act as contributions that give people voting rights.

Prices of Ethereum and Legal Regulations

On June 21st 2017, the price of Ethereum on the exchange GDAX crashed briefly to 10 cents USD per ether due to a massive sell order. This is a testament to the massive volatility of cryptocurrency prices. Much of the price is dependant on the public perception of the currency. Here are a few things that affected it. Speculation about legal repercussions on the DAO Hack led to a drop in prices. More regulations would mean that it would be much harder to trade in cryptocurrencies.

It’s important to have an educated understanding of the crypocurrencies rather than make decisions based on volatility and prices. Although sometime back the price of Bitcoin was many times higher than what it was a year ago, it’s started to take a downward turn in the beginning of 2018 after peaking in December 2017. Bitcoins prices saw a lot of volitility in 2018 which attracted legal considerations. There has been an increase in the amount of international regulation especially in India, South Korea, US and the UK.