A history of Ethereum
Ethereum’s journey from bitcoin ledger offshoot to number two global cryptoasset player is easier to grasp than many competitors due to its increasing familiarity.
Like many rivals Ethereum (currency code: ETH) is a decentralised payment network allowing international transactions though it’s much more than that: it allows anyone to issue a crypotoasset token without their own blockchain.
Ethers – the unit of cryptocurrency used on the Ethereum blockchain – are traded evenly between USD, BTC (Bitcoin) and USDT. In early May 2018 Ethereum’s market capitalisation was $68.38bn with shares valued at $689 per token.
Over the course of 2017 Ethereum grew a spectacular 13,000% spurred by institutional, speculative and government interest in its potential for ‘smart contracts’. Ethereum hit an all-time high of $1,364.14 on 14 January 2018.
No one’s sure how many Ethers are in circulation because the number expands all the time; it’s estimated around 25 are created every minute via mining. Because of high trading volumes Ethereum is less volatile than many other cryptos. Ethereum’s website is here.
Ethereum-based applications are called dApps built on a programming language called Solidity.
Development and growth
In 2011 Ethereum founder Vitalik Buterin was a cryptocurrency programmer and also the publisher of Bitcoin Magazine. In 2013 he put forward the idea of Ethereum in a white paper – Buterin thought the potential of Bitcoin was not being fully deployed.
“I realised people are having such a hard time not because the problem [Bitcoin] is hard,” he says. “The problem is easy. People are having a hard time because Bitcoin is a bad protocol to build this stuff onto.”
He proposed a new platform, using a new scripting language.
An online crowd-sale followed in the summer of 2014. This raised almost $20m – enough cash to get Buterin’s vision up and running. Following this 11.9m coins were offered – around 12% of the overall supply at the time – at the end of July 2015.
Buterin’s project underwent a severe convulsion in 2016 when $50m in Ethers were hacked and stolen. The shock to the Ethereum community was profound and enough to see two blockchains go their separate ways, Ethereum (ETH) and Ethereum Classic (ETC). It was also a major public relations worry, raising fresh questions about Ethereum’s security.
Roll forward to 2018 and the US SEC is looking hard at Ethers to determine if they can be classed as a bona fide security. If the SEC agrees the impact could affect other digital currencies launched via initial coin offerings. The UK Financial Conduct Authority (FCA) began trading Ethereum futures on 11 May 2018.
How Ethereum works
Ethereum is not a direct competitor to Bitcoin though its name is regularly uttered in the same breath. Bitcoin focuses on currency payment or remittance services and emerged in 2009. You can’t build an app on Bitcoin.
You can build an app on Ethereum. Ethereum is different to Bitcoin because it stores software code to create networks – networks other companies and individuals can use to create ‘smart contracts’ that don’t involve a third party or institution.
Imagine you want to book and pay for a holiday. With an Ethereum smart contract you make the booking and pay for it immediately. No emailing. No cash transfer. No extra intermediary fees. All the separate components are compressed to one transaction and this takes seconds to complete.
According to Inc, the UN’s World Food Programme is now making use of a private version of Ethereum to distribute food vouchers to refugees. So Ethereum has wide range.
Ethereum fees are paid in ‘gas’ which varies because the fee is based on how complex a contract code execution is. In contrast, a Bitcoin transaction fee is directly proportionate to its size.
Breaking down Ethereal
Ethereum’s code is customisable so its program language stands a good chance of being adopted longer term, Ethereum loyalists claim. The only way a cryptocurrency can have long-term durability depends on the potential for applications to deploy its underlying asset. So Bitcoin and Ethereum have very different purposes.
- Compared to traditional paper or digital financial contracts a smart contract is written into a blockchain. Once accepted the deal is done. It cannot be changed or edited, ever
- Smart contracts are super-quick and have proved immune from third party interference like hacking (though there has been some close runs) or censorship
- To be absolutely exact, Ethereum is also a programming language. So it’s substantially more powerful, all in, than Bitcoin
How does Ethereum work and who pays for it?
Like Bitcoin, Ethereum has its own currency called an Ether (ETH) which can be traded, rising or falling in price. Think of Ethers as the digital ‘fuel’ that power the Ethereum network.
Ethereum miners verify transactions and add them to the blockchain digital ledger. Miners are boffins with a special rig on their computer to do the computational maths, either as a job or a niche hobby (many miners are Chinese). An ether is the reward for the first miner who cracks the code, so authorising a transaction.
Buying and selling Ethers allows for anonymous payments to be sent without the involvement of any third party. When trading Ethereum it’s sensible to use exchanges that have a high volume of trades so you get an accurate sense of trading volatility. Prices will vary depending on the exchange.
What is Buterin’s ultimate aim? To make Ethereum a world computer that can never be shut down. “Ethereum,” said Buterin, “is the smartphone of Blockchains: a universal platforms where, whatever you want to build, you can just build it as an ‘app’ and Ethereum users will be able to benefit from it immediately without downloading any new special software.”
A new economy, no less.
Is Ethereum’s popularity deserved?
Because it promises to change much of the transactional nuts and bolts of business life, not to mention ushering a brand-new way of using the internet.
In theory any service designed originally to be top-down – from banking to healthcare to gaming – can be decentralised using the Ethereum blockchain. However the technology remains relatively immature. It’s far from certain if Ethereum will win out, long term.
But because Ethereum was designed on an ‘open platform’ it is constantly updated and renewed as technology matures.
- If blockchain technology continues to attract support it may lead to cheaper and quicker services for some. More fundamentally, a decentralised service has the threat to take power away from organisations and institutions
- Very powerful forces are at work – hence the amount of corporate interest directed at the technology. Nothing less than a new world order is en route some claim (with some breathlessness)
- Much of the technology is work-in-progress and global government regulation is inexorably bearing down
Some critics continue to argue cryptoassets have no intrinsic value though there’s an emerging argument that some carry “digital productivity”.
Ethereum key players:
Vitalk Buterin – 24-year-old co-founder of Ethereum. Russian-Canadian programmer originally. Lived in Russia until the age of six when his parents moved to Canada in search of better job prospects. A political activist, Buterin is credited for greatly accelerating the potential of decentralised ledger technology – and the genesis of the Ethereum blockchain.
Joseph Lubin – Lubin was a co-founder of Ethereum and pivotal for helping it develop commercially. It’s thought he holds the largest supply of ether, globally. Closely involved in setting up the Ethereum Foundation (more of shortly).
Jeffrey Wilcke, Technical Steering Group – a programmer by profession but has increasingly focused on Ethereum client development.
It’s safe to say that Buterin and Lubin are not preparing Ethereum for a future IPO and a private life of mansions and luxury. The numbers-and-maths obsessive Ethereum creators have positioned Ethereum as a non-profit foundation based in Zug, Switzerland.
What people say about Ethereum:
Roger Ver, early investor in Bitcoin quoted in the UK Independent, 10 May 2018:
“I see it happening, and I believe it’s imminent… Ethereum could overtake bitcoin by the end of the year and Bitcoin Cash could do the same before 2020.”
Robert Masters, Managing Director of Blue Chip Vision, quoted in Forbes, 26 April 2018:
“It may be possible for either Ripple or Ethereum to beat the market cap of Bitcoin in the long term if future protocol enhancements are implemented and with the continued backing of global financial heavyweights.”
Alex Batlin, blockchain lead at Bank of New York Mellon, on a call to Fortune Magazine in 2017, discussing The Ethereum Network:
“That interconnection of public and private chains actually creates a very strong network. Each chain strengthens the other at an exponential level.”
And… Vitalik Buterin, Wired Magazine, 13 June 2016 on the potential power of Ethereum and money
“Ultimately power is a zero sum game. And if you talk about empowering the little guy, as much as you want to couch it in flowery terminology that makes it sound fluffy and good, you are necessarily disempowering the big guy. And personally I say screw the big guy. They have enough money already.”
2013 – a 19-year-old Vitalik Buterin positions Ethereum for programmers as an open source platform for new decentralized applications.
2014 July-August. Ethereum’s platform is funded via an online crowdsale attracting legions of its global supporters.
2015 – July 30. Ethereum goes live with 11.9m coins offered – around 12% of overall supply
Ethereum is currently running on beta software until the release of the next “Metropolis” stage. It is maintained by ETHDEV.
A flexible corporate friend?
Ethereum was designed with a lot of coding suppleness from the start. Its eco-system (or computer protocols, to be exact) allows for a near limitless, super-abundance of contracts or applications, which can be private, public or sector specific.
A collection of major Fortune 500 companies called The Enterprise Ethereum Alliance has now agreed to share their joint experience of building smart contract block chains on Ethereum-based networks. These blue-chip big hitters include ING, Deloitte, Accenture, Samsung and JP Morgan.
So some gaining corporate acceptance of the technology (though it’s likely that banks have explored the technology in secret for some time). Acceptance could also raise standards – and support Ethereum valuations, possibly – longer term. Its website is here.