Ethereum is a platform for building smart contracts using Blockchain. We can define Ethereum in a nutshell as a programmable Blockchain. That is, it is possible to build Blockchain applications using a programming language on the Ethereum platform. To understand how it works, it is important to make a comparison with Bitcoin.
While Bitcoin (BTC) aims to serve as a digital currency, Ether (ETH) basically serves as a currency to finance new projects built on the Ethereum platform, and also serves to pay for the costs of operating projects on that platform.
What types of projects can be built at Ethereum?
Through the technology of smart contracts, it is possible to use a programming language called Solidity (created by the founder of Ethereum) to create decentralized applications, such as bookmakers, crowdfunding systems, social networks, in short, the sky is the limit.
Ethereum allows blockchain technology, used for the first time in Bitcoin, to be easily manipulated to create other projects from programming. In fact, it is very easy to create a new cryptocurrency using Ethereum.
Many cryptocurrencies are on the Ethereum platform, that is, they use the Ethereum network as the basis for their own token. We generally call “token” the cryptocurrency that resides on a smart contract platform. Some examples are Maker (MKR), OmiseGO (OMG), Augur (REP), 0x (ZRX) and many others.
Soon after the creation of Ethereum, it became much easier to build a cryptocurrency from scratch, so the number of cryptocurrencies on the market has increased steeply.
Currently, Ethereum is no longer the only smart contract platform, there are others like Cardano, NEO, EOS, Tron, etc. But Ethereum is still the most famous for being the first.
How did Ethereum start?
Ethereum was created in 2014 by Vitalik Buterin, a prodigious Russian programmer. Vitalik was involved with the Bitcoin project in its early days. From his knowledge, he had the idea of developing a platform where it was possible to program blockchain technology, which revolutionized the market. Ethereum was born.
Shortly after the project was created, a security breach in a smart contract on the platform allowed a hacker to steal hundreds of millions of dollars. The programmers involved with the project discussed a lot about what to do: allow the hacker to keep the money or freeze the funds, changing the original code of the platform. As there was no consensus, the project had to go through a fork and there were two separate projects: Ethereum Classic (the original protocol) and Ethereum (the branch that froze the hacker’s funds). Most developers sided with the branched Ethereum. The argument of those who did not want to recover funds lost by the hacker was that “code is law”, that is, if users of the platform cannot trust that the base code of a smart contract will never be changed, how to ensure that harmful manipulations occur in the future? In other words, the smart contract created will always be subject to change, and that characterizes a centralized, not decentralized system. Among the dissenters was Charles Hoskinson, who left the project after that episode and founded Cardano in 2017.
After that incident, Ethereum just grew in size and recognition. It took a long time before new smart contract platforms (competitors) were created to rival Ethereum, and allowed Ethereum to dominate the market.
Partnerships with companies and institutions
Currently, there is the Enterprize Ethereum Alliance, which is an organization focused on enterprise-level software capable of handling complex and highly demanding applications at the speed of business in the Ethereum protocol. The Enterprise Ethereum Alliance connects Fortune 500 companies, startups, academics and technology providers with Ethereum subject matter experts. Among the board members, there are large corporations such as Microsoft, JP Morgan, Intel, among others.
The Enterprize Ethereum Alliance also formalized an interoperability partnership with Hyperledger (another very popular open source blockchain business solution – created by the Linux Foundation) in 2018.
Even the President of Russia (Vladimir Putin) met Vitalik in 2017 to discuss Ethereum opportunities in the country.
In addition to Vitalik, Ethereum has more than 200 active developers working on the main protocol and also on secondary layers. Interest in the project grew quite shortly after its launch, creating a culture similar to Bitcoin, but in the world of smart contracts.
Future of the project
Ethereum is constantly working to improve its platform. The biggest challenges are scalability (the ability to grow the number of users without damaging the architecture and without increasing network congestion / fees), security and computational efficiency.
In the field of computational efficiency, the project will change its consensus algorithm, which is currently Proof of Work (PoW) to Proof of Stake (PoS), with the Casper protocol. This change is expected to happen around 2021-2022.
Together with PoS, Ethereum is working on second-tier solutions to increase scalability, of which we can highlight the Plasma project, similar to Bitcoin’s lightning network.
The project is also increasing its security requirements through formal software verification, adopting a solution called K Framework developed by the company Runtime Verification.
Is it worth buying Ethereum?
With the growth of blockchain technology, it seems to be a good idea to invest in the main projects in the segment. Currently, Bitcoin and Ethereum lead the world in decentralized projects and are the pioneers in their concepts.
However, Ethereum is for the first time receiving strong competitors, platforms that promise to bring technical solutions to the problems that Ethereum faces and other functionalities. So it is difficult to know what will happen in the future.
What Ethereum has in its favor is the current adoption and partnerships already achieved in the market. Whether anyone will be able to dethrone Ethereum, we don’t know.