Cryptopedia
Ethereum
What Is Ethereum?
Ethereum is an open-source, decentralized blockchain operating that is not controlled by anyone and is currently the most active smart contract network. In 2013, Vitalik Buterin (V-God) first proposed the idea of a "next-generation cryptocurrency with a decentralized application platform" and officially announced the development of Ether in January 2014.
Ethereum is like an operating in a computer. Users can download and write software, set up exchanges, store accounts and issue tokens. It is an extension of the concept of Bitcoin. On top of the distributed ledger, users can connect to Ethereum and run smart contracts to create new trades and mine blocks. Compared to Bitcoin, Ethereum has the advantage of faster block generation, greater scalability, and less risk of centralization. Therefore, Ethereum is also known as blockchain V.2.0.
The token issued in Ethereum is called Ether, or ETH for short. It's the second largest cryptocurrency in terms of market cap with only Bitcoin ahead of it. On the blockchain, Ether, like Bitcoin, can be used for market trading or as a mining reward to pay for transaction fees and service charges. The difference is that the mining methods Ethereum uses are more complex. They are divided into pre-mined (tokens issued during crowdfunding), block rewards, and uncle block rewards. In a nutshell, the decentralization and smart contract function of Ethereum can achieve a higher degree of data security and better protect traders. However, this does not mean that there is no risk of attack on Ethereum. If a vulnerability in the underlying code is discovered and attacked by hackers, Ethereum will ultimately fail to provide a successful decentralized platform and may have to roll back the chain to solve the issue.
Features of Ethereum
1. Allows for the building of decentralized applications. Decentralization is one of the main features of the blockchain. Ethereum can not only help develop and deploy decentralized applications, but also help decentralize the centralized applications. This can reduce the risk of centralization, ensure data security and stop applications from getting hacked.
2. Smart Contracts: A smart contract is a special protocol that runs by using nodes as validators. It can be used both for making contracts, and used for interacting with other contracts, which is the most important technical contribution of Ethereum.
3. Open Source and Scalable: Ethereum provides a platform for users to freely build applications and scale their projects. Users can become developers on Ethereum. All they need to do is provide a small trading fee and comply with the contract.
What Is Ether?
Ether is a cryptocurrency that, based on Ethereum, was issued in 2014 and currently ranks second in market cap. At the beginning of Ether's inception, Ether pre-sold 60 million Ether coins to users in order to complete the crowdfunding. Up to 18 million can be produced each year. Approximately 5 Ether coins can be generated every 12 seconds and 25 transactions can be processed per second. Ether has the characteristics of other cryptocurrencies, but it is more like a digital fuel. Fuel (Gas) is the unit of computing the volume of smart contracts. The equation is: Transaction = Gas Price * Gas used. In Ethereum, the cost is converted into the equivalent value of Ether as the miner's block reward. So, essentially the miner's gain is equal to the amount paid for the transaction. The total amount of Ether remains a mystery due to its unlimited supply. It does however, have an $18 million limit on its annual production.
Pros and Cons of Ethereum
Pros:
1.Ethereum's protocol is simple and its open-source nature facilitates the development of applications that can support even more complex applications.
2. The functions of Ethereum have room to be further developed. With regular upgrades and improvements, Ethereum still has a lot of room for growth.
3. The decentralized service of Ether makes trading more convenient and autonomous. Everyone can share the content inside the platform, and no one can change it at will.
Cons:
Due to the different technical levels of developers, there are loopholes in the applications built on the underlying framework. Although decentralization and smart contracts have largely strengthened Ethereum’s security, the hacking risk cannot be entirely evaded.
What Is a Hard Fork of Ethereum?
A hard fork is a project in which the original chain is split into two different chains. This happens due to a disagreement on which direction the chain should take. Users can choose whichever chain they like. However, as the forked chain develops, one of the two chains tends to be eliminated. There are four phases in the officially planned technology upgrade roadmap of Ethereum: Frontier, Homestead, Metropolis and Serenity. The Byzantine hard fork, the Constantinople hard fork and the Istanbul hard fork occurred during the Metropolis phase. During the development process, there were three unplanned hard forks due to some unexpected issues such as resolving and resisting attacks on the network. Namely, The DAO hard fork, the EIP150 gas hard fork and Spurious Dragon hard fork. The DAO is a decentralized autonomous organization. On April 30th, 2016, The DAO was hacked for $50 million worth of Ether coins during a crowdfunding campaign for Eth. Ether users voted to abandon the chain where the hack took place in order to recover the funds. The hard fork was controversial because while it succeeded in returning assets to those who suffered losses through a rollback, it also sparked a discussion about the principle of decentralization.
Ethereum was originally created to solve the scalability issue of the Bitcoin blockchain and had excellent results in the early stages. However, as the platform grows and expands, it seems difficult for Ethereum to avoid similar scalability issues that Bitcoin has. There are many challenges to be faced in the future. We can discuss this in the following three points:
1. Efficiency Issues: Ethereum, the first smart contract development platform, has both pros and cons. It allows developers and investors to see the value and development potential of the platform. It also creates efficiency issues such as consensus algorithm difficulties and cross-chain trading problems. This is the primary issue that Ethereum needs to solve in the future.
2. Technical Problems: The founding team of Ethereum divided the development roadmap into four stages: Frontier, Homestead, Metropolis and Serenity. Each stage will be upgraded by means of hard forks to improve the consensus . Each successful upgrade may change the entire Ether blockchain. In addition to the very high level of technical difficulties, Ethereum also needs to ensure that the upgraded project is recognized and can be easily used by the blockchain community.
3. Market Competition: The blockchain market has welcomed more and more smart contract platforms, such as EOS, EKT, and QTUM.. These challengers are highly competitive. They either have faster transactions than Ethereum or lower withdrawal fees than Ethereum. In the short term, Ethereum can continue to be No.1 for it’s first mover advantage and the time it’s existed. However, in the long run, Ethereum may not be the ultimate winner.
