What is Ethereum, Explained

Clarification

For both: the platform and the cryptocurrency working on it people use the word “Ethereum”. But the coin is also called ether. Therefore, in order not to get confused, let's stick to this option.

The concept

Ethereum is a platform for distributed online services working on the blockchain. Canadian-Russian programmer Vitalik Buterin offered this concept in 2013. But what does it mean? Ethereum has become a platform not only for its currency but a place where you can create your own smart contracts. Its creator, in principle, was the one who implemented the idea of smart contracts.

Ether is cryptocurrency made as Ethereum’s exchange unit. But it is also the working fuel of smart contracts.

What is the idea of ​​smart contracts?

Smart contracts are self-fulfilling contracts that don’t require any intermediaries, who will monitor the implementation of the contract. The idea is that all the functions that must be performed by both parties are spelled out in code and have a complete mathematical implementation. For example, you have a house that you rent. Every month you have to pay a certain amount to live there. If your contract’s type is a smart contract, then if you, for example, don’t want to pay, your house key will no longer work. And the door will lock. The example is probably quite rude, but it is clear for understanding. But the implementation f this magic will be very difficult if we hadn’t EVM.

What is EVM?

Another advantage and a clear distinction of Ethereum is the presence of Ethereum Virtual Machine. With the help of it, smart contracts are compiled into byte-code. After that, it is sent to the blockchain. In principle, it can be said that it is a Turing machine.

What is the plus of these buzzwords? This virtual machine gives an opportunity to people with sometimes even non-technical education to write the logic of the work of smart contracts. All this is due to the fact that Ethereum Virtual Machine works with various programming languages ​​and you can use it if you own only master visual programming.

Another advantage is there are loops implemented in it. For example, if the “machine” sees the presence of a potentially infinite loop, then it limits the operation of the given smart contract.

Distributed ... what?

Many startups, companies, and projects declare that the services they provide are decentralized or distributed. It means, they can’t interfere with the work of the “network”. The same thing was said when creating the Ethereum. But in fact, it turned out that it is not. It all started with a story related to the project The DAO.

DAO was a start-up which involved creating a platform for the investment of various projects, which are based on smart contracts. During its ICO, the project achieved a stunning success: it raised money in the region of $150 million. In June, it became clear that there are errors in the code. The hackers took advantage of this and stole part of the funds: $60 million.

There were a lot of disputes and discussions on how to return the money back. The problem consisted of the ethical side. Recall that Ethereum is positioning itself as a decentralized system and it can’t monitor anything. However, $60 million is a huge amount. The developers decided to make a backup by a hard fork. That is, the blockchain would have come to the state it was before the theft of money.

Money was back. But the dissatisfied remained. Since one of the main bases was violated - the inevitability of operations made on the blockchain. Therefore, Ethereum Classic was created with the version of blockchain before the backup

The history of Ethereum

Each great opening (the creation of Ethereum we can with great confidence call not only big but also an important discovery) has its own story. Although the apple is not mixed up here. Far in 2012 Bitcoin Magazine was published. And as its publisher and co-founder were (guess who?) Vitalik Buterin. At that time he was learning programming and thinking about creating an improved platform running on the blockchain. Along with this, he had to go to work. Here is how he remembers that period of his life:

“The idea to create Ethereum did not come immediately. At first, I tried to promote it in the project for which I worked. But I was told that I needed a year for implementation. And I quit. I remember myself walking in San Francisco and thinking. At some point I took and wrote the white paper, sent it to my friends, they did the same. And it all began”.

It was 2013. Already in 2014, fundraising for the Ethereum’s “creation” began. ICO Ethereum collected 31,191 BTC (more than $18 million), and the project itself also attracted many big companies. The launch of the platform came to July 2015. However, it fully started to work only in March 2016 with the release of the protocol Homestead.

The cost, popularity, and companies

1.5 years later after 2013’s white paper, Vitalik’s idea was realized and the project had launched. At its start in August 2015 ether costs $2.83. The lowest price it had was equal to $0.42 (October 2015). The highest one reached $1432 (January 2018). Now (February 2019) it costs $137, nevertheless it doesn’t prevent ether to be the 2nd most widespread cryptocurrency of our time. Also, it remains one of those cryptocurrencies that are in the constant circle of interests of various financial and IT companies. We can take Microsoft, IBM, Lufthansa and S7 airlines, VTB bank and Sberbank as an example. Even international charitable organizations like UNICEF have begun to think about the benefits of the Ethereum.