What is Ethereum?
Imagined in 2013 by Vitalik Buterin, Ethereum is a blockchain intended to allow the development and execution of smart contracts and decentralized applications (dApps).
After being joined in 2014 by Anthony Di Iorio, Charles Hoskinson (founder of Cardano), Mihai Alisie, Amir Chetrit, Joseph Lubin (founder of Consensys), and Gavin Wood (founder of Polkadot), and Jeffrey Wilcke, the project finally saw the day in 2015. The development of the platform is now provided by the Ethereum Foundation and a community of volunteer developers who support the initiative.
Ethereum also enables the creation and transfer of digital assets in a decentralized and secure way. The protocol features a dedicated native cryptocurrency called Ether (ETH). It is the virtual currency used to pay for goods and services (power smart contracts, host dApps, pay transaction fees, obtain tokens, buy a domain name, etc.) and to remunerate validators ( or minors) in the network.
Inspired by Bitcoin, Ether is an independent currency that operates without the control of central authorities such as central banks and governments. It ranks second in the Coinmarketcap ranking of the most capitalized crypto-assets in the world. Its advent has also led to the emergence of many cryptocurrencies that have challenged the limits of Bitcoin.
The characteristics of Ethereum
Before changes can be made to the blockchain, the nodes must agree on the validity of the information stored. Consensus is the means by which this decision is made within the network. It ensures the security of the blockchain.
Like Bitcoin, Ethereum implements a consensus mechanism called Proof-of-Work (PoW), specifically using the Ethash algorithm. With this protocol, miners are paid according to the effort they put in, as they inject huge amounts of computing power to enable the verification of transaction blocks.
However, PoW has the disadvantage of being power-hungry, which largely contributes to making transaction fees on the Ethereum network very high. However, this could change with the transition to Ethereum 2.0 which is expected to implement the Proof-of-Stake (PoS) protocol.
The Ethereum virtual machine (EVM)
Ethereum provides an ecosystem for developers to create new types of applications. To do this, the protocol has an abstraction layer that leverages a virtual machine (Ethereum Virtual Machine or EVM) to improve the performance and portability of decentralized applications and smart contracts.
The EVM acts as a general-purpose computer that aggregates the computing power of the Ethereum network nodes and redistributes it to developers so that they can deploy smart contracts or dApps. These applications are created using programming languages such as Solidity, Vyper or Bamboo.
Since the EVM cannot interpret these languages, the code is converted into opcodes. These are sequences of instructions that can be understood by the EVM and that allow the execution of specific tasks. The set of these opcodes allows the EVM to be Turing-complete, which means that it is capable of performing almost any computation, and therefore of executing any type of program.
In order to store the opcodes efficiently, they are encoded in bytecode.
The gas system
On Ethereum, gas refers to a unit of value that is used to pay fees associated with transactions. It is an abstract value that cannot be exchanged or traded.
Ethereum gas also allows miners to be rewarded for mining blocks.
Each unit of gas has a price, which is expressed in small units of ETH called Gwei.
1 Gwei = 0,000000001 ETH
Issuance of tokens
Ethereum offers the possibility to issue tokens that can represent anything in the real or virtual world. It can be a physical object (art objects, diplomas, property titles,...), a currency allowing access to a service on the blockchain or even financial instruments such as stocks and bonds.
The functions of each token depend on the vision of the person who creates it and puts it into circulation. They can be used for a variety of purposes, for example to pay for access to a network or for the decentralized governance of an organization. Tokens can have a fixed price or vary according to the law of supply and demand.
Tokens are often issued to the public in a collective sale called an initial coin offering (ICO).
Since 2019, an upgrade from Ethereum 1.0 to Ethereum 2.0 (Serenity) has been announced. A first part was deployed in December 2020. Once the upgrade is complete, we will be treated to new features including:
- The switch to the Proof-of-Stake protocol with the Casper protocol. This solution no longer involves mining, but staking. Thus, to become a validator on Ethereum, it will be necessary to put a part of its tokens in play. The more tokens one has in play, the more chances one has to win the reward. PoS will increase speed - thus scalability - and reduce energy consumption and transaction costs.
- Sharding: it will allow to separate transactions on several parallel and independent execution channels in order to increase the scalability of the blockchain.
- Replacing EVM with eWASM (Ethereum WebAssembly) to improve transaction speed, data security and compatibility with more programming languages.
Ethereum has not only allowed the rise of new cryptocurrencies but also the advent of new uses of the blockchain such as decentralized applications, smart contracts and NFTs. Despite its weaknesses, it seems to have better days ahead of it, thanks in particular to the contributions of the latest updates of version 2.0.