Famous as the ‘Queen’ of the cryptocurrency realm, Ethereum experienced a significant rise since the time of its inception. The uniqueness of this system lies in its ability to provide many decentralized applications via its platform.
What is Ethereum?
Ethereum can be defined as a blockchain based, decentralized and programmable software platform. In fact, it incorporates a payment system and a decentralized app store on its blockchain network. On this platform, users are able to develop decentralized applications and contracts. These applications include DApps (Distributed Autonomous Applications) and Smart Contracts. These applications have the ability to run just the way they were programmed. Their advantage is negligible downtime and freedom from regulations, censorship, third-party interference, and even fraud.
The DApps and smart contracts are written in Solidity,which is an inbuilt and inherent programming language of the platform. The original crypto asset of the platform, Etheraids in the execution of these contracts and apps. As a result, Ethereum is also known as Programmable Money.
History of Ethereum
Vitalik Buterin, a Russian programmer is credited for the creation of Ethereum during the last months of 2013. In January 2014, Vitalik made the formal announcement for Ethereum at the North American Bitcoin Conference in, Miami, USA. Additionally, Dr. Gavin Wood joined the company in July 2014 as its co-founder. Consequently, it triggered the creation of the Ethereum software. Eventually, the pre-sale of the Ether tokens raised $18 million.
The concept behind this platform was to be able to execute tasks outside the scope of Bitcoin. More than its function as a cryptocurrency, its aim was to code, execute and run Dapps and Smart contracts independent of human interference.
DApps (Distributed Autonomous Applications) is the decentralized version of centralized computing systems like Google, Amazon, and Apple. The downside of the centralized systems is that they are under the control of a single authority. This entity has the power to censor, regulate or even ban any app on its system; leaving the user powerless.
On the contrary, DApps run on a blockchain system. As a result of this decentralized technology, all the power lies with the users. Therefore, the users have the authority to execute modifications on their apps and access their personal data. They can even regulate its use without interference from a central authority.
Using Smart Contracts, the Ethereum platform can validate and secure all the transactions with Ether without human interaction. The Smart Contract has the ability to automatically perform transactions and tasks with the consent of both parties. The result is that users can perform reliable and safe transactions without any of the parties able to renege on the terms of the contract.
For modifying the apps and running smart contracts, users need to pay a specific fee using Ether as the currency. The basis of the fee is the amount of computing power that was used for fueling the activities. Users can acquire the Ether by purchasing it or mining it on the platform.
Another unique application of Ethereum is the DAO (Decentralized Autonomous Organizations) built on its platform. Similarly, as its name suggests, DAO is a completely autonomous and decentralized organization without an authoritative leader.
The way to run DAOs includes programming codes present on a set of smart contracts running on the Ethereum blockchain. Therefore, the codes replace the structure and rules of a conventional organization, eliminating the need for centralized control. In fact, everybody who purchases the company tokens can own and vote for the DAO.
Total Production of Ether
Ethereum is the network of the platform. It uses Ether as the currency for transacting on the platform.
Through a regular block mining procedure, the platform issues Ether (ETH) at a constant linear annual rate. The percentage of this rate is 0.3 times the complete ETH amount at the time of pre-sale creation.
The pre-sale saw the creation of 60,102,216Ether.
Therefore, 0.3 times the total amount of 60,102,216 equals to 18,030,664.8. This amounts to approximately 18 million Ether every year.
However, there is a limit to the supply of Ether of 18 million per year. A miner produces an Ether every 12-14 seconds and receives a reward of 5 Ether. Ether coins come into being by using GPU and CPU mining via the Ethereum mining blocks.
Merits of Ethereum
Ethereum enjoys several benefits of the blockchain. Some of them include:
- Zero Downtime: The apps don’t ever switch off or break down.
- Secure: The apps achieve their security through the use of cryptography. The use of the blockchain removes any single point of failure, reducing its vulnerability for hacking and other fraudulent activities.
- Immutable: There is no chance of a third party creating new changes and modifying the data.
- Tamper-proof and Incorruptible: The process of censorship is not possible. The apps work on a network which uses the mechanism of consensus and removing the need of censoring.
Demerits of Ethereum
The Ethereum platform presents some limitations since it runs on a blockchain network, which is not faultless. Therefore, since humans developed smart contracts, they can produce human-based errors. Also, some smart contracts suffer from oversights and code bugs resulting in adverse scenarios. If a hacker exploits a code in a smart contract, the only way to stop is to completely alter the underlying code. This process would require network consensus, and turns out to be cumbersome and complex.
Therefore, this defeats the purpose of a blockchain, which is famous for its immutability.
Additionally, despite its high protection against hacking, some of the applications using Ethereum experienced problems before. An example is the hacking of the project ‘the DAO’. A startup named Slock.it started the project as a venture capital firm. However, within a few days of using smart contracts, an unknown attacker hacked the DAO, resulting in the loss of $50 million.
In fact, they tried to resolve this by using a hard fork and rewriting the smart contract. However, this process defeated the inherent principle of the blockchain. Therefore, it is quite clear that Ethereum is not flawless.
Ethereum is the new way of using the internet and changing the way of leveraging automation. Using Ethereum allows the user to carry out the task without involving intermediaries. The presence of applications like Smart contracts and DApps is causing a paradigm shift, which is fundamentally changing the world as we know it.
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