Technology is often like chameleon and it keeps changing faster than you expect. What is deemed as the latest technological innovation today may become obsolete in a few years or even earlier. Blockchain is regarded as one of the most radical and fast evolving technologies since the arrival of the World Wide Web. It has also given birth to a lot of crypto currencies including bitcoin. While bitcoin is a popular crypto currency – various new currencies have also hit the market since its arrival on the scene. Some unique blockchain based platforms and services have also appeared. Each one has its own USP. Ethereum is one of the top ones.
What is Ethereum?
Ethereum can be described as a blockchain-based open source platform meant for building plenty of decentralized cryptocurrencies as well as projects without developing separate blockchains for each. It is developed in a way that the developers can create Smart contracts using the platform. Smart contracts are conditional scripts that are meant to run tasks automatically when specific conditions are met.
You can think of Ethereum as a virtual supercomputer that can run apps minus human intervention-flawlessly. These applications are referred as Dapps or ‘Decentralized Apps’. The cryptocurrency that is required to use this amazing virtual network is called Ether.
History and evolution of Ethereum
Vitalik Buterin a Toronto based programmer -is the creator of Ethereum and he came up with its concept in a whitepaper in 2013. He actually wanted to develop DApps on Bitcoin’s blockchain but his vision did not garner support from the others in the Bitcoin community at that time. Ethereum was officially unveiled in January 2014. The others in the team included Charles Hoskinson, Mihai Alisie and Anthony Di Iorio. Ethereum’s ICO period lasted from July to August 2014. In July next year, Ethereum went live.
It did not take long for people to realize the immense exponential of Ethereum, given the fact it was launched at a time when bitcoin was quite popular. In the next few years, Ethereum emerged as the 2nd biggest cryptocurrency in terms of market capitalization. However, of late, it has lost the 2nd position.
How it actually works?
Much like Bitcoin and some other cryptocurrencies, Ethereum has its unique blockchain. It is a digital ledger of entire transactions made on Ethereum network- stored on multiple nodes spread across the world. However, bitcoin’s blockchain is used to store just transaction records, while Ethereum’s blockchain also hosts DApps and smart contracts.
The Transactions, including the smart contracts executions and simple money transfers need ‘gas’ which can be described as transaction fees. Ether is used to pay for gas and the fee goes to the miners.
Ethereum blockchain can be used to develop DApps and different smart contracts and so use cases can be varied. This is why Ethereum is much more versatile and useful than single use cryptocurrencies including bitcoin. This is why the Ethereum network is also referred as Blockchain 2.0.
Ethereum use cases: development of smart contracts
A major attraction of the Ethereum network/platform is creation of smart contracts. These condition driven contracts can be useful in many situations and people from various sectors can gain from these-eventually. Smart contracts are absolutely beneficial as these eliminate the need of using middlemen in many sectors and help all parties in saving precious time. These are also useful in evading disputes in cases related to royalty, copyright, profit and revenue sharing etc. From artists to freelancers, myriads of people can benefit from such contracts. Once a smart contract is created, it cannot be hacked or tampered in an illegal way.
The major pros and cons of ethereum
Like every blockchain based technology and application, Ethereum’s has its shares of pros and cons.
- Censorship Resistant- Since it is based on blockchain technology it is censorship resistant in nature. The data gets stored on nodes spread across the globe and decentralized operation makes third party censoring impossible.
- Zero downtime- Since it is not run from any single server- there is no downtime. Logically, all nodes cannot crash simultaneously.
- Versatile in nature- It is not limited to unregulated digital currency creation. When deployed in a strategic way, it can disrupt operations in many sectors. Ethereum’s blockchain makes it smooth for developers to develop DApps.
- Fundraising- Ethereum is among the top platforms used for launching ICOs.
- Speed- The Ethereum blockchain is faster than that of bitcoin. Transferring Bitcoin may take over 10 minutes while on Ethereum blockchain transferring money takes a split second.
- Unusual Programming Language- Ethereum uses its unique programming language, named Solidity. Not everyone can be familiar with it.
- Scalability- Just like bitcoin, Ethereum is facing scalability issues over the years. This has made the industry veterans doubt its long term viability.
- Inflation woes- On Ethereum platform, gas is used to pay for each transaction. That can inflate fast and as much as by 70%.
- Syncing woes- Occasionally, the Ethereum wallet faces syncing issues with its blockchain. This makes it hard for the users to check their wallet balance.
How Ethereum is different from bitcoin: A detailed analysis
Ethereum and bitcoin share a number of similarities but they are actually quite different-when it comes to real world usage scenarios.
The first noteworthy thing about Ethereum is that it is not just another type of cryptocurrency, it is a comprehensive platform that offers much more than monetary transaction facilities. This blockchain-based platform lets developers generate smart contracts and Dapps. Bitcoin, is used extensively for making and receiving payments using blockchain. You can also find bitcoin atms in many places nowadays.
Another major difference between bitcoin and Ethereum is the execution time for transactions. Bitcoin’s approx block time is 10 minutes but for Ethereum it is only 12 seconds. This is made possible by the network’s proprietary GHOST protocol.
The monetary supply is another major difference between the duos. As of now, over 2/3rds of all bitcoins have been mined and majority of these have gone to the early miners. In the case of Ethereum, only 50% coins have been minded until 5th years since its debut.
Both Ethereum and bitcoin relies on blockchain technology but they have distinct consensus algorithms. The reward for bitcoin mining is halved (called halvening of bitcoin) every four years. For bitcoin -Proof of Work algorithm is used. In it, each network miner actually competes with every other miner using computational power. Ethereum rewards the miners following Ethash -its unique Proof of Stake algorithm. For each block, 5 ethers are given. Ethash is memory hard hashing algorithm. In POS- there are no complex mathematical puzzles to resolve.
Ethereum has its Turing complete internal code but Bitcoin lacks this capability. This ensures in Ethereum, anything can be calculated –subject to equate time and computing power.
So, in finer analysis-the cryptocurrency aspect aside, Ethereum and Bitcoin are quite different and their project aims are very different too! Bitcoin, has now emerged as a stable unregulated currency while Ethereum is yet to gain a similar level of traction with users despite popularity of ether.
Summing it up
Bitcoin has become the de facto blockchain powered unregulated currency, used by thousands of people. Ethereum is more like a global supercomputer with capacity to create smart contracts and it also has its own digital currency called ether.
However, in real world scenario- practices do not always stick to the theories and things do overlap! For instance, additional layers made on bitcoin enable smart contract functionality. Similarly, Ethereum has emerged as a much sought after investment and trading instrument-thus intruding into bitcoin’s territory. Since their inceptions, both Bitcoin and Ethereum have witnessed splits-leading to creation of bitcoin cash and Ethereum classic-respectively. With time, both projects will continue to evolve and the operational complexities and underlying factors make it hard to predict which way they are headed to.