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Ethereum is a decentralized, open source platform which enables users to establish blockchain-based services running on smart contracts. Back in August 2014, the platform attracted $18.4 million worth of bitcoin. On July 30, 2015, the first block was created in the Ethereum blockchain.
A smart contract is an application that runs precisely as programmed without any possibility of downtime, censorship, fraud, or third-party interference. It can be used to complete a wide range of contractual obligations, act as an escrow account for purchasing luxury goods, or serve legal decentralized gambling platforms. These are just a few examples of how a smart contract could be utilized. In the future, it could replace any legal, financial, or social agreements.
The Ethereum Virtual Machine (EVM) is designed to serve as a runtime environment for smart contracts based on Ethereum. According to the official description, the machine allows for processing transactions securely between the counterparties that can't fully trust each other due to the distance between them, “flaws of the existing legal system, or lack of expertise, willingness, funding, or confidence.”
Ether—Ethereum network’s cryptocurrency—is a form of payment made by the clients of the platform to the machines executing the requested operations. It is the incentive ensuring that developers write quality applications (wasteful code costs more) and the network remains healthy (people are compensated for the resources they contributed). At press time, Ether is the second-largest digital currency in the world by market capitalization ($32 billion, according to CoinMarketCap). The price of 1 ETH amounts to $332.
Each operation in the Ethereum blockchain has its cost. To run a particular transaction or execute an operation within the network, one needs to consume, or burn, some gas. Gas helps prevent the occurrence of malicious contracts and limits the maximum number of executed commands. The gas fees are paid to the miners (or bonded contractors in PoS).
Ethereum was created and is developed by the team, led by Vitalik Buterin. The comparisons between Ethereum and Bitcoin include a parallel between their founders as well. Some people think the fact that the project is developed by a real person rather than mysterious Satoshi Nakamoto is advantageous. On the contrary, there are some who think it’s a disadvantage since platform development is tied heavily to its creator’s vision.
Regarding the competitors, Ethereum has even more of them than Bitcoin. This year we’ve seen a few ambitious projects thought to be able to destroy Ethereum—Tezos and EOS. The latter is the one in which I invested last week, and Tezos is currently facing some serious legal issues. That means there’s a chance that Ethereum won’t be dethroned for quite a long time and will demonstrate growth, especially given the team is actively working towards platform’s update.
A new stage of Ethereum’s development is the Metropolis update, which is aimed to find, test, and implement the solutions for a significant reduction in transaction processing time and improvement in network throughput. Also, Ethereum is going to switch from “proof of work” to “proof of stake,” make the coin more secure and anonymous, and ensure that transaction times do not become intolerable. It has been planned to roll out two hard forks—Byzantium, which had already occurred on October 16, and Constantinople, which is set to undergo later on in December this year.
Ethereum has gained robust financial support and broad interest across a host of big companies. Besides, many independent projects are built atop Ethereum, which means it is a secure long-term investment.
One of the disadvantages is platform’s scalability problem. The team, however, has plans for development, which might transform Ethereum into an even more technologically advanced platform.