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Ethereum (23rd Nov. 2017 until Xmas)
Ethereum is a decentralised platform for applications. It is powered by Ether - a cryptocurrency, which is in turn powered by the Blockchain technology. Applications are built with the use of smart contracts - computer algorithms which...
...execute themselves, based on incoming data from the network. The self-fulfilling nature of such applications allows them to run without reliability issues associated with human operators.
Ethereum has managed to achieve its success due to the implementation of the revolutionary technology of smart contracts, the code for which was written by Vitalik Buterin, in collaboration with several other developers. In 2013, Buterin published the white paper that would lay the foundations for the ethereum network. He was only 19 years old at the time, which is why he is often hailed as as a boy genius.
In 2014, Buterin hosted a crowdsale to fund the launch of ethereum and raised 18 million dollars through his Swiss company, the Ethereum Switzerland GmbH. It's early days for ethereum, and Buterin is still leading the bulk of development work. He has a team of programmers behind him, however, and the ethereum community is fairly active when it comes to sharing ideas about what should come next.
Smart Contracts (short definition)
Smart contracts are software programs which are meant to perform like regular contracts, i.e. govern the process of exchange between parties, but are fulfilled completely automatically. That means, that there is no need for a trusted third party to enforce them, which is the case for simple contracts, which rely on a court's ruling in a case of non-compliance. Being executed by machines, smart contracts are also much more efficient and reliable.
Another definition (Smart contracts):
...are applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference. Source: www.ethereum.org
In other words: Launched in 2015, Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (dapps) to be built and run without any downtime, fraud, control or interference from a third party. Ethereum is not just a platform but also a programming language running on a blockchain, helping developers to build and publish distributed applications. The potential applications of Ethereum are wide ranging.
Bitcoin has smart contracts, too, but ethereum makes them much easier to use since they're baked into the system's design.
All of this takes place on a blockchain, which bitcoin uses, too. All a blockchain does is act as a public ledger that lists everything that goes on in the network in real-time. It's the tool that makes the whole thing possible. The blockchain, and thus the ethereum network, is distributed across thousands of computers (or "nodes") around the world. It's also "Turing complete," which means that smart contracts on the blockchain can handle most computational functions, allowing them to be pretty sophisticated.
Difference to Bitcoin?
...because the ethereum network also functions as a global computer thanks to smart contracts, this ether isn't limited to being used as a currency. Rather, ether can be used to underpin any sort of computer application you can imagine. The use cases for the ethereum network are only limited by the imaginations of application developers. For example, people are developing apps for energy distribution, digital advertising, and a digital marketplace for unused computing power.
Coming back to dapps (Decentralised Apps)
Why should one care about Decentralised Apps?
The main selling point of decentralized applications, or dapps, on the ethereum network is that they can be run without a central authority facilitating the transactions.
In a centralized system, like, say, Facebook, there is one central point of control-and of failure. If Facebook's company-owned servers go down, so does the site. But on a decentralized model, each node on network is both a server and a client, which means that if any one node gets taken offline, the platform will still be able to keep on trucking. To take down the ethereum network completely, you'd have to take down the 30,000 nodes around the world that comprise the network-that's not likely to happen.
Dapps, because they're based on smart contracts, also allow for a relatively easy model of collective ownership and even governance using what are known as "tokens." Tokens are kind of like shares in a corporation, and are sold by dapp owners to eager investors during Initial Coin Offerings, or ICOs.
But since i am still skeptical about most ICOs, I shall not go into more detail about these ICOs...here...
Breaking down "Ethereum" in just some words
The applications on Ethereum are run on its platform-specific cryptographic token, ether. During 2014, Ethereum had launched a pre-sale for ether which had received an overwhelming response. Ether is like a vehicle for moving around on the Ethereum platform, and is sought by mostly developers looking to develop and run applications inside Ethereum. Ether is used broadly for two purposes, it is traded as a digital currency exchange like other cryptocurrencies and is used inside Ethereum to run applications and even to monetise work. The current market cap of ether (ETH) is now (23rd Nov. 2017) more than Bitcoin Cash and Ripple although its far behind Bitcoin (BTC).
According to Ethereum, it can be used to "codify, decentralize, secure and trade just about anything." One of the big projects around Ethereum is Microsoft's partnership with ConsenSys which offers "Ethereum Blockchain as a Service (EBaaS) on Microsoft Azure so Enterprise clients and developers can have a single click cloud based blockchain developer environment."
About Vitalik Buterin (short recap)
Vitalik Buterin is a Russian-Canadian programmer and entrepreneur. He is famous for being a co-founder of the Bitcoin Magazine and Ethereum, currently the second-highest capitalized cryptocurrency after Bitcoin.
Last but not least: What is proof of stake and why does this matter?
In the near future, Ethereum plans to switch from Proof-of-Work (PoW) based mining to Proof-of-Stake (PoS) mining. Well, While both PoW and PoS are algorithms for reaching consensus on the blockchain, they go about it in different ways.
For now, mining ether requires demonstrating that miners have actually done the wasteful computations necessary to add a new block on the chain. Although this prevents spam attacks on the network, it's also incredibly resource intensive and makes it hard for ethereum to scale. Bitcoin, unlike ethereum, is locked into this system forever.
Proof-of-Stake, on the other hand, doesn't require miners to do useless math in a race to solve a block. Rather, the creator of each new block on the chain is chosen by an algorithm, based on the amount of of ether that the user has-or, stake. The larger your stake, the more likely you are to be chosen to validate a new block. Under PoS, there is no longer a reward for creating a new block. Rather, the user responsible for creating the new block-called a forager-is rewarded with the gas associated with that block.
"51% issue"
The fact that you need a serious amount of computing power for the proof of work (-concept), more than the average person could afford, or would even be able to work with, means the mining community is getting smaller and more exclusive. This goes against the idea of decentralization, and could potentially lead to a 51% attack.
A 51% Attack
A 51% attack is when a miner, or more likely a mining pool, controls 51% of the network’s computational power. With that ability, they could invalidate valid transactions and double spend funds. They’d achieve this through creating and confirming their own fraudulent blocks, and do it so quickly, the rest of the mining community creating genuine blocks would have their legitimate work invalidated.
That's where PoS could really help. Imagine, if someone owned 51% of a digital currency, it would not be in their interest to attack something in which they have a majority share. Also, it's very unlikely that anyone would be interested in buying up 51% of a currency, due to it being prohibitively expensive. According to game theory, those with a larger stake in a cryptocurrency should want to maintain a secure network. Any attack would only serve to destabilize the digital currency, diminishing the value of their stake.
Proof-of-Stake (Details)
PoS happens by a miner putting up a stake, or locking up an amount of their coins, to verify a block of transactions. The cryptographic calculations in PoS are much simpler for computers to solve: you only need to prove you own a certain percentage of all coins available in a given currency. For example, if you somehow owned 2% of all Ether (ETH), you’d be able to mine 2% of all transactions across Ethereum.
PoS would be a more fair system than PoW, as technically anyone could become a miner. PoS offers a linear scale regarding the percentage of blocks a miner could confirm, since it's based on that person’s stake in the cryptocurrency. That means someone with ten times more coins (e.g. - USD 10,000 vs. USD 1,000) would only mine ten times more blocks. Under PoW protocols, spending ten times as much money on mining hardware will produce higher computational power logarithmically, allow for more equipment due to the nature of reduced prices when buying in bulk, and might provide further advantages since highly expensive equipment often functions exponentially better than less expensive counterparts.
Switching to PoS could help to encourage more community participation in Ethereum, as well as aid decentralization. Taking mining out of the hands of the few pools of GPU farms doing the bulk of mining, which somewhat resembles an oligopoly, would distribute the work evenly across the network, which should lead to a more democratized system!
Conclusion, why a Switch from PoW to Proof-of-Stake should make sense
While there are still many variables to be worked out, switching from Proof-of-Work to a Proof-of-Stake protocol isn't just better for the environment, it should help to level the playing field for miners, and increases community participation. All of which is good for Ethereum.
Disclosure / Disclaimer: Ralph Gollner hereby discloses that he is directly and indirectly investing in Ethereum and Bitcoin. Both are subject of the commentary above (as per November 2017). Reminder: High Risk !
links:
https://cointelegraph.com/tags/ethereum
www.ethnews.com/proof-of-work-vs-proof-of-stake-explained
https://cointelegraph.com/tags/vitalik-buterin
