Just like Bitcoin, Ethereum is a decentralized network that relies on nodes to support the system.
Ethereum is currently the second-largest cryptocurrency by market capitalization. Vitalik Buterin, a then-teenage Russian-Canadian innovator, proposed the project in 2013. He, together with a team of developers, commenced operations in 2014. Just like Bitcoin, Ethereum is a decentralized network that relies on nodes (aggregate computing power) to support the system.
The Ethereum blockchain was a groundbreaking innovation because it brought unparalleled dynamism to cryptocurrency. Unlike Bitcoin, which is only a transaction network, Ethereum is a Do It Yourself (DIY) platform for decentralized apps (or dapps) that uses smart contracts. Ether is the network’s native currency that facilitates the running of dapps.
The power of smart contracts
Developers on the Ethereum network can create all kinds of dapps. The dapps operate in a decentralized manner without the need for an all-powerful centralized entity like regular applications. To create dapps, you have to learn an Ethereum programming language called Solidity. Once you have coded the program, the network executes the app automatically without the supervision of anyone.
A smart contract is a term for the logic that runs dapps. Essentially, a smart contract has terms written directly into the lines of the code. Real-life transactions often raise contractual obligations. A standard contract involves payment of money in exchange for certain goods and services.
Therefore, a smart contract is self-executing. Instead of having standard terms between transacting parties, these terms exist in lines of code across a decentralized blockchain network. Transacting parties don’t need to trust each other to fulfill terms because of automation.
The reason for the word “smart” is that such contracts deal with all aspects of a contractual transaction, be it enforcement, management, performance, and payment. No one can edit or change a smart contract once its author has deployed it. This trait is a replication of blockchain immutability and that give dapps an edge over centralized versions.
Ethereum decentralized application ecosystem
Ethereum also remains the only blockchain to-date that’s successfully nurtured dapps across the four main categories: DeFi, Exchanges, Games, and Gambling and High-Risk. This isn’t to say Ethereum is the perfect blockchain for dapps. As demonstrated by a sharp rise in gas prices during September, dapps running on this Proof of Work blockchain remain vulnerable to systematic factors.
Ethereum evolution over the years
Vitalik Buterin set in motion a series of upgrades for the network to improve the platform over time. Ethereum went through the Homestead, Byzantium and Constantinople upgrades. These upgrades implement Ethereum Improvement Proposals (EIPs) from developers in the Ethereum Network.
An unintended upgrade from a DAO hack in 2016 came in the form of a hard fork to reverse stolen funds. Most Ethereum developers migrated to the new fork chain. Those that remained in the old chain called Ethereum Classic have to contend with smaller volumes. Currently, the focus is on implementing the final stage of Ethereum, called Serenity.