Its History, Future, and Features - ETHER 101: Cosmos Asset ...
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ETHER 101: Its History, Future, and Features Ethereum is an open-source platform running blockchain technology that is used for creating decentrali sed applications known as DApps. Meanwhile, Ether is the cryptocurrency required to use the Ethereum network therefore it is referred to it as the “fuel” for the network. DApps are smart contracts that facilitate transactions trustlessly (i.e., without trusted third-party acting as an intermediary). Ethereum is the world’s first programmable blockchain and Ether (ETH) is the token that power operations on the Ethereum network. Ether is the currency that is required to use the Ethereum network.
1.0 INTRODUCTION TO ETHEREUM
ETHER SUMMARY STATISTICS
With the success of Bitcoin, the founder of Because Bitcoin’s blockchain technology is
Ethereum Vitalik Buterin foresaw the broader limited to perform a small set of functions
As of May 18th, 2022
possibilities of the blockchain technology and such as who can send how much Bitcoin, the
in 2013 proposed Ethereum in a white paper. founders of Ethereum were able to utilise Asset Ether (ETH/ETX)
He was joined by likeminded individuals and Bitcoin’s decentralised ledger technology and
Inception of Network July 2015
in 2015 they launched Ethereum. Ethereum build a more complex system to perform a
is overseen by Ethereum Foundation1 a more feature-rich set of functions. Ethereum’s Price (AUD) $2,782
non-for-profit organisation based in Zurich programming language, called “Solidity” is
Market Cap $336.321 billion
Switzerland. “The Ethereum Foundation’s used to write smart contracts that become
was created to promote and support the DApps on Ethereum. Smart contracts Circulating Supply 120.83 million
Ethereum platform. Through base layer can be varied in nature and can even be
Ethereum Network
research, development and education to bring used to create decentralised autonomous 51.47%
Utilisation
decentralised protocols and tools to the world organisations known as DAOs. Currently
Current Mining Mechanism Proof of Work
that empower developers to produce next Ethereum is in the process of launching
generation (DApps).”2 Ethereum 2.0, an update that is being rolled Future Mining Mechanism Proof of Stake
out in several phases, but it will not be fully
Digital Currency, Store-
integrated into the network until sometime Market Segment
of-Value, Network Based
after 2022.
1
https://ethereum.org/en/foundation/
2
https://docs.ethhub.io/ethereum-basics/ethereum-foundation/ 22.0 A BRIEF HISTORY OF ETHEREUM
Let us take a look at a brief history of Ethereum
We will focus on three main components of its history
1. The period prior to the launch of Ethereum
2. The DAO exploit and
3. Ethereum 2.0 and the main four stages of network upgrades.
1. Prior to Ethereum Launch: marketplace of financial services, games and On November 27, 2013, Vitalik Buterin released
2013 – 2015 apps that cannot steal your data or censor you. the white paper where he proposed Ethereum.
The following year on April 1, 2014, Dr. Gavin
With the success of Bitcoin’s platform, We now know that Ethereum is the
Wood released the Ethereum yellow paper
Vitalik Buterin the co-founder of Bitcoin infrastructure for running DApps. It is very
where he defined the technical definition of
magazine, was able to foresee how blockchain important to understand that “Ethereum
the Ethereum protocol. The same year on July
technology could be utilised for more than just is a platform, not a currency, while Ether
22, 2014, Ethereum’s initial crowd sale raised
the transfer of digital currencies. Bitcoin is (ETH) is the token that powers operations
$18 million and lasted 42 days where ETH was
written in a “turing incomplete” programming on the Ethereum network. Therefore, ETH
bought using Bitcoin. The initial crowd sale
language that is only able to complete small is the currency that incentivises the use of
helped fund the continued development of
sets of tasks primarily the transfer of Bitcoin Ethereum.” While ETH can be thought of as
the software platform. A year later, on July 30,
from one account to another. the cryptocurrency of the Ethereum network,
2015 the Ethereum network was launched with
metaphorically speaking, it is more accurate to
Vitalik and other Ethereum builders were a supply of 72 million ETH.
refer to it as the “fuel” of the network. . −ETH’s
able to set Ethereum up with Solidity, a
main purposes serve to (1) to store value in
“turing complete” programming language
ETH, (2) settle transactions by allowing users
that allows Ethereum’s blockchain to do more
to send or receive payments in ETH, and
than just transfer digital currencies. It allows
(3) facilitate network operations (i.e., power
for programs, known as smart contracts,
DApps) via transaction fees paid in ETH, which
to be uploaded onto the blockchain and
are based on the computational costs of
run autonomously. Ethereum has created a
executing the code.
32.0 A BRIEF HISTORY OF ETHEREUM
2. The DAO Attack of 2016 resistant. Not all miners on the network agreed STAGE 3: Metropolis – October 16,2017, and
to the hard fork so it led to the split and the February 28, 2019
The next significant period in Ethereum’s
formation of two distinct blockchains: Ethereum
history was in 2016 when the DAO Metropolis was released in two different phases.
and Ethereum Classic.
was launched. The DAO was an early
1. BYZANTIUM
decentralised autonomous organisation 3. Four Stages Leading up to
(DAO) intended to act as an investor- Byzantium was an update to Ethereum’s
Ethereum 2.0: (2015-2022 and Beyond)
directed venture capital firm. Lauded as a blockchain that was implemented on October
revolutionary project, The DAO raised $150 STAGE 1: Frontier – July 30, 2015 16, 2017. It consisted of nine Ethereum
million USD worth of ETH and was one Improvement Protocols (EIPs) designed to
The Frontier release of Ethereum offered a
of the earliest crowdfunding efforts and improve Ethereum’s privacy, scalability, and
minimal framework; however, it did enable
highest-profile projects built on the Ethereum security attributes. The update reduced the
more technologically savvy developers to
Blockchain — which at the time was only one block reward from 5 to 3 ETH.
release their own apps, as well as accounting
year old. for mining and development of exchanges. 2. CONSTANTINOPLE/ST. PETERSBURG
However, less than three months after its In February 2019, the Constantinople upgrade
STAGE 2: Homestead – March 14, 2016
launch, there was an exploit in The DAO’s smart simplified smart contracts, enhanced privacy
contract. As a result $60 million of ETH was Homestead is the second major version protection and security and adjusted the
stolen. The Ethereum blockchain, on which the release of the Ethereum platform, which difficulty bomb that facilitated the adjustment
DAO was built, was later controversially “forked” included several protocol changes and a into proof of stake implemented in Ethereum
(i.e., reverted to its prior state prior to the exploit) networking change that gave Ethereum the 2.0. This upgrade mainly affected miners as
to restore the stolen funds to investors. This ability to do further network upgrades. Due the block reward went from 3 to 2 ETH.
instability led many investors to panic, and a big to the shift to Homestead, it became easy
STAGE 4: Ethereum 2.0. – 2015-2022?
sell off began as investors rushed to liquidate to enter the application development on
their assets. Ethereum, and it became more attractive for Ethereum 2.0 is the fourth and final stage
financial institutions and major companies, of Ethereum. Because proof of work entails
The hard fork effectively rolled back the
including the use of SDK in the blockchain enormous energy usage, the Ethereum
Ethereum network’s history to before The
environment by Microsoft. community wanted to switch to a more
DAO attack and reallocated the DAO’s ETH to
energy-efficient alternative in this phase.
a different smart contract so that investors
The Ethereum Network is expected to be
could withdraw their funds. This was extremely
converted from proof of work to proof of stake.
controversial — after all, blockchains are
In addition, the network promises to be faster,
supposed to be immutable and censorship-
more efficient, and more scalable.
4ETHEREUM 2.0.
3.0 THE FOUR PHASES OF THE FUTURE
PHASE 1: Beacon Chain - 2020 of Ethereum, sharding will reduce network coding languages and not just Solidity. eWASM
congestion and increase transactions per will make shard chains into fully functional
The Beacon Chain introduced proof-of-stake
second by creating new chains, known as transactional chains.
to Ethereum. This is a new way to help keep
“shards”. Shard chains will improve Ethereum’s
Ethereum secure and to scale down the PHASE 4: Continued Improvement –
scalability and capacity.
electricity consumption needed in the current
Ethereum platform, which relies on proof of
2022 and Beyond
PHASE 3: EWASM – 2022
work. “Think of the Beacon Chain like a public In this phase, the Ethereum team will focus
good that will make Ethereum less energy The Ethereum-flavoured Web Assembly on general improvement to the network such
intensive but as secure, if not potentially more (eWASM) is an upgrade from the existing as: light client state protocol, coupling with
secure.” Ethereum Virtual Machine (EV). It will allow mainchain security and exponential sharding.
smart contracts to be written in variety of
In staking, ETH holders who provide validation
to the network earn more ETH in the process.
Ethereum Price and Network Upgrades VS Time
As a validator one processes transactions
July 30, 2015 – March 31, 2021
and creates new blocks in the chain.
Currently the Beacon chain functions as a 3,000
separate blockchain to Ethereum’s mainnet
but sometime in the near future, most likely 2,500
12/15/2020
in early 2022 Ethereum’s mainnet and the Beacon Chain
Ether Price USD $
2,000
Beacon Chain will merge. The Beacon Chain 07/30/2015 10/16/2017
Frontier Byzantium
is an important first step in introducing shard 1,500
chains, which is a scalability improvement 03/15/2016
Homestead
because they require staking to work securely. 1,000
06/16/2016 DAO 02/28/2019
Attack Constantinopole
500
PHASE 2: Shard Chains – 2022
Sharding, a common concept in computer 0
science is the process of splitting a database
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54.0 IMPORTANT FEATURES OF ETHEREUM
Recall that Ethereum is an open-source A) Ether E) N
on-Fungible Tokens (NFTs)
platform and not a cryptocurrency so in this B) Smart Contracts F) Decentralised Finance (DeFi)
section we will focus on the most important
C) Decentralised Applications (DApps) G) Ethereum Virtual Machine (EVM)
features of Ethereum
D) Decentralised Autonomous Organisations (DAOs)
Ether exchange money, property, shares, or anything the backend code is running on centralised
of value in a transparent, conflict-free way servers like those owned by Google or
Ether is the currency that is required to use
while removing the services of a middleman. Amazon. DApps are:
Ethereum. While Ether can be thought of as
A smart contract is a collection of code (i.e.,
the cryptocurrency of the Ethereum network, • Decentralised meaning they are
functions) and data (i.e., state) that resides at a
metaphorically speaking, it is more accurate to independent, and no one can control them
specific address on the Ethereum blockchain.
refer to it as the “fuel” of the network. Ether’s as a group.
This means a smart contract can have a
main purposes serve to (1) to store value in • Deterministic meaining, they perform
balance and can send transactions over the
ETH, (2) settle transactions by allowing users the same function irrespective of the
network. However, they can be deployed where
to send or receive payments in ETH and (3) environment in which they are executed.
they are not controlled by any user, instead
facilitate network operations via transaction • Turing complete, which means given the
they are deployed and run as programmed
fees paid in Ether (ETH), which are based on required resources, the DApp can perform
autonomously by the blockchain. User accounts
the computational costs of executing the code. any action.
can then interact with a smart contract by
These computational costs are paid in submitting transactions that execute a function • Isolated, which means they are executed in
what is referred to as “Gas”. Gas is the defined in the smart contract. Smart contracts a virtual environment known as Ethereum
unit measurement required for a particular can define rules, like a regular contract, and Virtual Machine so that if the smart contract
computation (i.e., execute smart contract). Gas automatically enforce them via the code. happens to have a bug, it will not hinder
is measured in gwei, “Wei” is the smallest unit the normal functioning of the blockchain
of Ether, where 1⁰¹⁸ Wei represents 1 Ether, Decentralised Applications network.
and one gwei is 1,000,000,000 Wei. (DApps) The Ethereum network contains DApps in
Smart Contracts A DApp is an application built on the Ethereum finance, arts and collectibles, gaming and
network that combines a smart contract technology. Some of the most popular DApps
Smart contracts are software programs that (back-end) and a front-end user interface. created on the Ethereum network are: Uniswap
are written and then uploaded to the Ethereum A DApp has its backend code running on (finance), Dark Forest
blockchain. Smart contracts can help you a decentralised peer-to-peer network like (gaming), Foundation (collectible), and
Ethereum. Contrast this with an app where PoolTogether (finance).
64.0 IMPORTANT FEATURES OF ETHEREUM
Decentralised Autonomous Decentralised Finance (DeFi) Ethereum Virtual Machine (EVM)
Organisations (DAOs) DeFi is a collective term for financial products The EVM running on the Ethereum blockchain
can be thought of as a global decentralised
DAO is a decentralised autonomous and services that are accessible to anyone
computer containing millions of executable
organisation that is run through rules who can use Ethereum – anyone with an
objects, each with its own permanent data
encoded in smart contracts. A DAO’s financial internet connection. With DeFi, the markets
store. It was created by Dr. Gavin Wood and
transaction record and programmed rules are always open and there are no centralised
detailed in the Ethereum yellow paper. The
are maintained on a blockchain, that function gate keepers who can block payments or deny
EVM handles the creation of DApps, DAOs and
without a governing body. DAO governance is access. Services that were previously slow,
smart contracts on the network. The EVM is a
completely transparent and allows for unique arbitrary, or regional are automatic and safer
quasi–Turing-complete state machine; “quasi”
social coordination mechanisms not available now that they are handled by code that anyone
because all execution processes are limited to
in the corporate world. can inspect and scrutinise.
a finite number of computational steps by the
These are financial products that focus amount of gas available for any given smart
Non-Fungible Tokens (NFTs) on building out financial services using contract execution.
NFT stands for non-fungible token. Non- cryptocurrencies. They offer the likes of
fungible is an economic term that you could lending, borrowing, earning interest, and
use to describe things like baseball cards, private payments to anyone in the world at
diamonds, and land. These things are not any time.
interchangeable for other items because they
have unique properties. “NFTs are tokens
that can be used to represent ownership of
unique items. They let us tokenise things like
art, collectibles, and even real estate.” They
can only have one official owner at a time, and
they are secured by the Ethereum blockchain –
no one can modify the record of ownership or
copy/paste an existing NFT.
74.0 IMPORTANT FEATURES OF ETHEREUM
Mining network. Originally the block rewards were It is interesting to note that as Ethereum moves
5 ETH per block then in 2016 they dropped to proof-of stake−the mechanism of “fee
The word mining originates in the context of
to 3 ETH per block and in 2017 the block burn” will be introduced into the network. This
the gold analogy for crypto currencies. Gold
reward dropped to 2 ETH. There is currently a means instead of the transaction fees going
or precious metals are scarce and so are
supply of 115.94 million ETH and in 2050 the to the miners they are burned, increasing
digital tokens where, the only way to increase
estimated ETH supply will be 135 million ETH. Ether’s scarcity . If fee burn exceeds the Ether
the total volume is through mining. This is
issued to stakers, this can lead to a decrease
appropriate to the extent that in Ethereum too,
in Ether supply.
the only mode of issuance post launch is via
mining. Unlike these examples however, mining
is also the way to secure the network by
creating, verifying, publishing and propagating
Ethereum's Issuance Rate Perpetually Declining
blocks in the blockchain.
July 30, 2015 - May 27, 2021
Mining Ether = Securing the Network =
140,000,000 45,000
Verifying Computation
40,000
On July 30, 2015, at the inception of Ethereum 120,000,000
ETH Supply In Circulation
35,000
ETH Issued per Day
72 million Ether were created through the initial
100,000,000
crowd sale that took place from July 2014 that 30,000
lasted 42 days and raised $18 million. No more 80,000,000 25,000
than 18 million Ether were to be issued every
60,000,000 20,000
year, which is about 25 percent of the first
15,000
issue but a declining inflation rate thereafter. 40,000,000
In Ethereum the mining difficulty is adjusted so 10,000
there is one block mined every 12 seconds on 20,000,000
5,000
average. The miners are rewarded with Ether
– –
for verifying transactions and adding those
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85.0 PROOF OF WORK VERSUS PROOF OF STAKE
In December 2020, the first
Proof of Work Proof of Work Process
step in a multiphase transition
In mining proof-of-work is the mechanism
of the Ethereum blockchain that allows the Ethereum network to come to To add a block to the chain,
a consensus or agree on things like account many miners compete to solve
from “proof of work” to “proof balance and the order of transactions. It is a difficult computational puzzle
used to produce new blocks that are added using specialised computers.
of stake” was taken. This is a
to the blockchain. The main goal of the proof-
significant milestone for the of-work protocol is to deter attacks on the The amount of work done by
network and ensure network security (e.g., a particular miner determines
development of Ethereum, preventing “double spending” of tokens). The the possibility of solving the
Ethereum chain is incredibly difficult to attack puzzle first.
which will help improve or overwrite.
the network and make the The first miner to solve the puzzle
and add the block to the block
operation less energy intensive.
chain earns the reward.
A lot of energy is used as many Miner with the most powerful The rest of the miners do
miners compete to solve the computer has the best probability to not receive any reward.
same puzzle. solve the puzzle first.
95.0 PROOF OF WORK VERSUS PROOF OF STAKE
Proof-of-work consensus requires miners to Ethereum Energy Consumption
solve very difficult mathematical equations of May 20, 2017 – May 2, 2021
trial and error in order to find the nonce for a
60
block. Only blocks with a valid nonce can be
added to the blockchain. This process is very 50
costly, because many miners are battling to
find the valid nonce for one block and only the 40
winner gets the reward. To put in perspective,
TWh
30
“The Ethereum network currently uses 51TWh
of electricity per year which is as much as the 20
country of Portugal under its proof-of-work
consensus mechanism.” To solve the issue 10
of energy intensity and reduce its carbon
0
footprint, Ethereum will perform a network
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be replaced via proof of stake.
Estimated TWh per Year Minimum TWh per Year
105.0 PROOF OF WORK VERSUS PROOF OF STAKE
Proof of Stake Proof-of-stake requires users to stake their the Beacon Chain that currently operates as
Ether to become a validator in the network. its own separate blockchain versus the current
In a proof-of-work mechanism miners
Instead of having many validators competing Ethereum blockchain. “The Beacon Chain will
compete to create a block simultaneously
in an energy intensive fashion to solve the be merged with Ethereum’s main network
and the first one to produce a valid block
puzzle to create the same block, validators by late 2021 or early 2022 and is expected
is the winner and gets the block reward. In
are chosen based on selection algorithm that to reduce Ethereum’s energy consumption
proof-of-stake, validators are responsible for
takes their stake into account. Once a validator by 99.95% .” In addition to vastly reducing
the same thing as miners in proof of work
is selected, they have the exclusive right to Ethereum’s carbon footprint proof of stake
as it relates to-creating new blocks. Vitalik
create a block. In this context, proof of stake offers the potential to make Ethereum more
Buterin said, “proof-of-stake operates under a
requires virtually no energy relative to proof decentralised and more secure.
fundamentally different principle than proof
of work. Proof of stake has been introduced in
of work”.
Users stake Algorithm selects One validator is The selected Other validators The block is Validator receives
Ether to become one validator that selected for one validator proposes approve that the added to the Ether for securing
validators takes their Ether block the block to be block is valid blockchain the network
Stake in account added to the (Ethereum 2.0
blockchain validators will
earn 2%-10% for
staking annually)
Ethereum will reduce electricity consumption
by 99.95% once the network switches to the
Proof of Stake protocol
116.0 ADVANTAGES AND DISADVANTAGES
OF ETHEREUM
Advantages Disdvantages
Institutional Support More Than A Cryptocurrency Scalability Issues
The Enterprise Ethereum Alliance is a group Ethereum is not just a cryptocurrency. It Currently Ethereum is processing transactions
committed to the widespread utilisation supports smart contracts, and it is also an at a rate of 15 transactions per second. In late
and promotion of Ethereum’s blockchain open-source platform for building DApps. 2021, early 2022 Ethereum is going to solve
technology. The most notable members of this the scalability issue with proof of stake that
group are JPMorgan Chase, Microsoft, Intel, Robust Developer Community will increase the rate of transactions to 3000
Credit Suisse and Accenture. Ethereum has the largest developer per second.
community in the world, even larger than
Low Inflation Bitcoin’s. This gives Ethereum a tremendous High Gas Prices
Ethereum is switching to proof of stake in late advantage over other protocols. During the first quarter of 2020, rising demand
2021 early 2022, which will greatly reduce the drove Ether gas prices to the point where
energy expenditure on the network. This will transacting lower value transactions on the
lead to drastically reduced inflation rate, which platform simply was not viable anymore.
is expected to be under 1% per year.
Fee burn is the mechanism where the
transaction fees on the Ethereum network
will be burned. This can have an interesting
outcome where the Ether burned from
transaction fees could surpass the amount
of Ether issued to stakers which can lead to
negative inflation rate and may lead to upward
price pressure as demand outstrips supply.
127.0 WHAT IS THE DIFFERENCE BETWEEN
ETHER AND BITCOIN?
ETHER and Bitcoin are the two largest and Ethereum is the world’s first programmable not have a hard cap, but it does have a limit
most popular cryptocurrencies. Although blockchain and Ether (ETH) is the native of 18 million units per year that makes Ether
they have some similarities the two have currency of Ethereum. While Ether is the resistant to inflation. Currently Ethereum uses
major differences. Comparing the two is like cryptocurrency of the Ethereum network, the proof-of-work consensus but soon it will
comparing apples to oranges. metaphorically speaking it is more accurate switch over to proof-of-stake to help deal with
to refer to Ether as the “fuel” to the network. scalability and energy consumption issues.
Bitcoin is the largest cryptocurrency that
Therefore, Ether is the digital token that Below we will outline the differences between
was created in 2009 by Satoshi Nakamoto.
incentivises the use of Ethereum. Ether does the two biggest cryptocurrencies.
It is a decentralised digital currency that you
can use to buy, sell and exchange without
any intermediary involvement such as banks.
It operates on blockchain technology − a STORE OF VALUE ETHER/ETHEREUM BITCOIN
decentralised, distributed, and incorruptible
Proof-of-Work to be replaced
digital public ledger that is used to record Consensus Mechanism
by Proof-of-Stake
Proof-of-Work
transactions across many computers. Each Open-source platform for
Scope Alterative to fiat currency
transaction in the public ledger is verified by building DApps
the proof-of-work consensus protocol. Bitcoin Market Cap as of
$320,694,939,706 $710,089,939,038
shares most of the features of a store of value June 2nd, 2021
like gold because the supply of Bitcoin is Miner Fees Collects gas fees Collects transaction fees
capped at 21 million.
Transaction Confirmation 15 seconds 10 minutes
On the other hand, Ethereum is blockchain that
is used primarily for creating decentralised
Ether is like owning piece of the Internet Digital Gold
applications known as DApps, − smart
contracts that facilitate transactions without Programmable Money Simple Platform – apps are not possible
any third-party involvement.
116.01 million circulating Ether 18.7 million circulating Bitcoin
No hard cap Hard cap of 21 million Bitcoin
138.0 SUMMARY
Ethereum is not a
cryptocurrency, but rather an Meanwhile, Ether (ETH) is the token that Risks of Investing in Cryptocurrency
facilitates operations on the Ethereum
open-source platform running The cryptocurrency markets are sensitive to
network. Therefore, Ether is the
new developments, and since volumes are still
cryptocurrency of the network. Currently it
blockchain technology used is the second largest cryptocurrency behind
maturing, any significant changes in market
sentiment (by way of sensationalism in the
for creating DApps, which are Bitcoin with a market cap of $320.1 billion.
media or otherwise) can induce large swings in
The network is going through many changes volume and subsequent price changes.
smart contracts that facilitate
and sometime in late 2021 or early 2022
transactions without a Ethereum will be upgrading to proof of stake,
which will address the carbon footprint issues
central authority. around electricity consumption.
Ethereum has the potential to surpass Bitcoin
as it serves more than just a cryptocurrency
and with the ability to create DApps on the
platform it is transforming the financial,
arts and collectibles, gaming, and
technology industry.9.0 DISCLAIMER
The content of this document is for Certain statements in this document are commissions, management fees and expenses
informational purposes only, and is not forward-looking. Forward-looking statements all may be associated with investment funds.
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not investment advice, nor is it tailored to “anticipate,” intend,” “plan,” “believe,” funds are not guaranteed, their values change
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