Ethereum is an open-source distributed system that offers the creation, management and execution of programs or contracts (smart contracts) in its own blockchain. It thus represents an alternative to the classic client-server architecture.
| Icon | ETH, Ξ |
|---|---|
| Year of publication | 2015 |
| Developers | Vitalik Buterin, Gavin Wood, Jeffrey Wilcke |
| Circulating supply | 120,843,638 ETH (from: 19.05.2022 20:20) |
| Blockchain | 850.83 GB (as of: 10.08.2022) |
| Mining | Ethash |
| Website | http://www.ethereum.org |
| Baseline | |
| Developers | Vitalik Buterin, Gavin Wood, Jeffrey Wilcke |
| Year of publication | 2015 |
| Current version | 1.10.25 (September 15, 2022) |
| Operating system | Windows, Linux, macOS |
| Programming language | miscellaneous |
| Category | Distributed system |
| License | GPLv3, LGPLv3 |
Ethereum uses the internal unit Ether (abbreviated to ETH, symbol: Ξ) as a means of payment for transaction processing on a blockchain, which is handled by participating computers.
Energy consumption
Like some other cryptocurrencies, Ethereum has been criticized at times for its poor carbon footprint. As a state, Bitcoin and Ethereum together would have the twelfth highest energy consumption of all states, behind the United Kingdom and France. It needed more energy than the Netherlands, with more than 100 TWh per year, mainly to mine the currency. With emissions of 50 to 60 million tons of CO2 per year, Ethereum is almost twice as harmful to the climate as Europe’s largest coal-fired power plant.
The cryptocurrency is created by a proof-of-work process. Calculations (Ethash) are performed on the CPU or GPU. As a reward, some of the many miners receive Ether. To increase the chance of rewarding, Ethereum miners join forces in mining pools.
From August 2022, a program update with the proof-of-stake algorithm will reduce energy consumption by 90 percent without having to adapt installed apps, NFTs, contracts and wallets.
Technology of Ethereum
Ethereum is a decentralized, permissionless network based on Bitcoin’s blockchain technology. In addition to the transfers of the ETH currency (similar to Bitcoin), it enables the execution of automated contracts (smart contracts). These enable the creation of so-called decentralized applications. Applications include, for example, decentralized finance.
All participants use a common database with an Ethereum blockchain. To participate, you need an Ethereum client, which synchronizes with the network before use, i.e. downloads and verifies every transaction documented on the blockchain since the last synchronization. In order to operate the network decentrally and to protect it from attacks, several client implementations were created by different developer groups. For the initial synchronization, some clients have a quick mode in which the complete blockchain is not downloaded. Wallets include MyEtherWallet, Parity, Metamask, and browsers such as Opera Krypto Browser. So-called “light clients” make it possible to monitor the status of a part of the entire Ethereum platform or to verify individual transactions with little capacity.
Ethereum consists of several interlocking components or concepts:
Nodes
A node is a computer that is part of the Ethereum network. This stores an incomplete (light client) or complete (full node) copy of the blockchain and writes it permanently. Until August 2022, there will also be mining nodes that confirm transactions, i.e. mine.
As of January 2021, there are 11643 nodes in the Ethereum network, the proportion of mining nodes cannot be determined exactly.
Smart contracts
Smart contracts are contracts that are automatically executed as programs as soon as an ether value specified in the contract has been transferred. This does not require manual verification of the receipt of payment, because the transfer directly starts the consideration specified in the program.
Every transaction is stored throughout the blockchain – on all devices connected to the network. The concept of blockchain constantly checks the integrity of the entire database.
The contracts are mostly written in the programming language Solidity developed for the company. They are translated into bytecode and run on the Ethereum Virtual Machine (EVM). A virtual machine isolates a client environment from the host environment, that is, other applications on a computer. Ethereum’s virtual machines have been implemented in various programming languages.
Decentralized Apps (DApps)
DApps are programs that are executed on the blockchain and thus on all nodes in parallel. The easiest way to think of a DApp is a website. However, while classic websites are connected via API to a central server and, if necessary, databases, the DApp is connected to the blockchain via smart contract.
This is more expensive and slower than the traditional client-server model, but offers several advantages: On centralized servers, attackers can manipulate data. However, the decentralized concept of blockchain constantly checks the integrity of the entire database. As a result, decentralized apps are more fault-tolerant, immutable, and less likely to experience disconnections.
Ether
Ether is the “unit” of the Ethereum network.
There are currently about 120 million ethers in circulation. With a market capitalization of about 230 billion euros (as of May 30, 2022), Ethereum is the second largest cryptosystem behind the Bitcoin network.
Decentralized Autonomous Organization (DAO)
A Decentralized Autonomous Organization (DAO, German decentralized autonomous organization) is an organization whose management structure and rules are digitally and immutably fixed by a smart contract, these are executed (here by the Ethereum network) and therefore do without conventional decision-making bodies such as a board of directors.
The DAO
The DAO is the best-known DAO implemented on the Ethereum blockchain to date. It was developed and published by the company Slock.it. Broadly speaking, The DAO’s role is to raise Ether by selling voting rights, to hold and transfer a decision-making body on the use of collected Ether. It is therefore an autonomous and automated investment firm. The DAO was uploaded to the blockchain in April 2016 and went through crowdfunding until May 28, 2016 (purchased with Ether). The DAO tokens, which entitle you to vote for the decisions made in The DAO, can be traded on various crypto exchanges.
On June 17, 2016, an unknown person made 3.6 million ethers unusable due to an error in The DAO’s smart contract. These were worth around 65 million euros at the time. A hard fork to reverse the attack was approved by a majority. Through this hard split, the attacking DAO was deprived of the ethers; this resulted in two blockchains, the original of which is continued as Ethereum Classic (ETC). Based on various metrics and the vote of the community, the Ethereum Foundation has decided to limit its development activity only to the forked (or forked) main blockchain (still called Ethereum ) and not to deal with Ethereum Classic.
Clients
Proof-of-Work Clients
There are several implementations of Ethereum clients, i.e. end-user application programs:
- Geth, developed in Go
- Parity, developed in Rust
- Aleth, developed in C++ (formerly Eth)
- J. Ethereum, developed in Java
- Pyethapp, developed in Python
- Ethereumjs developed in JavaScript
- EthereumH, developed in Haskell
- Ruby-Ethereum, developed in Ruby
Proof-of-Stake Clients
For the planned transition of the network to Proof-of-Stake (see section “Transition to Proof-of-Stake”), several new clients are in development that support the new consensus mechanism:
- Lighthouse, developed in Rust;
- Prysm, developed in Go;
- Teku, developed in Java;
- Nimbus, developed in Nim.
ERC-721/Non-Fungible Tokens
The Ethereum community has declared the ERC-721 protocol the standard for non-fungible tokens on Ethereum.
History of Ethereum
The cryptocurrency was described in general by Vitalik Buterin in late 2013 in the white paper “Ethereum: A Next Generation Smart Contract & Decentralized Application Platform” and presented in January 2014 at the North American Bitcoin Conference in Miami. Gavin Wood, the co-founder of the project, published the formal specification and design of the Ethereum Virtual Machine (EVM) in April 2014 with the “Ethereum Yellow Paper”. In July 2015, the operation of the Ethereum network was launched. Just seven months later, on February 29, 2016, the Ether unit used in Ethereum reached a market cap of over $500 million. Two weeks later, on March 12, 2016, this had already doubled and Ether was able to record a market capitalization of over one billion dollars. The development is led by the Swiss Ethereum Foundation.
The co-founder is former Goldman Sachs manager Joseph Lubin, who develops applications for Ethereum with his New York company ConsenSys. He was the CEO of Swiss-based Ethereum Switzerland GmbH (EthSuisse) founded in early 2014.
Also in 2014, a Swiss Ethereum foundation and non-profit organization was formed, which launched an Ethereum Bitcoin crowdfunding campaign to finance development costs, in which the first generated ethers were sold for Bitcoin, raising a total of over $18 million. In March 2017, research groups, startups and large companies and banks founded the Enterprise Ethereum Alliance (EEA).
Stages
In July 2015, the Ethereum beta called Ethereum Frontier was released. Ethereum Frontier was the backbone for Ethereum. The main functions were the implementation of a proof-of-work algorithm and distributed programs, the smart contracts.
In March 2016, the developers moved from the frontier phase to the next intermediate destination “Homestead”. Above all, Homestead ensured that the use of Ethereum became safer as bugs were fixed.
The other main targets of the developers are “Metropolis” and “Serenity”. In the intermediate destination Metropolis, applications for end users were created. Metropolis facilitated the use of light clients, for example. They no longer had to download the entire Ethereum blockchain. They relieve your own computer. Another innovation came with the implementation of ZK-SNARKS, which makes it possible to make completely anonymous transactions on the public Ethereum network.
In September 2022, the switch from proof-of-work (POW) to proof-of-stake algorithm (POS) took place.
Transition to Proof-of-Stake
On December 1, 2020, the beacon chain was officially launched and for the first time, it was possible to earn returns on Ether without using external protocols. For this purpose, the beacon chain and the validator software can be executed on a dedicated (or virtual) server or return on existing ethers can be achieved by means of a staking provider (usually cryptocurrency exchanges).
The so-called solo staking with its own hardware requires at least 32 ethers to operate a single validator. This requires a server running the beacon chain and validator software. The validator software can run any number of validators (each with 32 ethers) on a single server.
For staking via e.g. one of the crypto exchanges, any number of ethers (even less than 32) can be used.
The validator takes over the task of creating new blocks and validating transactions (analogous to the current proof-of-work concept with miners, but without the immense energy consumption) – the server must be online all the time, if this is not the case, the validator is “punished” and regularly loses a small part of its ether until it is accessible again. This is to ensure that all validators have the highest possible availability and that the entire network is always stable.
In the current development phase, it is only possible to deposit Ether into the deposit contract and stake with a validator, but it is not yet possible to withdraw deposited Ether. This feature is expected with an upcoming update. However, it is possible to voluntarily stop a validator (voluntary exit), which means that the validator can be offline without incurring penalties.
For the management of deposited Ether, the Deposit-Contract was developed, whose code and transactions are published on the Ethereum Blockchain: As of January 2021, the Deposit-Contract contains 8.85 million Ethers worth 30.2 billion euros, which corresponds to a number of 277,520 validators.
The amount of returns achieved is variable and depends on the number of all validators.
On September 15, 2022, the switch from energy-intensive ether generation by proof-of-work to proof-of-stake took place.
In a later step, the Ethereum network is divided into several sub-areas (shards) by so-called sharding in order to increase the scalability of the network. This step is planned for 2023.
Ethereum nomenclature
Initially, the planned upgrade to proof-of-stake was referred to as “Ethereum 2.0”. Since this suggests that there would be an “old” and a “new” Ethereum, this naming is avoided. The Ethereum community prefers the terms “Execution Layer” (currently POW) and “Consensus Layer” (POS in the future). The execution layer is the POW implementation until August 2022, which controls the consensus and execution of transactions. In the future, this process will be split up by introducing a new consensus layer, which represents the POS implementation under development. From August 2022, there will be a hybrid implementation of both client types (POS and POW) running in parallel. The current POW client (e.g. Geth) will take care of transaction execution and state management, while the POS client (e.g. Prysm) will be responsible for consensus.
Nothing will change for the end user. Even node operators do not need two separate programs.
Performance
| US Dollar / Ethereum |
achieved for the first time | required days |
|---|---|---|
| 10.0 | 9 Mar. 2016 | – |
| 100.0 | 19 May. 2017 | 436 |
| 1,000.0 | Jan. 9, 2018 | 235 |
| 4.865 | Nov. 11, 2021 | 1402 |
| Ethereum | US dollar | Date |
|---|---|---|
| 1 | 4,865.91 | November 11, 2021 |
References (sources)
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