The Ethereum Project's logo, first used in 2014.
|Initial release||30 July 2015|
|Operating system||Clients available for Linux, Windows, OS X, POSIX|
|License||Multiple open-source licenses|
Ethereum is a public blockchain-based distributed computing platform, featuring smart contract functionality. It provides a decentralized virtual machine, the Ethereum Virtual Machine (EVM), that can execute peer-to-peer contracts using a cryptocurrency called ether.
Ethereum was initially described in a white paper by Vitalik Buterin, a programmer involved with Bitcoin, in late 2013 with a goal of building decentralized applications. More specifically, Buterin "had argued to the bitcoin core developers that the platform needed a more robust scripting language for developing applications." Failing to gain agreement, he proposed development of a new platform with a more general scripting language.:88 Buterin believes that many applications could benefit from Bitcoin-like software.
The Ethereum software project was initially developed in early 2014 by a Swiss company, Ethereum Switzerland GmbH (EthSuisse). Subsequently, a Swiss non-profit foundation, the Ethereum Foundation (Stiftung Ethereum) was set up as well. Development was funded by an online a public crowdsale during July–August 2014, with the participants buying the Ethereum value token (ether) with another digital currency, bitcoin. While there was early praise for the technical innovations of Ethereum, questions were also raised about its security and scalability.
By May 2016, the market capitalization of the cryptocurrency ether was more than US$1 billion and Vox noted that the relatively new digital currency was challenging bitcoin by offering a range of services that are not possible using bitcoin.
The DAO and the blockchain fork
In June 2016, The DAO, a platform for the autonomous governance of investment capital, was found to contain an unexpected code path which would allow any sophisticated user to withdraw an arbitrary amount of funds from the DAO. This was indeed exploited by an unknown party on the 16th of June, who managed to move about one third of the Ether held then by the DAO (at the time valued at 50 million USD) into a clone of the DAO, a "ChildDAO" whose control was held by only this party. As a consequence of the way the DAO was programmed, these moved funds would remain unavailable for withdrawal for about a month.
The Ethereum community debated how and whether to reclaim the ether, and whether to shut down The DAO, as the decentralised nature of The DAO and of Ethereum meant a lack of a central authority that could take quick action, instead requiring community consensus. After a few weeks' discussion, The DAO was shut down, and Ethereum hard-forked (a backward-incompatible change) to reverse the hack and return The DAO funds, with some controversy. This was the first fork of any mainstream blockchain to be for the purpose of making reparations to investors in a failed enterprise.
The value token of the Ethereum blockchain is called ether. It is traded on cryptocurrency exchanges like any other cryptocurrency; it is also used to pay for transaction fees and computational services on the Ethereum network.
Controversially, Buterin sold 25% of his ether holding in April 2016, describing this diversification as "sound financial planning," and also quoted Gavin Andresen’s statement concerning Bitcoin: "I still say that it’s an experiment, and the whole thing could implode."
The price can be volatile per circumstances, such as a plunge from $21.50 to $15 when The DAO was hacked on June 17, 2016.
Smart contracts are applications with a state stored in the blockchain. They can facilitate, verify, or enforce the negotiation or performance of a contract. Ethereum contracts can be implemented in various Turing complete scripting languages. The Ethereum system has been described by the New York Times as "a single shared computer that is run by the network of users and on which resources are parceled out and paid for by Ether."
Contracts on the public blockchain
One issue related to using smart contracts on a public blockchain is that bugs, including security holes, are visible to all but cannot be fixed quickly. One example of this is the 17 June 2016 attack on The DAO, which could not be quickly stopped or reversed. The buggy contract was fixed with a controversial hardfork that restored the hack transaction on the Ethereum blockchain.
There is ongoing research on how to use formal verification to express and prove non-trivial properties. A Microsoft Research report noted that writing solid smart contracts can be extremely difficult in practice, using The DAO hack to illustrate this problem. The report discussed tools that Microsoft had developed for verifying contracts, and noted that a large scale analysis of published contracts is likely to uncover widespread vulnerabilities. The report also stated that it is possible to verify the equivalence of a Solidity program and the EVM code.
In Ethereum all smart contracts are stored publicly on every node of the blockchain, which has trade-offs. The downside is that performance issues arise in that every node is calculating all the smart contracts in real time, resulting in slower speeds. Ethereum engineers have been working on sharding the calculations, but no solution had been detailed by early 2016. As of January 2016, the Ethereum protocol could process 25 transactions per second. In September 2016, Vitalik Buterin outlined the approach that Ethereum will be taking to solve for scalability of the network and increase the transaction processing rate.
The Ethereum platform has multiple proposed uses concerning smart contracts, but it is mostly used for its cryptocurrency. Previously-established interested parties included Microsoft, IBM, and JPMorgan Chase. Bloomberg Businessweek claims that [Ethereum is] shared software that can be used by all but is tamperproof. You can safely do business with someone you don’t know, because terms are spelled out in a “smart contract” embedded in the blockchain.
Higher-level software can utilize Ethereum to establish an online marketplace platform.
Ethereum is used as a platform for decentralized applications, decentralized autonomous organizations and smart contracts, with "dozens of functioning applications built" on it by March 2016 according to the New York Times. The intended scope of applications include projects related to finance, the internet-of-things, farm-to-table produce, electricity sourcing and pricing, and sports betting. Decentralized autonomous organizations may enable a wide range of possible business models that were previously impossible or too costly to run. Notable Ethereum applications include:
- Decentralized investment funding: The DAO with the objective to "provide a new decentralized business model for organizing both commercial and non-profit enterprises". The DAO was funded with Ether.
- Socioeconomic platform: Backfeed
- Internet of Things (IoT): Light clients by Ethcore, an Ethereum-based private venture. Chronicled has introduced an Ethereum blockchain-based physical asset verification platform. Chip companies, physical IP creators and manufacturers authenticate embedded Bluetooth low energy and Near field communication chips.
- Gaming value platform: FreeMyVunk.
- Equity crowdfunding portal for arts and media: The Rudimental.
- Energy market: TransActive Grid enable people to buy and sell renewable energy to their neighbors
- Smart locks: Slock.It, who also built The DAO.
- Decentralized options exchange: Etheropt.
- Value token pegged to gold: DigixDAO, by Digix. The token began trading on exchanges on 28 April 2016.
- Releasing music as a digital contract: Imogen Heap, Ujo Music, used the technology with her single "Tiny Human".
- Value token pegged to fiat-backed currencies: Decentralized Capital (DC) is a new service that allows users to bring dollars, euros, and other government-backed currencies onto and off of the Ethereum network. DC's smart contracts adhere to the token standard put forward by the Ethereum Foundation.
Ethereum is also being tested by enterprise software companies for various applications.
- Deloitte and ConsenSys announced plans in 2016 to create a digital bank called Project ConsenSys.
- R3 Project, which connects 11 banks to distributed ledger using a private Ethereum blockchain running on Microsoft Azure.
- Microsoft Visual Studio is making the Ethereum Solidity language available to application developers.
- Innovate UK provided 248,000GBP in funding to Tramonex to develop cross border payments prototype using Ethereum.
The New York Times noted in March 2016 that Ethereum platform adoption is still early, and that Ethereum could encounter technical and legal problems going forward that would slow the growth of the distributed computing platform. Many Bitcoin advocates say that Ethereum may "face more security problems than Bitcoin because of the greater complexity of the software." The article also said, "The system is complicated enough that even people who know it well have trouble describing it in plain English".
Microsoft announced a partnership with ConsenSys, a blockchain startup focused on Ethereum technology. Customers of popular cloud-based business service Microsoft Azure have access to third-party tools that "allow them to experience and build with cloud-based blockchain applications, from securities trading to cross-border payments".
People who hold Ether from before the hard-fork have a possible balance of ETH in addition to an equal amount of Classic Ether (ETC). Exchanges that hold customer funds are also in control of the ETC in proportional quantity to their ETH holdings prior to the hard-fork. Users at most ETH exchanges are demanding their ETC be made available to them. As of 11 August 2016, both Ethers are actively traded.
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The company was founded in 2014 and is based in Baar, Switzerland.
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July 30, 2015, ... Ethereum ... went live. ... Ethereum is like bitcoin in that its ether motivates a network of peers to validate transactions, secure the network, and achieve consensus about what exists and what has occurred. But unlike bitcoin it contains some powerful tools to help developers and others create software services ranging from decentralized games to stock exchanges. ... a more robust scripting language for developing applications.
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All sorts of companies and public bodies suffer from hard-to-maintain and often incompatible databases and the high transaction costs of getting them to talk to each other. This is the problem Ethereum, arguably the most ambitious distributed-ledger project, wants to solve. ... Ethereum’s distributed ledger can deal with more data than bitcoin’s can. And it comes with a programming language that allows users to write more sophisticated smart contracts, [that among other things] allow the formation of "decentralised autonomous organisations"—virtual companies that are basically just sets of rules running on Ethereum’s blockchain.
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When it reaches the end of the funding phase on May 28, it will begin contracting blockchain-based start-ups to create innovative technologies. The extraordinary thing about The DAO is that no single entity owns it, and it has no conventional management structure or board of directors.
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