Ethereum is probably the best known crypto currency system after the bitcoin. This is reflected both in the reporting and in the market capitalization. As is so often the case with cryptocurrencies, however, the information situation for newcomers is initially unclear. The following introduction will therefore provide an overview of the history and technology of Ethereum.
After Bitcoin, the then novel blockchain technology, caused an international sensation in 2009, the first further developments of the technology in the form of forks and copies had already appeared by 2013, but these brought with them comparatively few innovations.
At the end of 2013, 19-year-old Canadian-Russian software developer Vitalik Buterin published his idea for a completely new use of the blockchain approach: Ethereum. At that time, Buterin said, Ethereum would not simply become another crypto currency, but rather a platform for decentralized software.
Within less than two years, Buterin and his comrades-in-arms Gavin Wood and Jeffrey Wilcke actually put the first version of the system online.
Technique and differences to Bitcoin
Like Bitcoin, Ethereum uses a blockchain as a decentralized database for all transactions in the system. With Bitcoin, however, only bitcoin transactions can be stored in the chain. The Ethereum blockchain, on the other hand, provides for a large number of additional transaction types that can be stored in the blockchain in the form of so-called smart contracts.
Such smart contracts can depict a wide variety of real-world processes and procedures and link them with hardware and software products.
Currently, the Ethereum system uses a bitcoin-like proof-of-work approach to update the blockchain and dig its own crypto currency, Ether. In the medium term, however, this is to be converted to proof-of-stake in order to make the system more energy-efficient. Proof-of-stake-based systems no longer perform complex (but pointless) calculations to protect the blockchain against attacks. Instead, attacks are made costly by allowing only users who keep money in the system for a long time to write new database entries.
Ethereum, Ether, ETH, Ξ
The Ethereum network also has its own crypto currency, the Ether (ETH or Ξ for short). This token is itself implemented as a smart contract and is currently distributed by proof-of-work as described above. Unlike Bitcoin, however, there is no hard upper limit for the total quantity. Instead, the payout rate for new tokens remains stable in the long term, which de facto means an ever-decreasing inflation curve. It is assumed that there will be a long-term balance between the amount of newly distributed and lost units on the one hand and the value of the units on the other.
ICOs and ERC20 Tokens?
The Ethereum network is particularly popular at the moment for executing Smart Contracts for so-called Initial Coin Offerings (ICOs). ICOs are currently a popular method for young companies to finance themselves. The tokens issued by ICOs basically function like shares of traditionally traded companies. Like crypto currencies, however, they are traded decentrally. In most cases, so-called ERC20 tokens are used. This is basically a kind of standardized format or standard contract that is used to secure the tokens issued within the framework of ICOs on the Ethereum blockchain. What is particularly practical about this standardization is that the tokens can be stored with many different software and even hardware wallets.