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Ethereum history

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Ethereum was designed to enable programming and execution of complex smart contracts.



In order to integrate smart contracts into the blockchain, Ethereum introduced a special type of account - a contract account, and a specific way to store transaction history as account fields. A special piece of software, the Ethereum Virtual Machine, is charged with smart contracts execution, and the  fees needed for this execution prevents the system from clogging due to unreasonably lengthy computations.



<h2>Ethereum accounts and their states</h2>



Ethereum distinguishes two types of accounts, each having its own address:



<ul><li>Contract accounts (smart contracts) – controlled by the logic of their code, which is recorded on the blockchain at the contract account creation. In response to a transaction targeting them, contract accounts can send and receive ETH, trigger the execution of particular functions according to the data received, and even call other contracts. However, they don’t have private keys and cannot initiate transactions themselves. </li><li>Externally owned accounts (EOA) – controlled by the owner of its private keys. By digitally signing a transaction an EOA can send messages to another EOA (as a simple asset transfer), or to a contract accounts, triggering their execution </li></ul>



<ul><li></li></ul>



Each account, whether an externally owned or containing a smart contract, has its fields (an ether balance and a nonce for both types, plus code and storage for contract accounts), and the mapping between the Ethereum addresses and the accounts and their fields composes the world state, unique for any given point in time. The World state changes with every transaction block, which is why Ethereum can be viewed as a distributed transaction-based state machine.



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<h2>Ethereum Virtual Machine </h2>



The key element of Ethereum allowing smart contract execution is Ethereum Virtual Machine (EVM), which is working as its runtime environment. EVM is a program that executes bytecode (machine-language instructions), compiled from high-level languages, in which smart contracts are written.&nbsp;



Each node on the Ethereum network runs a local copy of the EVM to validate contract execution, while the Ethereum blockchain records the changing World state resulting from processing transactions and smart contracts. More precisely, the world state is stored in the cryptographic Modified Merkle Patricia Trie (variant of a Merkle Tree), which is itself stored in blocks headers. 



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Everything registered on a blockchain has to be duplicated and run by multiple nodes without compromising the integrity of the system. Hence the code running inside the EVM has no access to network, filesystem or other processes - that is why the EVM is sometimes referred to as a “sandbox”, which is an IT speak for a security mechanism separating running programs, usually in an effort to mitigate system or software failures. Such isolation allows to execute instructions and protects the network from a potential vulnerability resulting from a malicious program. Only if the execution is successful the real world state is updated. 



<h2>Solidity</h2>



Solidity - the Ethereum-specific high-level language created by Gavin Wood - is not the only high-level language used to code smart contracts, but it is by far the most dominant one.&nbsp;



Most of today’s programming languages are Turing-complete (theoretically capable of expressing all tasks accomplishable by computers), and so is Solidity, allowing the creation of specific programs that can implement any detail you fancy.&nbsp;



However, if the whole system worked as a Turing machine, some programs could take ages to be executed and the system would be clogged (this is the base logic beyond the Distributed Denial-of-service attacks and one of the reasons why programs have to be terminable). Also, a good-intended developer may wish to terminate the calculations at a point where they become economically non-profitable. 



<h2>ETH and gas</h2>



Ethereum solves this problem by requiring a fee called gas for every operation within a transaction, and by asking users to declare a gas limit (maximum amount of gas  they are willing to pay for this transaction). Every transaction specifies the gas price it is willing to pay in ETH for each unit of gas, allowing the market to decide the relationship between the price of ETH and the cost of computing operations (as measured in gas). It’s the combination of the two, total gas used multiplied by gas price paid, that results in the total fee paid by a transaction. 



Blocks that are mined on the Ethereum blockchain have a gas limit attached to them, so the amount of gas used by all transactions inside a block cannot exceed a certain amount.



The gas cost not only incentivizes miners to perform their duties, but also deters malicious nodes from executing DDoS attacks that would cost them a fortune, thus making the attack useless. The gas limit prevents nodes from running unreasonably lengthy programs, keeping only those that are economically worthwhile.

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How are blockchains being used today? As a basis for cryptocurrencies sure, but also to decentralize traditional businesses and fuel the DeFi. All this brought to public by a well-developed ecosystem allowing anyone to use crypto. 



<h2>Cryptocurrency and Smart contract blockchains </h2>



With <a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin</a>, the first practical application of the blockchain was currency, or more precisely “P2P electronic cash system”, as described by Satoshi Nakamoto himself. Invented in order to remedy the defective monetary system, the blockchain proved itself to be particularly well suited for such a role, providing an independent, immutable and transparent transaction ledger.&nbsp;



Following Bitcoin, other <a href="https://d.center/explore/cryptocurrencies" class="ek-link">cryptocurrencies </a>have emerged, trying to ameliorate this or that aspect of the blockchain: transaction throughput, privacy… Other cryptocurrencies, namely stablecoins, focus on reducing price volatility. 



Before long people got a further idea to use the blockchain for more complex types of programs, leveraging its freedom from any trusted third party. These programs, called smart contracts, could be autonomous and self-execute when a predefined condition is triggered. An application running on a blockchain (dubbed DApp for “decentralized application”) cannot be modified once registered, not even by its creators. 



The first and most popular <a class="ek-link" href="https://d.center/explore/dapps-platforms">Smart contract platform</a> is Ethereum blockchain, however it also has its share of competitors. 



The difference between a Cryptocurrency blockchain and a Smart contract blockchain is now rather theoretical and can be spotted only by questioning the blockchain’s purpose: whether it was conceived to support a currency or to host elaborate smart contracts. Both types of blockchains need a native coin to pay the network nodes for running the protocol, however in cryptocurrencies’ case the native coin is a goal in itself, whereas for smart contract blockchains it is a payment for running smart contracts. 



In practice, Ethereum native coin ETH is often used as a currency, and Bitcoin can serve as payment for running Bitcoin-based smart contracts, which became possible thanks to the protocol and second layers development. Hence it is now better to speak more generally of cryptoassets as a whole. 



<h2>Blockchain use cases </h2>



The blockchain technology can be used in every sector that would profit from the absence of a trusted third party. Decentralized systems are intrinsically fairer than centralized ones, because they are much better in redistributing value and allow the users to be true and sole owners of their data. This quality is substantial when it comes to online platforms, whether for social media, cloud or ride hailing.



Blockchain being a transparent and immutable ledger, it is also particularly suitable for all data certification purposes.



Blockchain’s capacity to host smart contracts can automate numerous processes, not only increasing the overall cost and time effectiveness, but also providing users with a guarantee that no one will modify the conditions of a DApp using that smart contracts.&nbsp;



Finally, blockchain structure allows fast and easy data and values transfer, without any consideration for borders or other limitations. This quality is not only highly appreciated in the finance world, but can also be used to transfer digitized ownership rights for any type of value.&nbsp; 



<h2>Blockchain ecosystem </h2>



Blockchain is a collective endeavor, and it needs an extensive ecosystem to function and to serve its purposes. Numerous products and services have therefore been developed: <a href="https://d.center/explore/crypto-wallets" class="ek-link">wallets </a>to interact with a blockchain, <a href="https://d.center/explore/crypto-exchanges" class="ek-link">exchanges</a><a href="https://d.center/explore/crypto-exchanges" class="ek-link"> </a>to buy and sell crypto, oracles to interact with the real world and feed information to smart contracts, not to mention the miners who maintain the network or interoperability protocols connecting different blockchains. 



<h2>Blockchain in finance </h2>



Finance is a sector embracing the blockchain like no other. Traditional finance manipulates cryptoassets as a new type of value, incorporating it into the existing circuits, whereas the new type of finance - the DeFi (for decentralized finance) is taking shape.&nbsp;

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Smart contract platforms are called blockchain 2.0: they allow the creation of tokens and DApps, opening the blockchain to various use cases. 



The blockchain being essentially a piece of software run on a decentralized network, it can host not only the algorithms covering transaction logic, but also more complex ones.&nbsp;



The first blockchain - <a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin </a>- enabled transactions like “Alice sends a coin to Bob”, and other simple computational instructions, like “Alice will send a coin to Bob if Celine will agree on it”. These instructions are called  Smart contracts  - programs that auto-execute when triggered by a certain predefined condition - and were first theorized by Nick Szabo in 1995. Before long this idea was extended to more complex programs that could  be run in a decentralized way on blockchain. The first person to make this possible was Vitalik Buterin, creating in 2015 Ethereum blockchain - the first blockchain dedicated to smart contracts of different complexity.



<h2>Tokens</h2>



An important functionality that smart contracts logic can implement is token creation. In blockchain-speak a token is a digital unit representing any possible set of rights, assets or services attached to it, registered within a smart contract. Created on a blockchain, a token can then be freely exchanged on it, just like native cryptoassets. A token can serve as a form of currency, represent asset ownership or voting rights, or even an identity. Or all at once, depending on its purpose and developer’s imagination. With this, a new era begins - the token economy.



<h2>DApps </h2>



The applications using smart contracts were dubbed Decentralized applications, or DApps in short, since their execution is not controlled by any individual or central entity. A DApp is composed primarily of a user interface on the web and a smart contract deployed on the blockchain. Anyone using a DApp in fact initiates a transaction sent to the address of a smart contract on the blockchain, triggering smart contract execution, the resulting events being noted in the DApp’s logfile and registered on the blockchain. Generally such system makes DApps more secure than traditional applications: executed on a blockchain network instead of a private server, the possibility of an unsolicited third party intervention is much lower.&nbsp;



A direct consequence of decentralizing program execution is that once a smart contract is deployed on a blockchain, it cannot be modified, even by its creators. This property can bring additional value to a DApp (less opportunity for a DApp creator to cheat on its customers), but it also means that a special care should be taken when coding the smart contract.&nbsp;



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The DApps using smart contracts that need data outside of blockchain relies on oracles - third party data providers that trigger smart contract conditions. Oracles are generally agreed upon by both parties and written into the smart contract. For example, in case of a sports bet, an oracle will send the result of the match to the smart contract, which will execute itself and send a reward to the person who won the bet. Oracles’ development is tightly linked to the DApps success and adoption.



<h2>Smart contract platforms today</h2>



Since Ethereum, numerous smart contract-enabling blockchains have emerged, each with its own specificities. Cardano and EOS focus on scalability (number of transactions per second), the crucial aspect that needs to be improved in order to allow a widespread adoption of DApps. Tezos is reinventing the governance system, aiming at creating a self-amending blockchain. As to Tron, a blockchain with ambition to decentralize the online entertainment sector, it puts its best efforts to marketing.



These platforms and the DApps using them contribute to a wider use of the blockchain, finding yet more use cases and helping to decentralize the world.



<h2>Permissioned blockchains</h2>



Permissioned blockchains are another category of blockchains running smart contracts, used mainly by banks and enterprises when they do not wish to disclose some information or to have transaction immutability. These private or consortium blockchains speed up tedious verifications (for bank wires, for example) and help organise heterogeneous data across the companies working together (e.g. for supply chains). It is important to note though that permissioned blockchains are not independent and the information they contain can be modified by their owners.

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The blockchain aiming at “decentralizing everything”, Ethereum brings its benefits to numerous domains by enabling complex smart contracts and Dapps.



Diverse use cases and the absence of an easily customizable blockchain helped formulate a need for a multi-purpose blockchain, on which a wide array of applications could be built. The first to come with a solution was a Russian-Canadian developer Vitalik Buterin, who submitted the Ethereum concept to the crypto community in late 2013. After a successful crowdfunding in 2014 the platform went live by July 2015.



The major innovation of Ethereum that distinguished it from <a href="https://d.center/explore/bitcoin" class="ek-link">Bitcoin </a>was a wide range of possible smart contracts that could be coded on its blockchain. A smart contract is basically a computer program registered on a blockchain that is executed by the EVM (Ethereum Virtual Machine) when a transaction is sent to its address; the results of a program execution are themselves being stored on a blockchain. The DApps (decentralized applications) using these smart contracts enjoy all security and independence benefits of a blockchain: program execution is entrusted to a decentralized network instead of a single third party.



<h2>Ethereum consensus and fees</h2>



In order to incentivize Ethereum nodes to run smart contracts, fees are paid for every transaction. These fees are paid in a special unit called gas and depend on the amount of computations to be done. Gas can be bought with Ethereum native currency Ether (ETH), the price being decided by the market according to the supply/demand ratio. 



Starting from August 2021, Ethereum fees are calculated differently: instead of users bidding for blockspace with a solid fee, it is now separated in two parts – the “base fee” (determined algorithmically)  and the “priority fee” (set by users). The base fees, fluctuating from 25% to 75% of the total, are being burned with each transaction.



In September 2022, Ethereum effectively switched from the <a href="https://d.center/explore/proof-of-work" class="ek-link">Proof-of-Work</a> consensus it had been using for 8 years to <a href="https://d.center/explore/proof-of-stake" class="ek-link">Proof-of-Stake</a>, becoming ETH2.0. The particular PoS variant is called Casper, and validator nodes 
 stake 
 escrow in a special wallet
 a minimum amount of 32 ETH to be able to participate in the network by validating transactions, adding blocks, and receiving transaction fees. 



However, for those who do not have this amount of ethers, or those who do not want to run a node themselves, numerous <a href="https://d.center/posts/a-short-guide-to-ethereum-staking-services" class="ek-link">staking services</a>, both centralized and decentralized, have appeared.



<h2>Ethereum tokens</h2>



Ethereum is also a very convenient platform for the creation of tokens - digital units circulating on a blockchain and representing a certain value assigned to them by their creator. Its ERC20 (fungible) and ERC721 (non-fungible) tokens have become the standards in the industry and are being used extensively.



<h2>DAO</h2>



Ethereum can be used to build Decentralized Autonomous Organizations (DAO). A DAO is an organization with governance defined by smart contracts registered on a blockchain. A DAO allows a group of persons to interact using an open source protocol with auto-executing qualities; this protocol and the associated smart contracts formalize the organisation’s operation rules. Once deployed, a DAO is independent from its creator and isn’t controlled by an entity, but rather by a consensus between its participants, according to its blockchain-registered code. The owners of tokens associated with a DAO are assigned voting rights and are often rewarded for their participation in the DAO’s governance.



The transparency and immutability of the blockchain make such organizations difficult to corrupt, proposing an alternative model to centralized organizations. There are lots of DAO in the DeFi (Decentralized Finance), the most famous being Maker DAO - a lending platform managing the dollar-pegged stablecoin DAI.



<h2>Ethereum today and tomorrow</h2>



Ethereum is the most popular blockchain for DApps development, with over 5000 DApps built on it. It is a major blockchain for the Decentralized Finance, or DeFi, with an important new metrics - TVL (Total Value Locked), representing the collateral locked in different types of DeFi applications - exceeding $70 billion worth of crypotoassets. 



According to the Ethereum creator, the 4 major problems that need to be solved to push Ethereum to the next level are privacy, consensus safety, smart contract safety, and  scalability. The Merge (changing the consensus) was an important step in reducing Ethereum's energy consumption and paving the way for further improvements.



The next steps, as outlined by Vitalik Buterin, would look the following way:



The&nbsp;surge&nbsp;will allow Ethereum to scale from the actual 15-20 transactions per second to 100’000. It will achieve it with&nbsp;sharding, which is basically splitting the blockchain into 64 mini-blockchains, or “shards”.



The&nbsp;verge&nbsp;will allow users to become network validators without having to store the whole blockchain (which is getting pretty heavy) on their computers. This step, which will rely on the so-called “Verkle trees”, a type of mathematical proof, and “stateless clients”, is supposed to help bring down technological barriers to entry and help decentralize the network.



The&nbsp;purge&nbsp;will push further the above effort, aiming at simplifying the protocol over time and dispense the nodes from storing its history.



Finally, the splurge is about “all the other fun stuff”.