A brief history of Ethereum

Soon after Bitcoin launched ideas around tracking other assets started to emerge. The initial attempts included efforts around forking the Bitcoin codebase to create coin-specific blockchains1. This was a tedious process often taking months or years of development depending on how much the implementation deviated from Bitcoin. Later attempts include colored coins2 where the idea was that certain bitcoins would be repurposed to carry a second meaning. Colored coins would theoretically reduce development time and rely in part on the security of Bitcoin as opposed to competing for the security of its network with Bitcoin.

The early innings

The fundamental insight which the creators of Ethereum had was that Bitcoin was inherently a replicated state machine with a fixed set of transformation rules3 (Σ). The network participants came to consensus by validating each transformation (δ : S  × Σ → S) in sequence until they arrived at the current state (S). Ethereum’s core contribution, originally laid out in the whitepaper, was to define low-level operations for a virtual machine which formed the rules for a valid computation from one state to another. The functionality of such a hypothetical blockchain would be extendible by uploading a bytecode for the virtual machine in a contract creation transaction. Once the bytecode had been added to the replicated state it could be invoked in a contract call transaction instructing the miners to compute a new state by executing the bytestring on the current state. Such extensions would later be branded as smart contracts.

At the start of the sale and for fourteen days the price was set so that one bitcoin bought 2,000 ether. At the end of the 14-day period the amount would decline linearly to a final rate of 1,337 ether, which meant that one ether was worth 0.0007479 bitcoin or about 30 cents at bitcoin prices in September 2014.

The journey forward

Today Ethereum is alive and well with a large community of both developers and users. DeFi10 currently is the primary driver of usage and adoption and while still in its infancy, DeFi experiments are being conducted which will surely impact the future of financial services. The recent surge in usage has highlighted a major challenge for popular blockchains, namely scalability. Ethereum’s throughput is only around 7 transactions per second globally and the recent surge in usage is filling up block space driving the price of transactions up. Ethereans are already working on Ethereum 2.0 which amongst other things addresses the problem by sharding the blockchain into 1024 blockchains with cross-chain communication between them. Other L211 efforts are already being deployed to alleviate the pain in the meantime.

Gisli

1. Coin-specific blockchains are usually referred to as altcoins. Namecoin and Litecoin were some of the first altcoins to launch off of a fork of the Bitcoin codebase.↩︎

2. Mastercoin, rebranded as Omni in 2015, was an early implementation of the colored coin idea.↩︎

3. Bitcoin Script is a high-level stack based rules engine.↩︎

4. Ether is the native cryptocurrency of Ethereum↩︎

5. Initial Coin Offering (ICO) is a spin on it’s real-world Initial Public Offering (IPO)↩︎

6. In the same way blockchains are decentralized state machines, Decentralized Autonomous Organisations (DAO) are decentralized companies.↩︎

7. Hardfork are backwards-breaking changes to the protocol. The DOA hardfork on GitHub.↩︎

8. Ethereum Classic.↩︎

9. Decentralized Finance (DeFi) where the counterparty is a smart contract and users transact in a permissionless manner.↩︎

10. Layer two (L2) solutions are systems which operate independently of the base layer (Ethereum) but derive their security from it.↩︎