Proposed in 2013 by Vitalik Buterin, Ethereum offered a new application for blockchain technology that would make it one of the top cryptocurrencies in the world. Ethereum’s great innovation was the introduction of smart contracts – code stored and executed on the blockchain.
In 2014, development for Ethereum was crowdfunded and the Ethereum network went live with an initial 72 million tokens in 2015.
But apart from the stellar rise in its exchange value, Ethereum offers a solution that is more flexible than Bitcoin.
What Is Ethereum?
Ethereum is a decentralized, open source blockchain with smart contract capabilities. It uses the native token Ether (ETH) to facilitate transactions on its network such as deploying Decentralized Apps (dapps) or Smart Contracts.
Ether is generated by the Ethereum Protocol which rewards miners based on a proof of work system. With proof of work, miners are paid transaction fees for validating transactions, adding blocks to the blockchain and supporting the Ethereum network.
When a user transacts on the Ethereum Network by deploying a Smart Contract, launching a Dapp or transferring tokens, there will be a transaction fee involved and these fees are paid in ETH. Since the fees are paid in ETH, these miners get their reward in ETH as well.
Ethereum’s development was planned in 4 different stages. At each stage, there will be a system-wide upgrade of the Ethereum network. Once the upgrade has gone live, the older versions of Ethereum will no longer be supported. In technical terms, these events are called hard forks.
Along with the main planned upgrades, there will be upgrades that fall outside of the broad development map which add new features, enhance user-friendliness and improve the security of the Ethereum Network.
When Ethereum launched on the 30th of July 2015, it was planned as a “Thawing” process instead of a centrally launched protocol. For the “Thawing” process to start, users had to voluntarily download and run a specific version of the software. When enough users had done this, signalling a basic level of interest, the Ethereum Network would generate and load the Genesis block of the official project’s network.
The purpose of the Frontier Phase is to get the network started to a point where miners could setup their mining workflow and developers would be able to test their Dapps, thus enabling the simple functions of mining ETH and running smart contracts.
With the “Thawing” process, early adopters were able to install the client they needed, and miners were able to start their operations without the need to rush into an unstable market.
On the 15th of September 2015, a fork called “Frontier Thawing” followed. With the Thawing, gas fees were limited to 5,000 per transaction, which prevented high transaction fees from hindering usage.
If “Frontier” was considered the working version of Ethereum, Homestead was the “safer” version of Frontier. During this period, security vulnerability was an issue of utmost importance due to the DAO hack.
Launched in 2016, the project called DAO was a decentralized autonomous organization (DAO). It acted as an investor-directed venture capital firm that raised $150 million USD worth of ETH and was one of the earliest crowdfunding efforts and high-profile projects built on the Ethereum blockchain.
Less than three months after its launch, DAO was hacked due to a bug in the smart contract which allowed hackers to exploit the system and steal $60 million of ETH.
This led to a hardfork on the Ethereum network which returned the stolen funds to investors. And because part of the community did not agree with the hardfork, it created a branch which is known as Ethereum Classic today.
Tangerine Whistle & Spurious Dragon
In later 2016, two sub-upgrades, Tangerine Whistle and Spurious Dragon were released to address security issues by adjusting gas fees and implementing state clearing. Empty accounts were removed to reduce syncing time of the network.
As Ethereum grew, one of the biggest challenges was scalability. With the Metropolis Phase, it brought a lighter and more efficient experience to developers and users. Metropolis was a comprehensive improvement of Ethereum’s security, privacy and scalability. As this update was complicated, it was split into two steps, Byzantium and Constantinople.
The Byzantium fork reduced the mining rewards from 5 ETH to 3 ETH, delayed the mining difficulty by a year and added cryptographic methods to enable Layer-2 scaling.
The Constantinople fork was meant to fix any issues from the Byzantium implementation and paved the way for the transition to proof of stake which will reduce the energy consumption for validation of transaction on the Ethereum Network.
Introduced on Dec 8, 2019, the Istanbul Fork introduced a few new features to enhance resilience against denial-of-service attacks, improved the performance of Layer-2 scaling solution based on SNARKs and STARKs, and added interoperability of Ethereum and Zcash as well as more creative functions on smart contracts.
Serenity Phase A.K.A Ethereum 2.0
Serenity Phase or Ethereum 2.0 intends to solve two issues that Ethereum is facing.
- A clogged Network
- Large energy consumption due to proof of work
The upgrades will implement sharding which will spread the workload of the network via implementation of shard chains. Meanwhile, moving to a proof of stake model will reduce the energy consumption that is required to validate and approve transactions on the Ethereum Network.
With lower transaction fees, this will enable and allow those who do not have access to modern banking services to have even easier access to financial accounts, loans, or investments.
And with nearly 2 billion adults in the world who do have access to such financial products like bank account or investments, DeFi or Decentralized Finance will have the opportunity to grow and bring these services to unbanked individuals all over the world.
Being in the Defi Space, those who stand to benefit the most from Ethereum’s 2.0 upgrade are those who do not have access to the modern banking system that exists today.
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