Blockchain company profile: Ethereum

As the second most popular crypto behind Bitcoin, you’ve likely heard of Ethereum before—even if you’re a newbie to the crypto world. Ethereum is a crypto company, but unlike Bitcoin, its primary goal isn’t to become a new currency, even though it does have its own coin, Ether (ETH). 

Instead, Ethereum focuses on serving as a platform for decentralized applications (dApps) and smart contracts. But what exactly does this mean, and how is it different from Bitcoin?

What does Ethereum do?

Ethereum’s goal is to create a network of decentralized applications that provide various services to its users. Most importantly, Ethereum can provide financial services for those who can’t access them through traditional methods such as the unbanked, can’t get approved for a loan, or have poor credit. 

With Ethereum, anyone can access financial services on the platform with an internet connection, an Ethereum wallet, and some ETH.

Ethereum’s users can access these services through the dApps on Ethereum’s network. These dApps run on smart contracts, which utilize blockchain technology and are created by Ethereum’s users. 

In fact, think of Ethereum as a DIY platform. On Ethereum, any user can create their own dApp by utilizing Ethereum’s coding language, Solidity, to write a smart contract. 

Smart contracts

First, you should understand how a smart contract works. Smart contracts are a self-executing system that automatically fulfills a transaction without any third party to facilitate. The contract states that if X conditions are met, then X outcome will happen. 

Smart contracts are written using the network’s coding language, which in Ethereum’s case is Solidity. Once the contract is created and put onto the Ethereum network, it cannot be changed in any way. For this reason, you need to make sure the terms of the contract are clear and mean exactly what you want them to mean. 

The contract will execute along the exact terms written in the code. The computer keeps track of when the other party fulfills the conditions of the contract. When they do, it allows the outcome to happen. 

Decentralized applications and blockchain

These smart contracts are what dApps use in order to function. DApps are basically just apps but decentralized, meaning they are controlled by a large network of users rather than a single entity. You can find dApps for financial services, social media, gaming, and more.

So how do these smart contracts tie into blockchain? Ethereum runs on blockchain technology just like Bitcoin and other cryptos, but it uses it for a slightly different purpose.

The underlying proof-of-work system with various decentralized nodes all around the world works the same. And these nodes still verify all the transactions that take place on the network.

But the blockchain serves as the foundation for smart contracts. If the smart contract is the software, think of the blockchain as the hardware that runs it. When a smart contract is launched on Ethereum, the entire network of nodes must agree on that contract and its terms.

This is why it’s impossible to change a contract once it’s been launched, because you would have to get every node in the system to agree to those changes.

Ether

And where does Ethereum’s cryptocurrency, Ether, fit into all of this? Unlike Bitcoin, Ethereum isn’t trying to become a currency. Instead, Ether essentially serves as an incentive for nodes to maintain the Ethereum network on their computers. 

Anyone who wants to create their own smart contract must pay some Ether in order to do so. This fee ensures that only high-quality code takes up the shared computing power on the network. It also encourages the nodes to do the work to process and verify this new data. 

Ether is also used within dApps on Ethereum’s network, as a source of value in peer-to-peer transactions and as an investment.

Source: thelastamericanvagabond.com

Key milestones in Ethereum’s history

The original Ethereum whitepaper was created in 2013 by Vitalik Buterin and Gavin Wood, with the goal of creating a network of decentralized applications. They wanted to take Bitcoin’s blockchain technology and apply it to other purposes.

For this reason, Ethereum is actually a lot more complex than Bitcoin because the blockchain is being used for other reasons besides just tracking monetary transactions.

Ethereum officially launched in 2015, and three years later, it became the largest cryptocurrency by market cap behind Bitcoin, which it still is now.

The DAO attack and Ethereum’s fork

In 2016, a decentralized autonomous organization on the Ethereum network called the DAO was exploited through a loophole in its smart contract, and $50 million worth of DAO tokens were stolen. The DAO was a decentralized group similar to a hedge fund, where users would exchange their ETH for DAO tokens and give them to The DAO so they could fund other dApps on Ethereum.

Due to a loophole in the smart contract design, some users were able to steal a large portion of the DAO’s funds. This event is relevant because it caused Ethereum to “fork” or split into essentially two different companies: Ethereum and Ethereum Classic.

Today, you can find and invest in both companies on the crypto market. So what’s the difference? After the DAO attack, Ethereum users had to decide if they wanted to essentially rewrite the system in order to get their ETH back. However, doing so would violate the core tenet of smart contracts, which is that their terms are immutable and can’t be changed.

So those who did not want to make the change stuck to the original system, which became Ethereum Classic. Those who wanted to go back and get their ETH joined the new, upgraded blockchain. This new blockchain split off from the original one and became a whole new chain of its own. Users had to update their network to join the new system, and then they received their money back.

This essentially created two separate companies: Ethereum Classic users cannot participate in Ethereum because they have not upgraded to the new blockchain. 

Ethereum Upgrade 2024

Today, Ethereum has continued to see success as an innovative technology company. Ethereum keeps adding updates to its network, like Ethereum 2.0 in 2022. There was the Shanghai upgrade that enable staked ETH withdrawals in 2023 and now the Dencun Update is expected in Q1 of 2024.

Ethereum 2.0 transitioned Ethereum to a proof-of-stake system rather than proof-of-work. Moving to a crypto staking model which helped reduce Ethereum’s energy consumption and impact on the environment, improved security, and made it easier for the network to scale faster and process thousands of transactions per second.

The anticipated Ethereum Cancun-Deneb (Dencun) upgrade is oriented towards increased the scalability, efficiency, and security of the Ethereum blockchain through a series of Ethereum improvement proposals (EIP).

The future of Ethereum

So, what does the future look like for Ethereum? Can it overtake Bitcoin someday to become the largest crypto? Will it keep dominating the decentralized finance market?

Ethereum is making great strides to optimize its network and become more energy-efficient than Bitcoin. Its rapid growth shows that many of its users see the huge potential for Ethereum’s technology.