Ethereum

Introduction

Ethereum is a decentralized, open-source blockchain system that features its own cryptocurrency, Ether (ETH). It was proposed in late 2013 by Vitalik Buterin, a cryptocurrency researcher and programmer. Ethereum is the second-largest cryptocurrency platform by market capitalization, behind Bitcoin. Ethereum is not just a platform but also a programming language (Turing complete) running on a blockchain, helping developers to build and publish distributed applications.

Ethereum’s Functionality

Ethereum is a platform that enables developers to build and deploy smart contracts, which are self-executing contracts with the terms of the agreement directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. The platform was built to allow developers to create decentralized applications where smart contracts were used to create and manage the application’s functions and data.

Ethereum’s native cryptocurrency, Ether, is used primarily for two purposes. It is traded as a digital currency exchange like other cryptocurrencies and is used inside Ethereum to run applications and even to monetize work. According to Ethereum, it can be used to “codify, decentralize, secure and trade just about anything.”

Ethereum 2.0 and Proof of Stake

Ethereum 2.0, also known as Eth2 or “Serenity”, is an upgrade to the Ethereum blockchain. This upgrade aims to enhance the speed, efficiency, and scalability of the Ethereum network, enabling it to process more transactions and alleviate congestion. It will also move the Ethereum network from a proof-of-work consensus mechanism to a proof-of-stake one.

Proof of Stake (PoS) is a type of consensus mechanism used to secure blockchain networks. In PoS, validators are chosen to create a new block based on the number of ether they hold and are willing to ‘stake’ as collateral. Staking, in essence, means locking up an amount of a crypto asset in a wallet to support the operations of a blockchain network. These operations can include validating transactions and supporting consensus algorithms.

In Ethereum’s PoS system, each validator must stake the network’s native tokens (in this case, 32 ETH). The requirement to stake ETH incentivizes validators to act in the network’s best interests. This is because validators stand to lose their investment if they try to subvert the system, or fail to validate reliably and effectively.

Risks and Challenges

While Ethereum’s transition to a proof-of-stake consensus mechanism promises to bring about increased speed, efficiency, and scalability, it does not come without its risks and challenges. The transition is a complex process that has been in the works for several years. It involves moving thousands of existing smart contracts that operate on the Ethereum chain, with billions of dollars in assets at stake.

Moreover, while proof of stake is less energy-intensive than proof of work, critics argue that it does not necessarily lead to greater decentralization. Those who stake the most money make the most money, potentially leading to a concentration of power among a small number of wealthy validators.

Timeline and Notable Events

Prelude to Launch (2013-2015)

• 2013: Ethereum Whitepaper

  • Vitalik Buterin published the Ethereum Whitepaper in November 2013, introducing the concept of a decentralized platform that could run smart contracts, expanding the potential uses of blockchain technology beyond Bitcoin’s financial applications.

• 2014: Ethereum Project Announcement and ICO

  • In January 2014, Buterin announced Ethereum at the North American Bitcoin Conference. Later that year, Ethereum held an Initial Coin Offering (ICO) which raised about $18 million, providing the funds necessary for its development.

• 2015: Ethereum Launch (Frontier)

  • July 30, 2015: Ethereum’s first live release, codenamed “Frontier,” was launched. This phase was primarily for developers and marked the creation of the Ethereum blockchain, which operated on a Proof-of-Work (PoW) consensus mechanism.

2015

• July 30, 2015: Frontier Launch
  • Ethereum’s first live release, “Frontier,” went live, marking the creation of the Ethereum blockchain. This release targeted developers and introduced the Proof-of-Work (PoW) consensus mechanism.
• September 2015: Ice Age and Difficulty Bomb
  • The Ice Age update introduced the “difficulty bomb,” designed to gradually make mining more challenging, encouraging the network’s transition to Proof-of-Stake (PoS).

2016

• March 14, 2016: Homestead Upgrade
  • The Homestead upgrade enhanced Ethereum’s stability, made it more user-friendly, and prepared the platform for future upgrades.
• June 2016: The DAO Hack
  • A vulnerability in The DAO, a decentralized autonomous organization, led to the theft of 3.6 million ETH, prompting a controversial hard fork that split the Ethereum blockchain into Ethereum (ETH) and Ethereum Classic (ETC).

2017

• October 2017: Byzantium Upgrade
  • This upgrade introduced nine Ethereum Improvement Proposals (EIPs), which enhanced privacy, security, and scalability. It also reduced block rewards from 5 ETH to 3 ETH.
• December 2017: CryptoKitties Craze
  • The popular CryptoKitties game caused significant congestion on the Ethereum network, highlighting issues with scalability and high transaction fees.

2018

• February 2018: Ethereum Under Regulatory Scrutiny
  • Ethereum faced scrutiny from regulatory bodies like the SEC regarding whether ETH should be classified as a security, though it was ultimately decided that it is not.
• November 2018: Constantinople Delay
  • The Constantinople upgrade, initially scheduled for 2018, was delayed due to the discovery of critical vulnerabilities during testing.

2019

• February 2019: Constantinople and St. Petersburg Upgrades
  • These upgrades improved efficiency, reduced gas costs, and laid the groundwork for Ethereum’s eventual transition to PoS.
• June 2019: Serenity Announcement
  • The Serenity (Ethereum 2.0) roadmap was officially announced, detailing the steps required for Ethereum’s transition to a PoS consensus mechanism.

2020

• December 1, 2020: Beacon Chain Launch
  • The Beacon Chain, the first phase of Ethereum 2.0, was launched, introducing PoS to the Ethereum ecosystem and running parallel to the main Ethereum network.
• DeFi Boom
  • Ethereum became the backbone of the decentralized finance (DeFi) movement, with the total value locked in DeFi projects reaching billions of dollars, further straining the network’s capacity.

2021

• August 2021: London Hard Fork (EIP-1559)
  • The London Hard Fork introduced EIP-1559, which revamped Ethereum’s fee structure by implementing a base fee that is burned, making ETH more deflationary.
• Record High Gas Fees
  • The rise of NFTs and continued DeFi growth led to record high gas fees, causing frustration among users and prompting more urgent calls for scalability solutions.

2022

• September 15, 2022: The Merge
  • Ethereum successfully transitioned from PoW to PoS in the event known as “The Merge,” where the Beacon Chain was merged with the main Ethereum network, drastically reducing energy consumption.
• Continued DeFi and NFT Expansion
  • Despite the transition to PoS, Ethereum remained the dominant platform for DeFi and NFTs, solidifying its role as a leading smart contract platform.

2023

• April 2023: Shanghai Upgrade (Shapella)
  • The Shanghai upgrade allowed stakers to withdraw their staked ETH for the first time since the launch of the Beacon Chain, marking a significant milestone in Ethereum’s PoS journey.
• Proto-Danksharding Development
  • Ethereum developers focused on Proto-Danksharding, a solution aimed at further reducing transaction costs and increasing network scalability, as part of the ongoing efforts to improve the Ethereum network.

2024

• Surge Phase Implementation
  • Ethereum continued its Surge phase, incorporating sharding to improve transaction speeds and reduce network congestion, which is critical for scaling the network.
• Enhanced Censorship Resistance
  • Ethereum developers worked on upgrades related to censorship resistance, decentralization, and reducing the risks associated with MEV (Maximal Extractable Value), reflecting the platform’s ongoing commitment to security and fairness.