What is Ethereum?

Ethereum is a platform developed by Vitalik Buterin. The platform also contains a crypto asset called Ether (ETH). In Japan, the platform and the crypto assets are both commonly referred to as Ethereum.

Ethereum's consensus algorithm has changed from Proof of Work (PoW) to Proof of Stake (PoS) through a major update (The Merge).

Features of Ethereum

Smart contracts

Ethereum allows smart contracts, programs that can automatically execute when the specified parameters are met, to be written on a blockchain. For example, by registering a program that says “Send 3 ETH to John Doe after 1 year”, 3 ETH will be automatically sent to that person one year later.

For example, if someone wants to exchange ETH for someone else’s BTC, there is a risk that one party may not follow through on the deal. This could be prevented by writing a smart contract to “send ETH to the trade partner” with a trigger of “BTC has been received from the trade partner.” By setting this requirement, it becomes possible to efficiently perform the trade without a third party.

Since smart contracts determine the details of the transaction in advance, and transactions are executed automatically, business efficiency can be significantly improved. Smart contracts can be used for more than just remitting Ethereum. They can also be used to create transactions for buying and selling real estate or other products.

Building a platform for DApps

Ethereum is also a platform that serves as a development environment for building decentralized applications (DApps).

DApps operate without a central administrator such as a company, government, or bank. All participants who use the application can participate in decision making, including changes in specifications, by managing the data in a distributed manner.

DApps were difficult to develop unless all programmers involved used a specific technology, but it became easier with Ethereum. As a result, many people have become able to participate in DApp development, and it can be said that blockchains and decentralized management have broadened their use in society. Today, a wide variety of unique ideas can be easily applied to DApps, and a plethora of projects have been born from Ethereum.

Market capitalization of Ethereum

Ethereum's market capitalization as of July 2022 is approximately 17 trillion JPY, making it the second largest crypto assets following Bitcoin, which has not been moved from the number one rank.

Creation of Ethereum

Ethereum was invented in 2013 by Vitalik Buterin who was 19 years old at the time. Vitalik gained an interest in crypto assets when he learned about Bitcoin two years prior. In 2012, he launched Bitcoin Magazine, which focused on Bitcoin and the crypto assets industry.

In 2014, Vitalik was selected for the Thiel Fellowship offered by PayPal founder and investor, Peter Thiel. Vitalik used this fellowship, which invests 100,000 USD (about 10 million JPY) in 20 young entrepreneurs over two years, to develop Ethereum.

History of Ethereum

Ethereum was developed by the Ethereum Foundation which was established by Vitalik in 2014. Ethereum specified four development milestones consisting of Frontier, Homestead, Metropolis, and Serenity. Each of these engages its community in various deliberations.

Ethereum’s token sale

In 2013, Vitalik published the Ethereum whitepaper. Then, in July 2014, a pre-sale was held in order to exchange Bitcoin and Ether for 42 days to collect funds for development.

As a result, about 60 million ETH was sold and about 32,000 BTC was collected. After that, full-scale development started after a one-year preparation period.

Frontier

Ethereum opened to the public on July 30, 2015. During Frontier, Ethereum was released with specifications for developers. This is so that there was a way to fix any bugs discovered in Ethereum.

Mining started with the generation of the first block. At that time, the mining reward was set to 5 ETH. Ethereum mining uses an ASIC-resistant algorithm that was designed to enable mining with CPUs or GPUs. It was around this time that some projects started to appear on the Ethereum platform.

Homestead

On March 14, 2016, after confirming that Ethereum had operated stably for six months after the launch of Frontier, it moved on to the second development milestone, Homestead.

The DAO incident

After the transition to Homestead, many projects that had an eye on Ethereum joined in and various initiatives were performed on Ethereum.

Among these, a project called The DAO appeared which was intending to launch a venture fund that uses smart contracts to manage assets without complicated procedures and auditing agencies. However, in June 2016, a vulnerability was exploited in The DAO resulting in about 5 billion JPY in Ether to be stolen.

After the incident, the Ethereum community discussed a hard fork to restore the stolen assets to victims and expunge the hack by rolling back the blockchain.

Some members of the community were against it, but the hard fork was implemented. Even though the victims would have their assets returned, The DAO would fail. The group that opposed the hard fork decided to split off with a new crypto asset called Ethereum Classic. This is an example of the difficulties and risk involved in a decentralized project with no decision-making body.

Metropolis

The third development milestone, Metropolis, consisted of two upgrades, Byzantium in 2017 and Constantinople in 2019. Throughout the Metropolis phase, Ethereum improved anonymity, security, and there is a plan to move from PoW to PoS in preparation for the transition into the final development milestone, Serenity.

In order to improve anonymity, a zero-knowledge proof called zk-SNARK which has been implemented on Zcash (ZEC), another crypto asset, was implemented into Ethereum. A zero-knowledge proof allows for the ability to prove the legitimacy of a transaction without disclosing private information such as addresses or the amount remitted. Not only does this protect privacy, but it can also improve network security by increasing the difficulty of finding and attacking specific transactions.

In preparation for Serenity, the difficulty of mining and mining rewards were reduced. This allows miners to approve and process transactions faster than before. It also results in the average generation time per block to be reduced, resulting in faster processing on Ethereum.

However, lowering the difficulty of mining makes it easier to receive mining rewards and transaction fees, which should incentivize competition for mining. The mining reward was lowered from 5 ETH to 3 ETH during Byzantium and then further lowered to 2 ETH for Constantinople, but measures were taken to ensure that miners did not see a substantial change in mining rewards.