Ethereum
Ethereum is a significant cryptocurrency that was created by Vitalik Buterin and Gavin Wood as a response to perceived limitations in Bitcoin. Launched in 2015, Ethereum operates on a unique blockchain technology that distinguishes it from Bitcoin, particularly in its approach to security and transaction handling. While Bitcoin employs a proof of work system, Ethereum utilizes a proof of stake system, enabling faster transaction processing with an average block time of just twelve seconds, compared to Bitcoin's ten minutes.
Ethereum is not just a cryptocurrency; it also serves as a platform for decentralized applications, allowing developers to build and deploy smart contracts. This functionality led to its classification as a "Cryptocurrency 2.0." Following its launch, Ethereum faced challenges, including security breaches that resulted in significant financial losses and led to a split in the community, creating two separate blockchains: Ethereum and Ethereum Classic.
As the second-largest cryptocurrency by market capitalization, Ethereum has garnered considerable attention and support from major technology companies, including partnerships with firms like Microsoft. Its ability to facilitate both permissioned and permission-less transactions further enhances its versatility in the digital currency space.
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Ethereum
Ethereum is a prominent cryptocurrency. Cryptocurrencies are wholly digital currencies. They do not serve as digital representations of physical currencies. Instead, they compete with those currencies for value.
The first cryptocurrency, Bitcoin, premiered in 2009. Although the value of Bitcoins was initially small, it quickly grew. Soon, currency that could originally be purchased for cents was worth thousands of dollars. It was marketed as an anonymous, nongovernmental currency that could be used throughout the world. Many Internet marketplaces came to accept Bitcoin, while others formed specifically to convert traditional forms of money to and from Bitcoins.
Many Bitcoin users grew dissatisfied with the specific way in which Bitcoin was coded. Two of these users, Vitalik Buterin and Gavin Wood, decided to start their own cryptocurrency. They named their application Ethereum, and the currency itself Ether. Although similar to Bitcoin and other cryptocurrencies, Ethereum interacted with the blockchain differently.
Background
The first digital currencies were offered by banks and merchants as redeemable virtual currency that customers could use for purchases. However, this was not an independent currency and instead functioned as a representative of a specific fiat currency. People began experimenting with wholly digital currency in the 1980s, but the idea did not become popular enough to catch on.
The first true form of digital money was DigiCash, developed by David Chaum in the Netherlands. DigiCash saw limited success and failed in 1998. In the next wave of attempts at digital money, PayPal emerged victorious. It quickly became incredibly successful.
In 2009, an anonymous individual under the alias of Satoshi Nakamoto published a white paper detailing the technological specifications of a blockchain and how one might be created. The blockchain functions as a constantly updated database spread across millions of computers. It is stored across all the computers involved, meaning that all transactions across the blockchain are public. Blockchain technology is what allows cryptocurrencies to function.
Bitcoin, the world's first true cryptocurrency, was released alongside the blockchain. It utilized the blockchain to conduct currency transfers. Because of the way in which Bitcoin's coding functions, all Bitcoin transactions are both permanent and anonymous. Transactions do not need to be approved from both sides in order to take place. Money is transferred from one digital wallet to another. This information is publicly available. However, the ownership of a digital wallet is entirely private.
Every computer connected to the blockchain becomes a node in the blockchain. It helps perform the work of maintaining the blockchain by relaying information and independently verifying transactions. This allows the network to exist without any kind of central server.
Overview
Ethereum was begun by Vitalik Buterin and Gavin Wood. Buterin became heavily involved in the Bitcoin community, as well as the blockchain technology that allowed Bitcoin to function, at seventeen years old. In 2011, the programmer founded Bitcoin Magazine. However, Buterin disagreed with much of the Bitcoin community on numerous issues. These included the utility of the Bitcoin platform itself and its support of individual applications.
Buterin and Wood announced their plans for Ethereum in late 2013. In 2014, the pair founded the Cryptocurrency 2.0 network.
By following the technical specifications set forth by Buterin and Wood, the Ethereum Virtual Machine (EVM) was ported into numerous programming languages. These included Java, JavaScript, C++, Python, Haskell, Rusk, and Go. In July 2014, Ethereum held a public presale of Ether, the cryptocurrency mined by the EVM. This presale earned Ethereum 31,581 Bitcoins, which was worth more than eighteen million dollars at the time.
In 2015, the Ethereum Frontier network was launched. That same year, the first Ethereum miners joined the Ethereum network. These miners functioned similarly to Bitcoin miners, mining parts of the blockchain to earn Ether. Later that year, a developers' conference called DevCon 1 was held in London. Representatives from powerful technology firms, such as Microsoft and IBM, were present. Soon afterward, Microsoft announced that it would offer Ethereum as a service on its cloud platform.
Numerous thefts and glitches have caused Ethereum users to lose cryptocurrency worth tens of millions of dollars. In some cases, these thefts were executed accidentally. In others, they were executed by white hat hackers, who performed the thefts to highlight vulnerabilities in the Ethereum system and then pledged to return the money to its original owners. In still other cases, the currency was simply stolen and never recovered. These thefts and glitches caused the Ethereum community to split into two blockchains: Ethereum and Ethereum Classic.
Ethereum is similar to the more popular Bitcoin in many ways. However, several significant differences set Ethereum apart from its fellow cryptocurrency. For example, the two cryptocurrencies utilize significantly different security protocols. Bitcoin uses a proof of work system for its calculations, while Ethereum utilizes a proof of stake system. In a proof of work system, the probability of mining a coin is dependent upon how much work is done by a specific miner. In a proof of stake system, a person owning 5 percent of a mining network should theoretically mine 5 percent of the blocks in that network. Some other cryptocurrencies utilize a mix of the two systems.
Ethereum is set to function at a significantly more rapid pace than Bitcoin. The average block time for Bitcoin is ten minutes, while the average block time for Ethereum is twelve seconds. As more blocks are completed, more of the currency is distributed to users. Additionally, Ethereum's platform allows for both permissioned and permission-less transactions, while Bitcoin's platforms exclusively allows for permission-less transactions.
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