Heartfelt gratitude to Vitalik Buterin, Gavin Wood, and Jeffrey Wilcke for their extensive revisions, insightful feedback, and willingness to share their expertise, aiding me in interpreting their insights.
Introduction
In the realm of computer science rooted in cryptography, the visionary technology of Ethereum has enchanted a multitude of software developers and technologists who recognized its clear potential. However, these same promises and their interpretations within the business landscape have not been thoroughly disseminated or comprehended by audiences lacking technical expertise.
As Ethereum approaches its transition from the “labs” to the marketplace, it becomes increasingly crucial that its narrative is grasped by the business sector.
This article aims to address the significance of Ethereum, why individuals without a technical background should take an interest, and the necessity for another global blockchain, despite Bitcoin’s existing presence as one. These inquiries are essential, and as you delve deeper into the responses, your understanding will deepen, leading to a greater appreciation of Ethereum’s distinctive position, and an acknowledgment of the merits and sustainability of its methodology.
Summary
Ethereum represents an alternative decentralized ledger protocol, distinct from merely being another cryptocurrency. Its ideological heritage intertwines elements of BitTorrent, Java, and Freenet alongside Bitcoin. From a product perspective, it acts as a general-purpose, global blockchain capable of governing both financial and non-financial types of application states.
Essentially, Ethereum facilitates decentralized business logic, known as smart contracts, which are symbolized as cryptographic “boxes” that secure value and unlock it only when specific conditions are fulfilled. This business logic operates on the blockchain cloud (removing the need for traditional server hosting) and automatically enforces the stipulations of agreements among various parties. These serve as foundational elements for “ÐApps,” the innovative form of Decentralized Applications where Ethereum shines. Moreover, from a client perspective, Ethereum offers a robust specialized browser that allows users to effortlessly install and interact with any ÐApp.
The culmination of this new tapestry of technologies is an evolving Web3 infrastructure for which Ethereum is especially adept at enabling. It is founded on a 3-tier architecture consisting of an advanced browser as the client, the blockchain ledger providing a shared resource, and a decentralized network of computers executing smart business logic programs.
In comparison to Bitcoin, Ethereum has constructed a new framework based on crypto-technology that offers greater efficiencies in development and enhanced light-client properties, all while allowing applications to coexist within a sustainable economic environment with robust blockchain security.
The brilliance of Ethereum lies in its extraordinary network of computers that introduces a novel genre of software applications: the authentically decentralized ones, which integrate trust logic into compact programs, distributed to operate on its blockchain.
This engenders numerous implications; for developers, significant cost reductions and increased efficiency in crafting new applications; for non-technical users, an opportunity to reimagine traditional businesses or create new potential by deconstructing central operations and transitioning them to decentralized frameworks. Ethereum empowers anyone aspiring to develop decentralized applications, encode complex contractual business logic, initiate autonomous agents, and navigate relationships entirely governed by the blockchain.
Ethereum exemplifies a specialized form of cloud computing that yields considerable benefits in efficiency and cost-effectiveness, particularly where enhanced security and reliability are paramount. It also provides a comprehensive suite of resources for application development.
The Ethereum transaction ledger proves capable of securely facilitating an extensive range of services, including: voting systems, domain name registries, financial exchanges, crowdfunding platforms, organizational governance, self-executing contracts and agreements, intellectual property management, smart property systems, and distributed autonomous organizations.
Ethereum is driving innovation in business and society on a global scale, paving the way for a new class of applications previously unseen. In the long term, the resulting developments will influence economic and control frameworks.
Numerous entrepreneurs and developers are actively formulating and executing fresh concepts, projects, and startups based on Ethereum. Existing organizations are also encouraged to examine how Ethereum can help them reimagine or innovate upon their established services to maintain competitiveness in the future.
Understanding Ethereum
So, what makes comprehending Ethereum so challenging? It stems from the same reason that understanding Bitcoin is difficult and reflects the same challenge that the general populace faced in grasping the Internet within the first three years following its commercialization. This reason lies in their multiple functional identities. Admittedly, this answer isn’t particularly illuminating, but it stands true: Bitcoin, Ethereum, and the Internet convey different meanings to various individuals. Yet their narrative remains strong due to their multi-faceted and far-reaching impacts. Therefore, let us break down Ethereum to enhance its clarity.
Ethereum vs. Bitcoin
As a starting reference, we might compare Ethereum with Bitcoin, since Bitcoin appears to have been grasped, at least by those eager to understand it.
Upon initial inspection, it may be easy to be misled by superficial similarities, as both Bitcoin and Ethereum are open-source platforms embodying four shared characteristics: an underlying cryptocurrency, an integrated blockchain, a decentralized consensus-based proof mechanism, and miners supporting the network; thus, it would seem they must be alike. This, however, is a flawed conclusion. As one investigates further, it becomes clear that Bitcoin and Ethereum are more contrasting than similar. Each of these four characteristics serves a fundamentally different purpose concerning what it facilitates, which is why Ethereum is charting a different course than Bitcoin.
To provide context, Bitcoin was initially crafted as a decentralized cryptocurrency framework designed for the exchange of monetary value, with the primary objective of the Bitcoin blockchain serving as a trust foundation for these financial transactions. Only recently has the Bitcoin blockchain started to garner use cases in non-financial domains related to decentralized trust and value storage. Consequently, the programmability of the Bitcoin blockchain was largely considered an afterthought, even though sidechain proposals have been made.hoping to simplify this programmability a bit. In contrast, Ethereum was envisioned from the outset as a software development framework for decentralized applications, and its blockchain was explicitly constructed to facilitate the execution of applications on it. Hence, the design of Ethereum benefited from Bitcoin’s experience and addressed some of its drawbacks. For instance, the Ethereum blockchain is quicker at conducting verifications, typically taking between 5 and 30 seconds, in comparison to Bitcoin’s 10 minutes.
The Ethereum framework centers around functioning as a network for enabling decentralized applications that require a deterministic, auditable, and predictable computing environment, which distinguishes it from the essence of Bitcoin’s framework where the simplistic computing system is primarily currency-focused. Thus, Bitcoin analogies concerning the mining process, cryptocurrency utilization, and the programmability features of the respective blockchains cannot be applied uncritically if one aims to grasp Ethereum fully.
Firstly, Ethereum’s cryptocurrency (referred to as “ether”) does not resemble Bitcoin’s currency due to its primary purpose not being for purchasing goods or services, nor is it designed to be a “digital gold” alternative, two aspects where Bitcoin excels and that Ethereum makes no attempt to replicate. Ether functions more like a necessary “crypto-fuel” serving as an incentive to cover the transaction fees required for executing the various smart business logic programs that users submit to its blockchain.
A comparable analogy is to think of ether in relation to cloud-based computational expenses. When utilizing an application in the cloud, charges are based on a combination of duration, storage, data transfer, and computational speed necessities. The innovation with ether-based costs is that you are paying to execute the business logic on the blockchain. It represents a type of cloud-based micro-value pricing that separates a layer from the conventional cloud computing architecture.
Moreover, as that network fuel, ether will also be exchangeable as a cryptocurrency across various open markets, but it is anticipated that its value appreciation will be more rationally influenced by the volume and richness of transaction demand than by currency speculators (in contrast to the dynamics observed with Bitcoin).
Secondly, the Ethereum blockchain is inherently programmable, and more economically efficient compared to Bitcoin. It is arguably more scalable, a crucial requirement regarding the long-term cost-effectiveness of a busy blockchain. Since it does not focus on facilitating financial transactions, the purpose of the Ethereum blockchain differs from that of Bitcoin. Technically, Ethereum does not impose a restriction on block size, allowing it to adjust dynamically as a whole, as part of its core framework. Furthermore, Ethereum is continuously working on enhancing scalability aspects, which will directly reduce overall transaction costs.
In general, when considering desirable attributes for a blockchain, the following characteristics come to mind, and these are areas where Ethereum excels:
- Programmability
- Scalability
- Upgradability
- Transactions Manageability
- Visibility
- Affordability
- Security
- Speed/Performance
- High Availability
- Extensibility
Thirdly, while proof-of-work is the consensus mechanism currently utilized by Ethereum, there are plans for it to transition to a less wasteful approach known as “proof-of-stake.” Proof-of-stake has demonstrated itself to be an effective and practical consensus method that is less costly to operate while being costlier to assault.
Lastly, mining within the Ethereum ecosystem can be conducted using conventional computers, and does not necessitate the specialized computational power that Bitcoin demands, making Ethereum’s mining more affordable and accessible to a wider audience. Anyone running the Ethereum mining client software on their personal computer can become an Ethereum miner, much like BitTorrent permits any user to freely share their media files. This approach is advantageous, as it enhances the affordability of Ethereum by not being excessively reliant on costly mining operations. This also implies that, unlike Bitcoin, Ethereum does not rely on accumulating significant mining power to function. It is more predisposed towards self-sustainability through a healthy equilibrium of affordable mining and pay-per-play computing requirements.
Ethereum as Freenet
There is another intriguing (and potentially unexpected) analogy for Ethereum, which is related to Freenet. To provide context, Freenet represented an earlier framework for creating decentralized websites. It was free software enabling users to share files privately, explore and publish “freesites” (websites accessible exclusively through Freenet), and engage in forum discussions without fear of censorship and with reduced vulnerability to attacks. Freenet’s philosophical foundation was to secure and uphold uncensored freedom of speech and facilitate the dissemination of knowledge.
Freenet’s principles had merit, but it also had two primary drawbacks with known causes that Ethereum addresses effectively. Firstly, downloading a website would frequently take over a minute. Secondly, it lacked applications and featured only static content. Ethereum tackles these challenges directly through its native incentivization and the blockchain, which acts as a foundation for enabling applications.
More Ethereum Differentiation
So, what further attributes of Ethereum distinguish it and make it an appealing option for creating decentralized applications?
The Development Languages
Arguably, the software development language capabilities of Ethereum represent one of its most significant distinguishing features, as programming the blockchain is a core objective. Ethereum does not have a single language, but it offers four specialized languages: Serpent (Python inspired), Solidity (JavaScript inspired), Mutan (Go inspired), and LLL (Lisp inspired).
As one of the high-level languages utilized by Ethereum, Serpent (as its name suggests) is crafted to resemble Python closely. It is intended to be maximally clean and straightforward, merging a lot of the efficiency benefits of a low-level language with programming style simplicity.
Solidity is regarded as the favored language, designed from the ground-up to cater specifically for contract-orientedprogramming and the one under the most progression. It adopts all the Serpent features but possesses a syntax reminiscent of JavaScript, which provides a familiar adoption advantage that reduces the entry barrier since JavaScript is frequently utilized by Web developers. Hence, Solidity capitalizes on an established skill set that millions of coders already have.
Another essential attribute of the Ethereum blockchain is its “Turing-completeness,” a vital quality necessary to guarantee a substantial level of universal solvability while executing the required computational tasks. More explicitly, it is “quasi” Turing-complete because by establishing upfront limits on the allowed computation, it sidesteps the non-termination issue of a fully Turing-complete language.
Moreover, since Ethereum’s languages are specifically crafted for that blockchain, they offer remarkable real-time detail regarding transaction visibility and activity—an appealing feature that Bitcoin encounters difficulties with. With Bitcoin, one must import the blockchain database, parse all transactions, and query them to extract activity intelligence; whereas with Ethereum, you can make specific address requests in real-time on the active blockchain.
Ethereum Facilitates ÐApps
The variety of development languages available in Ethereum is critical as it allows developers to choose the ones they prefer in order to write Decentralized Applications (ÐApps) more easily and effectively.
A ÐApp represents the combined set of smart contracts and client-side code that enables them to function. Smart contracts are akin to cryptographic “containers” that hold a value and unlock it only if specific conditions are satisfied. They generally encompass some logic, rules, processes, or agreements between parties. When they are activated on Ethereum, the network upholds their consequences.
A ÐApp can be architecturally perceived as being quite analogous to a traditional web application, with one distinction: in a conventional web application, you have client-side JavaScript code executed by users within their browsers and server-side code executed by a host or company; however, in a ÐApp, there is smart logic operating on the blockchain, while the client-side code runs in Mist, the specialized browser.
Additionally, a ÐApp can interact or connect with other web applications or decentralized technologies. For instance, a ÐApp may utilize a decentralized messaging service like Whisper within Ethereum’s framework, or a decentralized file distribution system like IPFS. On the side of web applications, a company like Google may seek to obtain data from a decentralized reputation service, or a Bloomberg data feed may aspire to interface with a financial ÐApp.
The Ethereum Client
Ethereum features a specialized client browser that allows users to operate the various available ÐApps and initiate smart contracts. This browser (known as Mist) serves as a user-friendly launching point, aiming to make smart contracts and ÐApps broadly accessible to a wide community of users. Mist is revolutionary in lowering the user adoption threshold. Its influence is similar to what web browsers did for accessing the Internet in a user-friendly manner, or what iTunes represented for downloadable digital content. Mist incorporates special security measures, key management, decentralized account oversight (i.e., the user accounts belong to the user and not a central authority), and includes blockchain-related elements that will render it an essential tool for executing or managing blockchain-specific decentralized applications for the average user who does not require an understanding of technical details.
From a user experience perspective, you engage with ÐApps from within Mist just as you would navigate websites through a standard browser. For example, a pure ÐApp like Augur (a prediction market) exists inside the Ethereum Mist browser. However, services can also be rendered through a conventional browser in a more traditional web 2.0 sense, while still being supported and verifiable through Ethereum.
The Ethereum Virtual Machine
When contemplating these self-contained logic scripts that operate on the blockchain, store data on it, and yield some value(s) to the originator, it resembles executing a program virtually in the cloud. In simple terms, these smart contracts are the code functioning on the Ethereum Virtual Machine (EVM). Consequently, this is comparable to a decentralized virtual computation service, but devoid of the encumbrance of web servers, and intended to be executed by all participants in a peer-to-peer network that can securely read and write data and code to the blockchain (via cryptographically secured digital signatures).
The notion of the Ethereum Virtual Machine (EVM) is incredibly significant because it represents another fundamental innovation of the Ethereum project. If you don’t grasp the EVM, you cannot comprehend Ethereum.
Thus, the EVM “resides on the blockchain,” yet it constitutes several interconnected computers to which anyone can upload programs, allowing these programs to execute autonomously, and ensuring that the current and all prior states of every program remain perpetually visible. These programs operate on the blockchain and persist in executing exactly as the EVM stipulates. This permits anyone to construct their own business logic for ownership, transaction formats, and state transition functions.
The Ethereum Core and its Ecosystem
At its core, Ethereum is a multi-layered, cryptography-driven, open-source technical protocol. Its various functional components are intentionally interconnected, and their collective synergy transforms it into an extensive platform for developing and launching modern decentralized applications.
It was crafted as a versatile decentralized application platform, equipped with a comprehensive suite of tools that enhance its functionality and power.
While Ethereum appears to be an amalgamation of several interconnected open-source initiatives, its progress has been distinctly directed by a clear vision to ensure that all elements synchronize harmoniously.
Similar to any major software platform, the Ethereum core is complemented by a thriving ecosystem composed of a community of partners, technological integration extensions, applications, and supporting services surrounding it. More specifically, from a functional standpoint, one could segment the Ethereum ecosystem into three components:
- Core Protocol Technologies: P2P consensus, Virtual Machine, Contracts, Keys, Blockchain, Software Languages and Development Environments, Currency (Fuel), Technology Integration, and Middleware Services.
- Applications: Client software (Mist or AlethZero), Mining, Monitoring Services, ÐApps, and other third-party Applications.
- Ancillary Services:“`html
Primarily focused on Education, Research, Learning, and Assistance through wikis, forums, the Eth Academy, websites, incentive bounties, and a forthcoming developers conference.
Of particular significance is the Applications sector, whose scope has already expanded to encompass over 100 diverse third-party initiatives, products, technological enhancements, and fully established enterprises that operate on Ethereum completely or partially. These encompass applications such as Prediction Markets, Decentralized Exchanges, Crowdfunding, Internet of Things, Voting and Governance, Gaming, Reputation Systems, Social Networking, Chat Messaging, Insurance, Healthcare, Arts, Ridesharing, Distributed Autonomous Organizations, Trading (financial instruments or commodities), Accounting, Communities, eCommerce, Physical Security, File Storage, Ownership Stamping, Content, Microtransactions, Community Management, Cloud Computing, Remittances, Smart Contracts Management, Smart Assets, Wallets, Food, Manufacturing, Data Storage, Messaging, Supply Chain, and others.
(A future blog entry will delve deeper into the entire Ethereum ecosystem, including the partner components).
All these elements distinctly indicate a robust development and expansion of the Ethereum presence across a variety of financial and non-financial industry sectors. The programming capabilities of Ethereum provide significantly greater potential than the scripting offered by Bitcoin due to added features of Turing-completeness, value-awareness, blockchain-awareness, and state transition logic competencies.
Why Should Business Professionals Take Notice?
The technology behind Ethereum was primarily developed for programmers. However, much like Information Technology, Ethereum serves as a catalyst for business opportunities, and although its initial momentum is largely driven by a community of technologists, the impact of Ethereum will dramatically increase once business professionals grasp the potential of decentralizing applications along with the processes they facilitate.
We must grasp how to use what blockchain technology offers us. Ethereum developers and tech aficionados acknowledge that their current perception is insufficient to uncover the full range of application potential. Developers require partnerships with business professionals who comprehend Ethereum’s abilities and are eager to apply their own experiences toward that comprehension.
In the 90s, the movement toward corporate reengineering gained traction. This was fueled by a desire to eliminate outdated processes that provided minimal value, replacing them with simpler alternatives. All of a sudden, every large organization was re-evaluating their business processes and identifying those that were slow, centralized, costly, outdated, or did not satisfy user and customer needs. Within the vision of Ethereum lies a promise of reengineering that parallels this.
The goal would be to initiate a similar “crash and burn” exercise to identify legacy applications that are inefficient, costly, outdated, or do not fulfill the necessary requirements, and contemplate if they could be re-imagined through ÐApps or genuinely decentralized applications.
Business professionals must gain insights into decentralization and probe whether old processes can be replaced with decentralized ones powered by Ethereum. Types of interest specifically include applications that previously depended on central intermediaries or gatekeepers who held the ultimate authority over trust-related processes. Ethereum facilitates the disaggregation of trust, enabling it to function on the network.
Once you grasp how to disintegrate central processes and assign them to the network’s periphery, your only limitation is your creativity. Now is the moment to make bold moves, as it’s preferable to take initiative rather than let others decide for you later.
Forward-thinking business and IT leaders should pinpoint technical talents within their teams who need to understand Ethereum and support initiatives that foster innovation and reengineering efforts to uncover and harness the full capabilities of decentralized applications.
If you find yourself in any of these categories, you are well-positioned to begin exploring Ethereum:
- Established IT divisions
- Startups with innovative concepts
- Visionary developers
- Current Bitcoin advocates
- Business pioneers, executives, investors, and visionaries
- NGOs, activists, researchers, and policymakers
The optimal starting point for acquiring knowledge about development on Ethereum is the Ethereum Wiki.
What Can You Achieve with Ethereum?
Ethereum allows for innovation through decentralized applications, impacting various sectors including industry, government, and society.
It is crucial to comprehend where decentralization and blockchains are most applicable, as we should not enforce these concepts upon every situation.
From a technical perspective, decentralization is especially advantageous for “base layer” services, i.e., those upon which everything else depends, such as identity, reputation, communications, social networks, and markets, facilitating their operation without relying on specific trusted intermediaries. From a software application viewpoint, blockchains prove effective in enforcing decentralized consensus on databases that update themselves based on order-dependent state transition functions (where update speeds of longer than one minute are acceptable), and this is precisely where the network that empowers Ethereum-based smart contracts excels. These can be utilized to securely execute a variety of functionalities, including voting systems, domain name registries, financial exchanges, crowdfunding platforms, company governance, self-enforcing agreements, intellectual property, smart property, and distributed autonomous organizations.
Part of Ethereum’s vision is akin to Bitcoin’s in fostering decentralization, but the challenge lies within the execution details. The Ethereum platform has been constructed from the ground up to support decentralized applications, whereas Bitcoin originated as a financial network that has been further burdened with additional services and functionalities that push its limits. Protocols that are “built on top” of Bitcoin are not designed for light-client compatibility, and the Bitcoin blockchain simply isn’t designed to scale sufficiently for every transaction and use case.
Developers are gravitating toward Ethereum because it simplifies the programming of advanced decentralized applications more so than Bitcoin. The belief that Bitcoin’s blockchain can accomplish everything that Ethereum is offering reflects a misunderstanding.
Truly, a contrarian (yet rational) perspective could be to think
“`that Bitcoin depends on Ethereum for its prosperity, as it enhances the evidence and credibility for the feasibility of developing consensus-oriented applications. Ethereum developers and collaborators are addressing and implementing significant challenges in this domain, and their triumphs will motivate the entire global crypto-tech ecosystem.
Programmers determine outcomes through their code. Success will stem from the qualities of each application or business endeavor. Whether an application operates on Bitcoin or Ethereum holds significance during the development stage, but once launched in the marketplace, it is users who choose by adopting and interacting with the top applications. Thus, if Ethereum development provides an edge and you can leverage that, that’s fantastic.
The critical masses we require are those of users, developers, investors, and visionaries, not merely miners.
In the long run, both Bitcoin and Ethereum are set to be effective platforms, each luring the forms of applications that align best with their respective platform traits.
Conclusion
Another perspective for considering the cryptography domain is in terms of Bitcoin Applications and Blockchain Applications. Ethereum is firmly positioned in the Blockchain Applications arena, which is notably creative. Its advantages become apparent through the deployment of sophisticated decentralized applications, while Bitcoin’s blockchain has restrictions despite suggested overlay protocols, side chain initiatives, and other Bitcoin enhancement proposals.
To assume that Bitcoin is the only required cryptocurrency/blockchain reflects a misunderstanding of the broader field of cryptography-based computer science which is the larger narrative at play. That would be akin to claiming that Fortran was the sole programming language needed back in 1957 when IBM first rolled it out, just because it experienced some success as the premier industrial high-level programming language. Or, if homes were a new invention, suggesting that constructing homes from wood sourced from trees is the only method to do so. And let’s not overlook what Ford proclaimed in 1922: “Any customer can have a car painted any color that he desires as long as it is black.”
Numerous arguments in favor of Bitcoin’s supremacy are swayed by self-fulfilling predictions or optimistic visions. The cat is already out of the bag regarding innovation and acceptance in alternative cryptocurrency protocols, and there is genuinely no valid reason to believe that Bitcoin is destined for success on its own, nor that other alternative protocols will falter. Bitcoin and its blockchain do not provide a universal solution for decentralized applications development. There is effort involved, but that endeavor is significantly easier with Ethereum.
When conversing with developers and observing the activity surrounding Ethereum technology, you will quickly discern that Ethereum is nurturing business and societal innovation on a global scale, while paving the way for a new class of applications that have never been seen before. Ethereum is at the forefront of decentralized applications protocols due to the support and dynamism of its community members, who are attracted by the excellence of its platform capabilities.
However, Ethereum holds no illusions that this will be a gradual journey, as it aims to progressively tackle increasingly larger challenges, starting with the more fundamental, straightforward issues.
If Bitcoin has illustrated the future of currency, Ethereum is indicating the future of decentralized software applications.
If you are still uncertain, consult your developer.
William Mougayar is a special advisor to Eth Dev’s executive directors. His technology career spans 33 years as a 4x entrepreneur, author, speaker, consultant, mentor, and angel investor who previously held senior roles at Hewlett-Packard and Cognizant. He blogs on startups and the cryptocurrency economy at Startup Management.