What Is Ethereum?

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What Is Ethereum?


The Ethereum blockchain network was first conceived in 2013 by a young Canadian programmer named Vitalik Buterin while he worked for Bitcoin Magazine. Buterin was able to broaden the scope of blockchain technology by recognizing its potential outside the field of finance. A cryptographer named Nick Szabo had already introduced the idea of Smart Contract”, self-executing digital contracts, in 1994. Buterin combined this idea with the transparent, immutable and robust blockchain network underlying Bitcoin. If developers had access to a blockchain network to deploy their applications, then data could be exchanged in a completely decentralized manner. This would allow for complex interactions to occur between two parties without the need to surrender personal information to central admins like Google or Facebook. What Vitalik wanted to do was make a decentralized internet.

After realizing his vision could never be implemented on the Bitcoin network, Buterin published a whitepaper with the intention of launching his own blockchain network called Ethereum. In this paper, the philosophy behind Ethereum is outlined to have these major characteristics:

  • Simplicity: a way to keep the code democratized and easily accessible to new developers
  • Universality: providing a language which is flexible and can carry out any transaction that can be broken down to mathematical terms
  • Modularity: where the Ethereum network can easily be deconstructed into separate parts, allowing users to make protocol adjustments in small pockets of the network without the need to change the whole
  • Agility: meaning the Ethereum protocol is constantly updated and is open to changes

Non-discrimination or non-censorship: where the protocol doesn’t discriminate against certain uses or application-types

The development of Ethereum, throughout its history, has reverberated the idea of an open source and free to use platform for the sake of spurring the creation of developers looking to create decentralized applications. Over the years, the Ethereum network has consistently made updates to its platform to uphold those central philosophical tenets.

The project has hosted DEVCON conferences around the world where developers collect to discuss the uses and limitations of this technology. Not to mention, initiatives have been launched to promote the work of Ethereum developers by offering them grants and bounties, like the DEVgrants program and the Ethereum Bounty Program.


Despite it’s surging popularity and dominance in the blockchain market, it is important to note that Bitcoin is very limited in its use. Given that it is the most easily exchangeable of the digital coins, it’s popularity is not that surprising. However, when it comes to employing a blockchain network to conduct unique and customized tasks, Bitcoin is not very useful.

Essentially, the differences between Bitcoin and Ethereum which make the latter significantly more attractive from a development standpoint can be broken down to the scripting languages that are being deployed on each network. In the Ethereum whitepaper, many of the limitations of the UTXO script which runs the Bitcoin protocol are summarized:

  • Lack of Turing-Completeness: This simply means that the Bitcoin scripting language is certainly capable of a wide range of functions, but is unable to perform any function. The major one being the lack of loops in this language. There are certainly workarounds for this issue, but they can lead to inefficiencies in the code.
  • Value Blindness: UTXO is unable to control the amount that is withdrawn. This is because the script functions on an all or nothing basis. Unfortunately, when complex transactions must be carried out, the amounts must be fine-tuned and adjusted.
  • Lack of State: This seems redundant to the previous “Value Blindness” criticism, but it is a bit different. In the UTXO script, there are only two states of funds, “spent” or “unspent”. This makes it difficult to implement multi-stage contracts where there is an internal state (like a collateralized position) where the funds are neither “spent” nor “unspent”.
  • Blockchain Blindness: The UTXO script is also unable to pick up information from the blockchain like nonce values, timestamps or even previous hash values. This strips this code from another source of randomness that could be applied in applications like gambling.

It is clear that the rigid structure used to create Bitcoin was single purposed. On the other hand, Ethereum is a platform which promotes a multi-purpose use of its network, therefore making the underlying script significantly different from Bitcoin’s.


This story begins with a concept known as Decentralized Autonomous Organizations or (DAO’s). This is widespread use of the Ethereum network to create a decentralized organization where random participants have the ability to purchase equity and vote on company matters. In some cases, such a company may exist completely autonomously, where very little human interaction is required. The most obvious example of a DAO would be Bitcoin.

Nonetheless, in 2016, a German smart lock company called Slock.it developed a DAO based on an Ethereum Smart Contract. The firm was able to generate $150M USD in a crowdsale effort, which made it a hotbed for attackers to try and find a way through to the funds. Unfortunately, the smart contract had a serious bug which allowed investors to withdraw twice the amount they deposited. The development team was unable to fix the issue quick enough before $50M USD disappeared from hacking attempts.

Eventually, the Ethereum Network implemented a hard fork to reverse the issue with DAO smart contract and refund the lost funds. However, this was an extremely controversial move. Many in the community suggested that the DAO hack was legal since a smart contract is supposed to be self-executing. This created a major rift in the community of nodes who followed through with the hard fork to reverse the hack and those that did not, thus creating a new coin called Ethereum Classic.

The moral of the story is not that Ethereum is untrustworthy. As a matter of fact, in the early stages of any technological endeavor, major problems will arise. Unfortunately, when it comes to the dealing of valuable currency, issues like this can result in real-world losses.

Regardless, this does not mean that smart contracts are somehow worthless, but rather that no technology is infallible, regardless of the promises it may make. The best way to avoid such major mistakes is through testing and a thorough understanding of the underlying technology.

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