Chapter 5

      Encountering the Ethereum Blockchain

      IN THIS CHAPTER

      The Ethereum project is one of the most developed and accessible blockchains in the ecosystem. It is also an industry leader in blockchain innovation and use cases. Understanding this technology is essential because it’s leading the charge in smart contracts, decentralized organizations, and token offerings.

      This chapter covers the makeup of Ethereum and explains the new way to build organizations and companies on the Ethereum blockchain. It also goes into safety and practical business applications of the Ethereum blockchain, including how the project started and where it plans to go.

This chapter sets you up to create your own decentralized organization and explains how to mine the cryptocurrency on the test net to fuel your projects. After reading this chapter, you’ll be able to set up your own Ethereum wallet and trade the token. You’ll also be able to generate your own custom token that can be traded globally. Consider this chapter your introduction to Ethereum. To dive deeper into Ethereum, check out Book 4.

Exploring the Brief History of Ethereum

      Ethereum was first described in 2013 in a white paper written by Vitalik Buterin, who was very active in the Bitcoin community as a writer and programmer. Buterin saw that there was significantly more potential in Bitcoin than the ability to move value without a central authority. He had been contributing to the colored coin effort within Bitcoin to expand the utility of Bitcoin beyond the trade of its native token. Buterin believed that other business and government use cases that require a central authority to control them could also be built with blockchain structures.

      At that time, there was a fierce debate about the Bitcoin network being “bloated” by lots of low-value transactions from applications securing themselves against Bitcoin. The main concerns were that additional applications, built on the Bitcoin protocol, would have problems scaling in volume. Also, at that time there was not the ability to do scripting to allow for things like smart contracts. Bitcoin was not built to handle the number of transactions needed by the applications. Vitalik and many others saw that in order for people to build decentralized applications in the Bitcoin blockchain, either the blockchain would need a massive code overhaul or they would need to build a new blockchain altogether.

      Bitcoin had already been well established at that point. It was clear that the kinds of upgrades to core code that were needed were well beyond what was realistically possible. The politics of Bitcoin would stall any changes to the network. Vitalik and his team established the Ethereum foundation in early 2014 to raise funds to build a blockchain network with a programming language built within it. Vitalik hoped to create a network that would allow him to build blockchain-secured applications.

      The initial development was funded by an online public crowd sale during July and August of 2014. The foundation initially raised a record $18 million through the sale of its cryptocurrency token called Ether. People have passionately debated whether this sort of crowd sale is illegal because it may constitute an unlicensed security offering.

      The regulatory gray zone has not hindered the project. If anything, the cutting-edge nature of the project has attracted more attention and talent to the foundation. Discontented and disenfranchised developers and entrepreneurs from around the world have flocked to the project. Decentralization is seen as the perfect solution to corrupt and oppressive central authorities.

The $18 million raised in the token sale gave the foundation the funds it needed to hire a large development team to build Ethereum. Ethereum Frontier, the first release of the Ethereum network, went live to the public in July 2015. It was a bare-bones software release that only the more technically savvy could use to build their applications.

      Homestead, the current Ethereum software release, was made available in 2016. It’s much more user-friendly. Almost anyone can utilize the application template available on it. It has intuitive and easy-to-use interfaces and a large, devoted development community.

      Metropolis is the next planned Ethereum release. The main difference will be that applications will be fully developed and well tested. It will also feature even easier-to-use applications and have a larger market appeal where even nontechnical people will feel comfortable using it.

      Serenity is the last planned phase of Ethereum development. It’s where Ethereum will move from a proof of work (PoW) consensus (in which miners compete to create the next block) to a proof of stake (PoS) model, in which nodes are chosen pseudo-randomly with the possibility of being selected increasing based on their stake in the network. Their stake is measured by the amount of cryptocurrency in their possession. The main benefit of the change will be the reduction in the cost of energy associated with proof of work. This may make it more attractive for individuals to run nodes in the network, which would increase decentralization and increase security. Book 6, Chapter 2 further explains the PoW and PoS models.

Ethereum: The Open-Source World Wide Computer

      Ethereum may be one of the most complex blockchains ever built. It has several of its own Turing-complete programming languages (full-functioning programming languages that allow developers to create any application). These new programming languages closely resemble popular programming languages such as JavaScript and Python. The Ethereum protocol can do just about anything that your regular programming languages can