Ethereum, envisaged in late 2013 by Russian-born Canadian Vitalik Buterin (Russian: Виталик Бутерин) and released in May 2015, is more complex than most cryptocurrencies in that it was designed from inception to be used as both a currency and a platform for generating other currencies. To this end it contains a scripting language which can be used to author contracts.
The associated currency, Ether (ETH), is mined using an algorithm called Ethash which is a modified version of Dagger-Hashimoto. Like most coins, Ether has long passed the stage where it can be mined using general-purpose computer processors (CPUs) but since this algorithm is ASIC-resistant they are commonly mined with multiple graphics cards (GPUs).
Ethereum has a continuous supply inflation model, in that there will always be Ethereum produced by the network.
Ether (ETH), the cryptofuel that powers distributed applications on the Ethereum platform, will be issued at a constant annual linear rate via the block mining process. This rate is 0.3 times the total amount of ETH that will be purchased in the pre-sale.
At publishing time Ethereum holds the #2 spot in terms of market capitalization.
The benefits of Ethereum
Ethereum’s major benefit can also be seen as its Achilles’ Heel. The ability to create contracts also easily allows almost anyone to generate an Initial Coin Offering (ICO) for public release and this is done daily, often on the flimsiest precept. There is a colloquial term for such coins which isn’t particularly flattering.
The largest disaster was the Distributed Autonomous Organization (The DAO) which collapsed after the contract was hacked, causing the purists who considered this acceptable despite the $50M in losses to criminal elements to split off into a new coin, Ethereum Classic.
Despite all this, Ethereum has many ardent supporters who see it as a way to replace Venture Capital (VC) funding through traditional channels, or even funding via more controlled but alternate means (e.g. KickStarter), with something more free-range. Investors should however be wary of ICOs for several reasons, including that the investment entitles you to no share of the profits in any company and – unlike with KickStarter and its ilk – no actual product is guaranteed.
In short, they are high risk in the extreme and should only be considered by sophisticated investors. If you are to invest in an ICO, do your due diligence, if it backed by a visible existing infrastructure, and the people behind it are not anonymous, or even if they already have a working product or services, then these are more reliable markers as to the potential of an ICO.
Where is Ethereum going now?
With many countries clamping down on ICOs the future for Ethereum doesn’t look as bright as it once did. Adding to this the recent revelation that Bitcoin is Turing Complete and fully capable of running contracts might mean that Ethereum has some new competition in the future.
That is not to say it is in imminent risk of decline, because the Ethereum juggernaut trundles on due to the sheer numbers of those involved in generating “new and better” coins, launching them, trading in them and promoting them. And because Bitcoin “dropped the ball” in 2015 Ethereum has picked up some of the great minds and talents that has been attracted into this space.
There is also the planned move for Ethereum from Proof of Work to Proof of Stake. Which will alter the economic model of Ethereum in interestingly new ways.
In the following video Vitalik Buterin explains his vision, from the creation of Bittorrent (a “file sharing” network) through to the creation of Ethereum. I leave the reader to form their own conclusions.
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