By now you probably heard a lot about Ethereum, which is the second biggest currency behind Bitcoin. Whether you are a blockchain technology developer, a crypto investor, or an entrepreneur who wants to create your own cryptocurrency and launch an ICO (Initial Coin Offering), Ethereum is certainly a platform that you should get to know better.
Ethereum Basics
According to the Ethereum website, Ethereum is a decentralized platform that runs smart contracts. Ethereum can be compared to a much more familiar name—Bitcoin. Ethereum is based on smart contracts, while Bitcoin is fundamentally a digital currency. Smart contracts are computer protocols that can facilitate, verify, or enforce a contract. Smart contracts enable contracts to be completed without any middlemen, with both trackable and irreversible transactions running on the blockchain.
A Bitcoin transaction is ideal for sending currency A to B, whereas an Ethereum transaction would send money from A to B would only if certain conditions are met, such as the date or B’s balance. Thus, Ethereum is different than Bitcoin in that it allows for smart contracts (can be thought of as programmable digital money). The programmable aspect of these transactions is a key difference. For example, if person A wants to buy a home from person B, there is no more need for third parties such as real estate agents and lawyers that riddle the process with inefficiencies. Using Ethereum, a piece of code on the blockchain could move the home ownership to the buyer and funds to the seller utilizing a mutually agreed upon smart contract.
DApps
DApp stands for decentralized application. Unlike traditional apps, which run on centralized servers, a DApp runs its code on a decentralized peer-to-peer network.
Just like the apps we are used to, DApps can have their frontend code make commands to their backend code.
There are many applications today that essentially are valuable as middlemen to connect person A to person B—Uber, Amazon, and Airbnb to name a few. Applications like these run on centralized systems, but could be built on a decentralized platform in the not so distant future. Ethereum would allow these transactions to be trustless, and eliminates single points of control and failure. This makes hacking the system extremely difficult and internal collusion impractical. Decentralized applications will lead to lower costs for customers by minimizing the need for middlemen to execute transactions.
ICO’s on the Ethereum Blockchain
An ICO is essentially a program that collects cryptocurrency from contributors and, after reaching a target amount, distributes newly created tokens to the ICO’s contributors. ICO’s on the Ethereum blockchain have distinct advantages over the Bitcoin blockchain. The Bitcoin blockchain was designed as a currency system, with an innate state of a ledger of account balances. While it is easy to set up a new Bitcoin wallet for our ICO, it’s very hard to write programs that calculate and distribute the tokens on top of that wallet. Additionally, Bitcoin’s block time of 10 minutes is too long to be feasible for an ICO. For ICO contracts, we need a more general program state.
Ethereum’s program states (which run on a data structure called a Merkle Patricia Tree) make it much easier to modify and verify the states needed for an ICO. Ethereum’s blockchain contains multiple program states, so smart contracts can be more efficient at confirming transactions than one digital ledger.
The Ethereum token standard is ERC-20, which sets out the list of rules that all Ethereum tokens have to abide by. All ERC-20 tokens can easily be interchanged with others. All ERC-20 tokens have the same functions and take the same arguments, making sure that two different digital currency systems can talk to each other easily. Thus, creating a compliant ICO on Ethereum means making use of ERC-20 and that any new token immediately can operate along all other tokens on the Ethereum blockchain.
CryptoKitties – Ethereum Development Innovation that became a National Phenomenon
CryptoKitties is a virtual game that runs on Ethereum’s underlying blockchain network. The game lets players adopt, raise, and trade virtual cats, and it is one of the first attempts to utilize blockchain technology for recreation.
The valuable characteristics of these CryptoKitties is that each one is unique, entirely owned by the user, and its value can only appreciate or depreciate based on the market. There is no central authority (like the FED) that can alter the value of each Kitty.
A test version of CryptoKitties was unveiled at ETH Waterloo, the largest Ethereum hackathon in the world, on October 19, 2017. As of December 11, the high selling cat was sold for 246.9255 ETH (over $100,000 USD). Total sales were over $12 million by mid-December!
The virtual cats are breedable and carry a 256-bit distinct genome with unique DNA and different attributes that can be passed to offspring. Several traits can be passed down including cool down time (how much time is required before a cat can breed), whiskers, fur color and background color.
CryptoKitties are “cryptocollectibles”. One can buy, sell, or trade your CryptoKitty like it was a traditional collectible (like baseball cards), knowing that it is safe with the blockchain tracking ownership securely. However, unlike traditional collectibles, one can breed a duo of CryptoKitties to create an entirely new, genetically unique offspring.
New CryptoKitties cannot be created on a whim, as Blockchain technology prevents the creators from messing with the ecosystem, protecting your CryptoKitty from artificial inflation or the digital collectible equivalent of insider trading. To safeguard anyone with knowledge of the underlying algorithm creating more valuable Kitties, anyone with insider knowledge is banned from participating. Once all the organic (“Gen 0”) CryptoKitties are gone, there’s no way for us to add more (similar to how there will never be more than 21 million Bitcoins). However, because the Kitties can be bred repeatedly, there are nearly unlimited CryptoKitties that can be created.
Whats next for the future of Ethereum?
Several platforms like EOS and NEO are positioning themselves as faster and cheaper (transaction costs) alternatives than Ethereum. While these new platforms are promising, Ethereum still is dominant amongst blockchain developers and is constantly evolving as the Ethereum Development community is great at adding improvements quickly, so only time will tell if EOS and NEO blockchain platforms will ever reach the scale of Ethereum.
