Ethereum was launched in 2015 as a blockchain-based, open-source, decentralized software platform. It enabled the building, testing, and launching of smart contracts and decentralized applications (dApps). Ethereum allows the dApps and smart contracts to run without any interference or influence of third parties. Keep reading to stay up-to-date with Ethereum news.
Through decentralized applications, users can connect and carry out transactions, buy and sell goods and services without any third-party or intermediary involvement. The founders of Ethereum have constantly stressed that they aim to decentralize and democratize the existing client-server model. Ethereum replaces central servers with thousands of nodes, which volunteers across the world operate.
What Is Ethereum?
Ethereum can be defined as an open-source platform that is based on blockchain technology. It enables developers to create, develop and deploy decentralized applications. Ethereum replaces central servers with thousands of nodes spread around the world. This ensures decentralization and ensures that the network is always online. Learn more about Ethereum.
The Ethereum ecosystem is run by smart contracts, which are lines of code stored on the blockchain. The contracts are executed automatically when certain predefined conditions are fulfilled. The blockchain acts as an unbiased third-party and enforces the transactions on the blockchain.
Due to the nature of smart contracts, Ethereum and applications running on Ethereum have become extremely appealing to users.
Let’s take a look at some significant events in Ethereum’s history, Ethereum news, and what the platform has planned for the future.
Significant Events in Ethereum’s History
The Dao And the Attack on the DAO
The DAO or the Decentralized Autonomous Organization was designed to automate and facilitate crypto transactions. Its primary function was to fund decentralized apps that would be built on the Ethereum platform. Members of the Ethereum community believed that the DAO would revolutionize Ethereum and how it functioned. The DAO would give users of the platform the ability to choose which decentralized apps get funding and which do not.
Users could buy DAO tokens using Ether. Users who bought the DAO tokens would get certain voting rights which would decide which apps get funding.
If users wanted to exit the DAO, they could do so through something called the “split function.” The split function would give users back the Ether they had invested, along with the option of creating a “Child DAO.” There was one pre-condition, which required that users hold their Ether for 28 days. The split function exposed a serious flaw or loophole in the DAO, and hackers exploited this loophole and attacked the DAO.
The Attack on the DAO
To exit the DAO, the user had to send a request to the DAO. Once the request had been sent, the split function would refund the Ether in exchange for the DAO tokens.
This was exploited by a hacker who inserted a recursive function into the request. The hacker then repeated the request for the DAO tokens. This request kept repeating until a third of the tokens in the DAO were stolen. A total of $50 million were stolen from the DAO, sending the Ethereum community into chaos and disarray.
An overwhelming majority of the Ethereum community members agreed that a hard fork was needed for Ethereum to start again. However, a small group was against plans for a hard fork. After a considerable amount of controversy, Ethereum initiated a hard fork, and a majority of the developers and users moved to the new blockchain, which retained the name Ethereum. A small group stayed with the old blockchain, and this led to the creation of Ethereum Classic.
Ethereum 2.0
Ethereum 2.0 is a major upgrade to the existing Ethereum blockchain. It aims to address several issues that plague Ethereum, such as low transaction speeds and a low number of transactions per second. Ethereum 2.0 plans to increase the speed, efficiency, and most importantly, the Ethereum network’s scalability. Ethereum 2.0 will see Ethereum move from a Proof-of-Work consensus mechanism to a Proof-of-Stake consensus mechanism. Another major change that Ethereum 2.0 introduces is sharding.
Ethereum 2.0 is considered a game-changer for the Ethereum blockchain, addressing all the issues Ethereum currently faces. It enables Ethereum to handle more transactions per second, addressing the blockchain’s most pressing issue of scalability. Ethereum 2.0 will also create added demand for Ethereum thanks to faster transaction speed, lower transaction costs, and an increase in the blockchain’s utility.
So, what are Proof-of-Stake and Sharding? Let’s Find Out.
What Is Proof-of-Stake
Proof-of-Stake works differently from Proof-of-Work. In Proof-of-Work, miners need to use energy in the form of electricity to mine blocks. Proof-of-Stake requires that they commit a “stake” to validate blocks.
Both Proof-of-Work and Proof-of-Stake are consensus mechanisms. Consensus mechanisms are how blockchains maintain their integrity and address the issue of double-spending. If users could spend their digital currency more than once, it would undermine the entire system. Ethereum currently uses a Proof-of-Work consensus mechanism, but with the Ethereum 2.0 update, it will be moving to a Proof-of-Stake consensus mechanism.
So how does Proof-of-Stake work? Validators run nodes that propose and attest blocks on the blockchain. Validators stake their cryptocurrency (In Ethereum’s case, they will stake ETH). Once they have committed a stake, they are randomly selected to propose a block. Other validators on the blockchain then attest that they have seen the block. When enough validators have attested that they have seen the block, it is added to the blockchain. Validators receive rewards for proposing blocks as well as attesting the blocks that they have seen.
What Is Sharding?
Sharding is a process that refers to the splitting of the Ethereum network into multiple chains that operate independently of the main blockchain. Each shard would function independently and have its own set of smart contracts and account balances.
Sharding mainly helps blockchains like Ethereum significantly improve their scalability, allowing them to process more data every second. However, there are some concerns regarding sharding.
With more users using the Ethereum blockchain, processes like sharding become essential to ensure that the network does not get congested. Sharding improves the network’s latency, splitting the main network into independent networks or “shards.”
The Many Forks of Ethereum
The Ethereum blockchain handles more than 80% of all decentralized applications and crypto projects. With more users joining the network and the technology continually improving and evolving, forks are necessary to ensure that the blockchain can keep up and the updates are rolled out smoothly. Sometimes, a hard fork is required due to a security breach or a loophole that needs to be fixed.
- Ice Age: Ice Age was the first Ethereum fork. It was an unplanned fork and allowed developers to stress test the network. The original protocols were maintained on a separate chain.
- Homestead: Homestead was the first planned hard fork on the Ethereum blockchain. The hard fork allowed users to do transactions with Ether. It also allowed users to create and deploy smart contracts.
- The DAO: The DAO, or the Decentralized Autonomous Organization. It funded dApps on the Ethereum platform. In 2016, hackers exploited a loophole in the DAO and siphoned off more than $50 million. This led to utter chaos in the Ethereum community and a fierce debate on what steps to take next. A majority of the Ethereum community suggested a hard fork so that the funds could be recovered. The resultant hard fork was the most controversial and divisive hard fork in Ethereum’s history, leading to Ethereum Classic formation.
- Metropolis: Metropolis was a two-phase fork, a soft fork that fixed several bugs and added new security features to Ethereum. These features were all added without creating a split in the original chain.
- St. Petersburg: The St. Petersburg hard fork was initiated to remove EIP-1283, a feature of Ethereum that was vulnerable to getting hacked.
- Istanbul: The Istanbul hard fork increased processing speeds, increased the volume of activity, reduced processing fees, and created greater network interoperability.
- Serenity: Ethereum 2.0, also known as Serenity, is a hugely improved version of Ethereum. Serenity will see Ethereum move from a Proof-of-Work consensus mechanism to a Proof-of-Stake consensus mechanism. Moving to a Proof-of-Stake consensus mechanism will see Ethereum address its scalability issues without compromising on decentralization. To implement this successfully, Serenity will implement a process known as “sharding.”
Ethereum is Attracting Significant Interest from Institutional Investors
With the growth of DeFi, Ethereum is attracting significant interest from institutional investors who see Ether as an excellent store-of-value. Most investors saw Bitcoin as a store-of-value, using it as a hedge against inflation.
However, some of that attention has also shifted to Ether, the native asset of the Ethereum blockchain. Institutional investors see Ethereum as both a digital commodity that can be used for transactions and as a store-of-value. Along with Bitcoin, institutional investors also started taking up positions in Ethereum.
As a result of this interest, Ethereum performed very well against the USD in 2020, performing even better than Bitcoin. But what is the reason for the growing interest in Ethereum? The growing popularity of DeFi (Decentralized Finance) can explain this. DeFi is poised to power the growth of Ethereum in 2021. Ethereum is the go-to platform for Decentralized Finance, making it integral to the DeFi space.
Companies like Grayscale have been buying ETH, converting their reserve into crypto. Recently, Grayscale purchased 52,730 ETH worth more than $93 million in 24 hours. Grayscale currently owns more than 3.13 million ETH, the total value of which is over $5.5 billion.
Even listed firms like Meitu have been getting into the act, with the company purchasing $22 million worth of Ether. Meitu bought a total of 15,000 ETH through open market transactions.
The Ethereum EIP 1559 Upgrade
The Ethereum EIP 1559 upgrade is scheduled with the London hard fork, one of the most anticipated and significant upgrades to the Ethereum blockchain. EIP 1559 will completely change how a typical blockchain transaction works to fix long-standing issues with the Ethereum blockchain.
In a normal transaction, gas fees are sent by the user to the miner to include a transaction in the block. After the implementation of EIP 1559, the gas fee will be sent directly to the network instead of the miner, with an option to pay a tip to the miners. The burn fee is also set algorithmically, allowing users to pay a fair fee.
EIP 1559 has met with widespread support from developers and users on the Ethereum blockchain, while miners and mining pools are up in arms against the proposal.
In Conclusion
Ethereum is one of the largest and most popular cryptocurrencies in the world. It holds the second largest market capitalization and is the go-to platform for dApps and DeFi projects. Its native crypto, Ether, has also emerged as a store-of-value, with institutional investors buying up the currency and using it as a store-of-value.
Ethereum has seen several significant events occur in its history, some significant while other events that threatened the very survival of Ethereum. With the Ethereum 2.0 update upon us, several more events will shape the platform in the future.
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