Ethereum – the next step after Bitcoin

Bitcoin has demonstrated to us that money can be programmed, that neither a central issuing authority nor the backing of some valuable commodity such as gold or the power of a government are needed to make a currency trustworthy and therefore functional.

There is a plethora of alt coins, bitcoin siblings that emphasize this feature or that, that improve on the power hungry downside of the “proof of work” algorithm or that promise stability of value over time. Bitcoin is a great experiment and proof-of-principle.

As a currency, Bitcoin has attracted quite some investment to the point where, at this time, one coin is traded for close to a thousand US Dollars, putting the value accumulated – the market cap of the currency – in the range of some 10 billion Dollars. There are close to a hundred clones or alt coins, and the number is still growing.

So why would anyone want to introduce changes to something that is working as well as Bitcoin?

It is a question of what else could be done with this invention of distributed consensus that Bitcoin has demonstrated. The possibilities are seemingly endless, but for implementing those other possible uses, the Bitcoin protocol is showing some serious limitations.

Ethereum is an attempt to overcome those limitations and to take the blockchain, the core of the Bitcoin protocol, to the next level of usability.

Vitalik Buterin, one of the Etherum founders and Charles Hoskinson, a mathematician and core developer, introduce Ethereum. “I think this might be the missing link, not just for crypto-currency but even for the sphere of p2p protocols as a whole” says Vitalik.

The White Paper

Here is the White Paper that introduces Ethereum and gives a hint of the many possibilities that could be opened up with this new protocol.

Ethereum: A Next-Generation Smart Contract and Decentralized Application Platform

Ethereum is a coin, or actually it has a coin, called the Ether, but it goes far beyond that.

Ethereum is a next-generation distributed cryptographic ledger that is designed to allow users to encode advanced transaction types, smart contracts and decentralized applications into the blockchain. Ethereum will support custom currencies or “colored coins”, financial derivatives, and much more, but unlike many previous networks that attempted to accomplish the same thing Ethereum does not attempt to constrain users into using specific “features”; instead, the ledger includes a built-in programming language that can be used to construct any kind of contract that can be mathematically defined.

Up until this point, most innovation in advanced applications such as domain and identity registration, user-issued currencies, smart property, smart contracts, and decentralized exchange has been highly fragmented, and implementing any of these technologies has required creating an entire meta-protocol layer or even a specialized blockchain. Theoretically, however, each and every one of these innovations and more can potentially be made hundreds of times easier to implement, and easier to scale, if only there was a stronger foundational layer with a powerful scripting language for all of these protocols to build upon. And this need is what we seek to satisfy.

Contracts are the main building block of Ethereum. A contract is like a computer program that lives inside the Ethereum network and has its own ether balance, memory and code. Every time you send a transaction to a contract, the contract executes its code, which can store data, send transactions and even interact with other contracts. You can use contracts to issue currencies, construct your own escrow contracts or financial derivatives, and even create on-blockchain data stores. Thanks to Turing-completeness, Ethereum contracts let you create self-enforcing smart contracts with any conditions that can be mathematically defined. You can find out more in the whitepaper:

2 Comments Ethereum – the next step after Bitcoin

  1. AvatarRon

    @Sepp – what do you believe is the direction for Ethereum, an application for transfer of contracts and payments of new digital currencies, or a facilitator of digital versions of centrally backed currencies?

    This is one of those questions I wonder out loud in terms of whether we will soon see central banks issue digital currencies using centralized payment technology like Google wallet

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