When Satoshi Nakamoto first set the Bitcoin blockchain into motion in January 2009, he was simultaneously introducing two radical and untested concepts. The first is the « bitcoin », a decentralized peer-to-peer online currency that maintains a value without any backing, intrinsic value or central issuer. So far, the »bitcoin »as a currency unit has taken up the bulk of the public attention, both interms of the political aspects of a currency without a central bank and its extreme upward and downward volatility in price.
However, there is also another, equally important, part to Satoshi’s grand experiment : the concept of a proof of work-based blockchain to allow for public agreement on the order of transactions. Bitcoin as an application can be described as a first-to-file system : if one entity has 50 BTC, and simultaneously sends the same 50 BTC to A and to B, only the transaction that gets confirmed first will process. There is no intrinsic way of determining from two transactions which came earlier, and for decades this stymied the development of decentralized digital currency.
Satoshi’s blockchain was the first credible decentralized solution. And now, attention is rapidly starting to shift toward this second part of Bitcoin’s technology, and how the blockchain concept can be used for more than just money.
Commonly cited applications include using on-blockchain digital assets to represent custom currencies and financial instruments (« coloredcoins »), the ownership of an underlying physical device (« smartproperty »), non-fungible assets such as domain names (« Namecoin ») as well as more advanced applications such as decentralized exchange, financial derivatives, peer-to-peer gambling and on-blockchain identity and reputation systems.
Another important area of inquiry is « smart contracts »-systems which automatically move digital assets according to arbitrary pre-specified rules. For example, one might have a treasury contract of the form : « A can withdraw up to X currency units per day, B can withdraw up to Y per day, A and B together can withdraw anything, and A can shut off B’s ability to withdraw ».
The logical extension of this is decentralized autonomous organizations (DAOs)-long-term smart contracts that contain the assets and encode the bylaws of an entire organization.
What Ethereum intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create »contracts » that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code.
The innovation provided by Satoshi is the idea of combining a very simple decentralized consensus protocol, based on nodes combining transactions into a "block" every ten minutes creating an ever-growing blockchain, with proof of work as a mechanism through which nodes gain the right to participate in the system. While nodes with a large amount of computational power do have proportionately greater influence, coming up with more computational power than the entire network combined is much harder than simulating a million nodes.
Despite the Bitcoin blockchain model's crudeness and simplicity, it has proven to be good enough, and would over the next five years become the bedrock of over many currencies and protocols around the world.
Ethereum
The intent of Ethereum is to merge with the Blockchain Bitcoin and improve upon the concepts of scripting, altcoins and on-chain meta-protocols. Thus allowing developers to create arbitrary consensus-based applications that have the scalability, standardization, feature-completeness, ease of development and interoperability offered by these different paradigms all at the same time. Ethereum does this by building what is essentially the ultimate abstract foundational layer : a blockchain with a built-in Turing-complete programming language, allowing anyone to write smart contracts and decentralized applications .
Where they can create their own arbitrary rules for ownership, transaction formats and state transition functions. A bare-bones version of namecoin can be written in two lines of code, and other protocols like currencies and reputation systems can be built in under twenty. Smart contracts, cryptographic »boxes » that contain value and only unlock it if certain conditions are met, can also be built on top of our platform, with vastly more power than that offered by Bitcoin scripting because of the added powers of Turing-completeness, value-awareness, blockchain-awareness and state.
Ethereum Accounts
In Ethereum, the state is made up of objects called « accounts », with each account having a 20-byte address and state transitions being direct transfers of value and information between accounts. An Ethereum account contains four fields :
● The nonce, a counter used to make sure each transaction can only be processed once
● The account’s current ether balance
● The account’s contract code, if present
● The account’s storage (empty by default) « Ether » is the main internal crypto-fuel of Ethereum, and is used to pay transaction fees. Ingeneral, there are two types of accounts : externally owned accounts, controlled by private keys, and contract accounts, controlled by their contract code. An externally owned account has no code, and one can send messages from an externally owned account by creating and signing a transaction ; in a contract account, every time the contract account receives a message its code activates, allowing it to read and write to internal storage and send other messages or create contracts in turn.
The Ethereum blockchain is in many ways similar to the Bitcoin blockchain, although it does have some differences. The main difference between Ethereum and Bitcoin with regard to the blockchain architecture is that, unlikeBitcoin, Ethereum blocks contain a copy of both the transaction list and the most recent state.
Aside from that, two other values, the block number and the difficulty, are also stored in the block.
Applications
In general, there are three types of applications on top of Ethereum.
The first category is financial applications, providing users with more powerful ways of managing and entering into contracts using their money. This includes sub-currencies, financial derivatives, hedging contracts, savings wallets, wills, and ultimately even some classes of full-scale employment contracts.
The second category is semi-financial applications, where money is involved but there is also a heavy non-monetary side to what is being done ; a perfect example is self-enforcing bounties for solutions to computational problems.
Finally, there are applications such as online voting and decentralized governance that are not financial at all.
System Token
On-blockchain Token systems have many applications ranging from sub-currencies representing assets such as USD or gold to company stocks, individual tokens representing smart property, secure unforgeable coupons, and even token systems with no ties to conventional value at all, used as point systems for incentivization. Token systems are surprisingly easy to implement in Ethereum
In conclusion, the Ethereum protocol was originally conceived as an upgraded version of a cryptocurrency, providing advanced features such as on-blockchain escrow, withdrawal limits and financial contracts, gambling markets and the like via a highly generalized programming language.
