On Ethereum, coins, and decentralization – Ruby Wu
1. What is Ethereum and what’re the differences with Bitcoin?
1.1 General Comparison
1.2 Bitcoin & Ethereum: Mining and different block time
2. How Ethereum-based tokens work and their relationship to Ether.
2.1 Introduction of Ethereum-based tokens
2.2 How to create a Token and how to trade it with Ether?
2.3 What is SingularityNET(AGI) and how it works
3. The meaning of decentralization
When talking about “Ethereum”, most people automatically associate it with digital cryptocurrencies such as Bitcoin, but in fact, Ethereum is not just a cryptocurrency. According to the Ethereum website, Ethereum is a decentralized platform that allows anyone to build on the Ethereum nodes, just like anyone can run Bitcoin nodes. Although this may sound a bit abstract, I think comparing Ethereum to Bitcoin helps to understand the true meaning of Ethereum.
According to Wikipedia, Bitcoin is a decentralized cryptocurrency that can be sent from one person to another through the so-called peer-to-peer network system. Bitcoin as digital money has been around for ten years and is often used as a store of value.
Since the emergence of Bitcoin in 2008, the existence of digital currencies has gradually been accepted by some people. People are also actively planning and developing business applications based on Bitcoin. However, with the expansion of applications, people have found that the design of Bitcoin is only suitable for digital currency and not applicable in many blockchain application scenarios due to the existence of non-Turing completeness, the waste of resources and efficiency caused by the Proof of Work mining mechanism. Hence, people need a new blockchain-based smart contract development platform with Turing completeness, efficient consensus mechanism, and support for more application scenarios. Ethereum came into being in this situation.
Ethereum is built on the concept of blockchain like Bitcoin, but it is different than Bitcoin in the sense that it takes one step further-not only does Ethereum serve its purpose as a digital currency to used through transaction, it also supports smart contracts, which is pretty much like a highly programmable and functional digital currencies, and allowing anyone to take advantage of the blockchain technology to build their own projects or decentralized applications through the smart contracts.[7]
To understand “Smart contract”, we can describe it as a computer program that can be used to facilitate the transaction.”[7] In the cryptocurrency field, people define smart contracts as applications or programs that run on the blockchain. Generally, smart contracts are composed of a set of digital protocols with specific rules, and the protocols can be enforced. These rules are pre-defined by the computer source code, and all network nodes can copy and execute the computer source code on their machines by using an operating system called “Ethereum Virtual Machine”.
Like Bitcoin, Ethereum also has its native currency called Ether, anyone who wants to operate a “smart contract” on an Ethereum network must pay in Ether. In 2014, Ethereum launched Ether. According to Ethereum, like many other valuable tokens, there are three main uses for Ether:
(1) Ether can be used as a reward for people (i.e. miners) who contribute computing power to the network.
(2) Ether as a payment medium on the transactions of the network.
(3) As payment for people who want to run smart contracts and use the platform.[2]So basically, Ether can be used in the Ethereum network to do anything as a currency.
Among other things, there is one big difference that fundamentally explains how bitcoin and Ethereum differentiate themselves from each other. Time interval, also known as block time, is defined as the time it takes for mining the new block, more specifically, block time is the time it takes for a miner to solve the puzzle and hence lead to the creation of a block on the blockchain. In bitcoin, the expected block time is 10 minutes, while in Ethereum it is around 12s-17s seconds.
Why the expected block time is different between Bitcoin and Ethereum？To answer this question we need to talk about difficulty level first. The block time is defined in the protocol itself by Satoshi Nakamoto, and it says that the adjustment of each block time is decided by the difficulty level. Bitcoin’s difficulty level is made after the 2016 block in order to make sure the stability of the.[7] Satoshi Nakamoto defined the average blocking time of 10 minutes in the white paper. According to him, there seems to be a sufficiently secure time interval between the two bitcoin blocks to maintain the security of the entire network.[5]
Although 10 minutes block time can promise the stability and security of the network，it also means the low efficiency of the transaction. Unlike bitcoin, in the design of Ethereum, in order to increase the network efficiency, the block time is set at between 10s-20s.[4] The block time is set between 10 and 19 seconds because they want it is as fast as possible, but at the same time, they also need to consider the network latency. A paper published by Decker and Wattenhofer in Zurich in 2013 measured the latency of the Bitcoin network and determined that the time required for a new block to propagate to 95% of nodes is 12.6 seconds. [6]
However，a shorter block time also means that the chance of temporary forks will increase significantly and hence reduce security. This is because when miner A digs a new block, it needs to broadcast to the entire network，and the broadcast process takes time. Due to the short block production time of Ethereum, other nodes may have already mined the block issued by miner A，hence lead to a temporary fork. If Ethereum also used a mechanism like the Bitcoin system, this will lead to a lot of wastage for the computing power of the miners.
Ethereum solves this problem by using the GHOST protocol. An important idea of the GHOST protocol is that block rewards are also provided for miners who have mined blocks but have not joined the longest legal chain, and at the same time, temporary forks can be quickly merged by including uncle blocks. Thus, in the case of solving a temporary fork, the transaction throughput is improved.
As I mentioned in Part 1, unlike Bitcoin, Ethereum it’s not just a digital currency, we can define it as a world computer, or environment. Ethereum’s smart contracts s lets people do much more than Bitcoin’s.
Ethereum is a digital cryptocurrency and decentralized platform based on a programmable digital currency we called smart contracts, these smart contracts can be defined as tokens that can be traded. There are several different tokens that can be used in Ethereum, and these tokens are different from Ether, which is the native digital currency on Ethereum.[14] In a broad sense, “token” represents a utility or asset and is usually issued on a blockchain. In contrast, “coin” like Ether or Bitcoin refers to a cryptographic asset that is native to a chain and is mainly used as currency.
In some sense we can define Ethereum as the World computer and all the decentralized applications can run in it. These DAPPS are all decentralized and people can buy certain tokens of that DAPP in exchange for their Ethers. The reason why we don’t simply use Ether to pay for every transaction within the DAPPS in the Ethereum network but using native tokens is very simple if we make an analogy from real life. Thinking about that, even in real life, there are many places and situations that we can use a form of a token in replace of cash. Thinking about that time we use coupons or tickets in exchange for something. Say you show your MacDonald coupons in exchange of a cup of ice cream. During this process, the MacDonald is the DAPP, the money is Ether and the coupon is the token. Likewise, if we use tokens to run smart contracts of a specific decentralization application, the transaction process will become much simpler and smooth.[7]
To create a token we can either go to some website to create our own purpose or code our tokens on our own by using the coding language Solidity, which is the language used to program in Ethereum. People who want to create a token need to make sure their token is ERC20 compliant in order to approve the use of the token as a monetary currency and transfer it from one to another. ERC20 is a token standard defined by Ethereum. Based on the Ethereum ERC-20 standard, anyone can issue custom tokens on Ethereum. This token can represent any equity and value.
To buy tokens on Ethereum we will have to exchange Ether for them. Normally there are two ways to trade tokens with Ethers:
- Buy ETH from the website like Coinbase that can be used in trading Ether (ETH).
2) People can also trade Ethers by using a service like Shapeshift directly for the tokens and sending it to the provided address. In return, you will receive the tokens you want.[8]
If I had to choose one coin to invest，I might consider investing SingularityNET (AGI). SingularityNet is a decentralized platform for Artificial Intelligence. According to the SingularityNET whitepaper, SingularityNET aims to build a blockchain-based infrastructure to implement various AI algorithms from image recognition to natural language processing, allowing real-time and flexible interaction. In Singularity’s open network, AI developers can exchange their tools and solutions for SingularityNET’s AGI token, or other resources and services. The following design principles are incorporated throughout the design of the network:[9]
So what makes SingularityNET different from other cryptocurrencies? Firstly, SingularityNET is the first platform that allows everyone to use AI services. Its uniqueness and technology behind making it an impressive investment choice. Secondly, SingularityNET is backed up by a team filled with top star founders in the artificial intelligence industry and a full-time team of more than 50 talents in technology, market, and platform to support the continuous improvement of the project. In short, with this kind of talent team’s support, SingularityNET’s future is unstoppable and its ultimate goal of making an independent AI network available to everyone is likely to realize with the advances of machine learning and blockchain technology. [10] So far, SingularityNET has an encouraging rank in global market cap rankings. The fact that AGI tokens are quite cheap makes it a great investment opportunity, given that there is a low possibility that people who invest it will lose a lot of money.
In conclusion, with the increasing demand for AI services, together with the development in AI and blockchain technology, I believe there will be a rise in demand for the tech and certainly will lead to the increase of AGI token’s value.[10]
As I mentioned in part 1，both Bitcoin and Ethereum are based on blockchain technology and with its vision to decentralize everything. So why is decentralization useful what’s the meaning of decentralization？
One of the reasons I can think of is that in today’s society, because of centralization, irresponsible staffs on large platforms determine how to rank and filter information, which users are promoted, which users are banned, and other important governance decisions. However， if it is in decentralized networks, these decisions are made by the community using open and transparent mechanisms.
Another reasons，according to Vitalik Buterin，the founder of Ethereum，in his blog he talked about three general arguments in answering the question，why is decentralization useful to our society：
1) Fault tolerance — Decentralized systems rarely crash due to a partial failure of the system, because it depends on many components that work independently.
2) Attack resistance — The cost of wanting to attack or manipulate a decentralized system is much higher than the cost of attacking a centralized system due to the lack of sensitive central points that can be attacked at a much lower cost.
3) Collusion resistance — Participants in decentralized systems are less likely to collude and benefit themselves at the expense of other participants than traditional enterprises and government leaders or corporates due to its difficulty. [11]
Both these three arguments seem valid and show that decentralization is important because it makes internal collusion and external attacks much less impractical by eliminating single points of failure or control.[11]
Naval Ravikant, the founder of Angellist, once wrote in his famous tweetstorm, “Blockchains will replace networks with markets.” What he means is that with the development of blockchain technology, gradually and suddenly, the web will be replaced by an open and transparent market.[12]
I love this brave idea and, perhaps if we had some patients one day it will come true. “Just like the thing we believed could happen, which may have once seemed impossible, is starting to happen, in bits and pieces.”[13]
[1] Rajarshi,Mitra.(2019).Bitcoin VS Ethereum.website.Retrieved December 17, 2019, from https://blockgeeks.com/guides/bitcoin-vs-ethereum-ultimate-comparison-guide/
[2] Peter, Valkenburgh.(2017, May 10).What does it mean to issue a token”on-top-of” Ethereum.website?Retrieved. December 17,2019,from https://coincenter.org/entry/what-does-it-mean-to-issue-a-token-on-top-of-ethereum
[3] Jake, Frankenfield.(2019, November 8).Block time.website.Retrieved.December 17,2019,from https://www.investopedia.com/terms/b/block-time-cryptocurrency.asp
[4] Prabath, Siriwardena.(2017, October 15).The mystery behind block time.website.Retrieved.December 17,2019,from https://medium.facilelogin.com/the-mystery-behind-block-time-63351e35603a
[5] Sudhir, Khatwani.(2018, August 22).What is Block time.website.Retrieved.December 17,2019,https://themoneymongers.com/block-time/
[6] Decker, Christian, and Roger Wattenhofer. “Information propagation in the bitcoin network.” IEEE P2P 2013 Proceedings. IEEE, 2013.
[7] Ameer, Rosic.(n.d.).What is Ethereum.website?Retrieved.December 17,2019,from https://blockgeeks.com/guides/ethereum-token/
[8] (2018, January 6).Ethereum Tokens.website.Retrieved.December 17,2019,from https://medium.com/@trustwallet/ethereum-tokens-how-acquire-store-and-trade-them-f8cd191fc841
[9] Goertzel, Ben, et al. “SingularityNET: A decentralized, open market and inter-network for AIs.” Thoughts, Theories & Studies on Artificial Intelligence (AI) Research (2017).
[10] What is SingularityNET.(n.d.).website.Retrieved.December,17.2019,from https://coinswitch.co/info/singularitynet/what-is-singularitynet
[11] Vitalik, Buterin.(2017, November 6).The meaning of decentralization.medium.com.website.Retrieved. December,17,2019,from https://medium.com/@VitalikButerin/the-meaning-of-decentralization-a0c92b76a274#.4hl67650f
[12] Cameron,McLain(2017,November 1).When does decentralization make sense.website.Retrieved.December 17,2019,from https://medium.com/hummingbird-ventures/blockchain-when-does-decentralization-make-sense-465d05be1a68
[13] Josh, Stark. (2019, January 16).The year in Ethereum.website.Retrieved.December 17 ,2019,from https://medium.com/@jjmstark/the-year-in-ethereum-87a17d6f8276
[1] Nathan, Reiff.(2019, July 25).What is ERC-20 and What does it mean for Ethereum.website.Retrieved.December 17,2019,from https://www.investopedia.com/news/what-erc20-and-what-does-it-mean-ethereum/
Published at Wed, 05 Feb 2020 05:02:59 +0000
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