EDITION 1.

the complete
beginner’s guide to
ethereum
 FAT LOSS STRATEGIES

contents
What is Ethereum? 1
The History of Ethereum 2
The History of Ethereum Cont. 3
THE DAO 4
Hard Forks 5
Benefits of Ethereum 6

04
Transaction Model 7
Consensus 8
Future of Ethereum 9
Conclusion 10
Credits 11

Author Credits
Brian Curran

Copyright Information
Copyright © 2019 Blockonomi.com / Kooc Media Ltd.

BLOCKONOMI.COM

0
 FAT LOSS STRATEGIES

what is ethereum?
Bitcoin is the legacy, original cryptocurrency that launched an entire
industry of innovation predicated on blockchain technology and its
accompanying field of technical and economic mechanics. Primarily
envisioned as a store of value and medium of value exchange outside
of the jurisdiction of governments or third parties, Bitcoin’s application
focuses on providing individual economic freedom through creating a

04
novel financial technology.

However, the application of blockchain technology, cryptography,

distributed computing, and economics in a system such as Bitcoin’s
only was the tip of the iceberg to a future industry of vast potential.
Ethereum opened the door to the potential of utilizing blockchain
technology for a wide variety of applications.

Pegged as a distributed world computer, Ethereum is an open-source,

public blockchain and decentralized computing platform featuring
turing-complete smart contract functionality. Proposed in late 2013, by
a then 19 year old Vitalik Buterin, as a platform that could hypothetically
leverage the blockchain to store and execute computer programs
across an international network of distributed nodes, Ethereum has
become the most well-known and established cryptocurrency outside
of Bitcoin.

BLOCKONOMI.COM

1
 FAT LOSS STRATEGIES

The History of ethereum

Ethereum has a long, controversial, and highly significant history that
has had a major impact on shaping the modern cryptocurrency sphere.
The white paper proposed by Vitalik in late 2013 was the beginning of
the Ethereum era.

Outlined as a distributed world computer for executing and storing

04
computer programs, the goal was to create a distributed computing
platform that took full advantage of the potential afforded by
blockchain technology. As Vitalik puts it in the introduction of his paper:

“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 systems that he “describes above” in the quote refer to common

applications (dapps) built on top of the Ethereum blockchain today
such as on-chain digital assets (ERC-20 tokens), non-fungible assets,
decentralized exchanges, on-chain identity and reputation systems,
peer-to-peer gambling, decentralized autonomous organizations
(DAOs), and most notably, smart contracts.

Smart contracts are the primary feature of Ethereum and are basically
self-executing programs that facilitate the exchange of anything of
value on the network, immutably stored on the blockchain. They
execute when specific conditions are met and are outside the influence
of third parties or censorship and have no downtime, as long as the
Ethereum network is functioning.

The general ambition of the project outlined in the white paper as well
as the technical expertise of its young founder attracted the attention
of many in the cryptocurrency space. The platform’s core innovation
became known as the “Ethereum Virtual Machine” (EVM) and is a
turing-complete software that runs on the Ethereum network, enabling
anyone to run any program, regardless of the programming language,
on the Ethereum blockchain. The result is the potential to create a vast
array of decentralized applications all on a single platform.
BLOCKONOMI.COM

The early development of Ethereum began in early 2014 with Vitalik

and a small team including Anthony Di Iorio, Charles Hoskinson, and
Mihai Alisie. The project began through the Swiss company Ethereum
Switzerland GmbH and subsequently through the Swiss non-profit
Ethereum Foundation.

2
 FAT LOSS STRATEGIES

the history of ethereum

At the time, Joseph Lubin was the COO at Switzerland GmbH and
helped to found the Ethereum Foundation. He remains a prominent
figure in the cryptocurrency community as the founder of ConsenSys.

In July 2014, Ethereum underwent a crowdsale where more than $14

million was raised from July-August. In September of the same year,

04
the Ether (the Ethereum currency) was distributed to the investors and
development team, while the remaining funding went to the Ethereum
Foundation.

In July 2015, the first mainnet, experimental release of Ethereum was

launched and labeled the “Frontier” release. The first major upgrade
to the Ethereum platform was released in March 2016 as “Homestead”
and was the first upgrade to be considered stable, focusing on gas
pricing, security, and transaction processing. At the time, critics of
Ethereum were still wary about its security and stability as although
being a Turing complete platform offers a substantial amount of
potential development applications, it also brings with it some serious
and potentially fatal security concerns.

BLOCKONOMI.COM

3
 FAT LOSS STRATEGIES

The DAO
Despite security concerns, on the wave of excitement from the
community, The DAO, a decentralized autonomous organization
functioning as an investor directed VC fund was created. The DAO
raised approximately $150 million through contributions from over
11,000 people and was seen as novel, self-executing combination of
smart contracts designed to function as a decentralized investment

04
vehicle.

Infamously, the DAO was hacked in June 2016 when unknown users
were able to exploit a vulnerability in its code and were able to move
$50 million into a different DAO (known as the Dark DAO). Further, once
public, others users used the same vulnerability to divert the remaining
funds into a third DAO called the White Hat DAO.

The resulting fallout was intense and highly polarizing. Two sides
emerged with one side claiming that the immutability of the blockchain
and the core tenet of “code as law” could not be broken while the other
side argued for hard forking the protocol to return investors’ funds and
eliminate the hackers’ access to the funds on the original Ethereum
blockchain.

Hard Forks
Eventually, Vitalik Buterin announced in July 2016 that miners had
agreed on the hard fork and the fork was imminent. However, a
minority of miners were still holding out and held steadfast in their
convictions on not forking the protocol, which they saw us undermining
the core principle of the platform. Thus, Ethereum was forked and the
new chain became known as Ethereum and the old, unforked chain
became known as Ethereum Classic, effectively splitting the Ethereum
community.

As time progressed, the majority of businesses, developers, miners,

and users favored the Ethereum (forked) chain and is the current
chain named Ethereum with the 2nd highest market cap and a vast
community behind it. Ethereum Classic (ETC) remains a popular
cryptocurrency too, however, with the team behind ETC implementing
the same upgrades as the Ethereum chain and actively developing the
BLOCKONOMI.COM

platform as well.

4
 FAT LOSS STRATEGIES

hard forks
The most recent major upgrade to Ethereum came in the form of
“Metropolis – Byzantium”, which is the first part of a two-part Metropolis
upgrade that is supposed to lay the foundation for the transition of
Ethereum to its Proof-of-Stake upgrade “Casper”, as well as its eventual
sharding implementation.

04
Ethereum has been at the forefront of the recent scaling problems in
the broader cryptocurrency industry. Plagued by high gas fees and
slow transaction times, Ethereum is facing serious concerns about its
ability to scale to meet the demands of thousands of dapps running on
its platform and a sufficient high-throughput capacity to support a vast
network of decentralized participants.

The proposed solutions are set to come in the aforementioned Casper

upgrade and its eventual transition to sharding, a unique horizontal
database architecture partitioning method designed to alleviate
network congestion and help the network to scale.

How Does Ethereum Work?

The Ethereum Virtual Machine (EVM) is a Turing-complete software that
runs on the Ethereum network. It executes scripts across a distributed
network of computers and enables the execution and storage of
everything from smart contracts to DAOs. Functionally, Ethereum allows
developers to build decentralized applications on top of it. This can
include games, distributed registries, organizations, and many more.

The design behind Ethereum, based on the white paper, is intended to

follow the principles of:

Simplicity – The protocol should be as efficient as possible, even at the cost of data storage
or time inefficiencies.
Universality – An internal Turing-complete scripting is provided language that a developer
can use to program any smart contract or transaction type.
Modularity – Ethereum protocol should be designed to be as modular and separable as
possible.
Agility – The protocol is not set in stone and any opportunities to improve the protocol
architecture or the EVM in scalability or security will be exploited.
BLOCKONOMI.COM

Non-Discrimination/Non-Censorship – The protocol should not attempt to actively restrict

or prevent specific categories of usage.

5
 FAT LOSS STRATEGIES

Benefits of Ethereum
The benefits of Ethereum not only as a blockchain-based platform itself
but also compared to other blockchain-based platforms includes:

Immutability – A third party cannot make any changes to data.

Corruption/Tamper Proof – Censorship is unfeasible with the PoW consensus of the vast
and decentralized network agreeing on its global state.

04
Security – The combination of the PoW consensus, cryptographic techniques used in
the transaction model, and lack of a central point of failure protects the network against
hacking and manipulation.
No Downtime – Applications, smart contracts, organizations, etc all running on the
Ethereum blockchain are always running and cannot be turned off.

Disadvantages of Ethereum
As a Turing-complete platform, Ethereum is susceptible to
vulnerabilities that can be exploited through the complexity of the
primary programming language used in smart contracts, Solidity. Smart
contract security has become a major concern and the DAO hack was
the revelatory event that led to mainstream concerns of the long-term
viability of smart contracts moving forward.

Ethereum also places a large focus on Security and Decentralization

over Scalability. While scalability solutions are in the works and on the
horizon, the low-throughput capacity and high gas costs for Ethereum
at the moment make it inconvenient for mainstream users looking
for free use of applications that they are accustomed too, as well as
for developers building applications, where gas costs have become
prohibitively high in some instances.

BLOCKONOMI.COM

6
 FAT LOSS STRATEGIES

Transaction Model
Ethereum uses an account-based model, similar to a modern banking
model for users, rather than the UTXO model of Bitcoin. The global
state of Ethereum is divided into these accounts, which consist of 20-
byte addresses and where each transaction of value or information
between accounts is considered a state transition.

04
An Ethereum account contains 4 fields. The nonce, ether balance,
contract code, and storage. There are two types of accounts, externally
owned accounts and contract accounts. Externally owned accounts are
user accounts which are controlled by private keys, does not contain
any code, and can be used to create and sign transactions. A contract
account is a smart contract, run by code and receives messages that
allow to store messages and code as well as contact other contracts
and externally owned accounts.

Ether is the currency of the Ethereum platform while Gas is the

derivative of Ether used to pay for transactions and computations
across the network. Ethereum chose the account-based model over
the UTXO model of Bitcoin for a number of reasons, which you can find
more in-depth information on here.

Ethereum Mining
Ethereum mining is in many ways similar to Bitcoin mining. However,
there is a primary difference where the Ethereum blockchain not only
stores the transaction list of the blockchain, but also the most recent
state of the network.

Ethereum also employs the use of Patricia Trees rather than Merkle
Trees as part of its blockchain state regulation. Patricia Trees are a
modified form of Merkle Trees that enables Ethereum to efficiently
store and adjust the state of the blockchain in each block.

Some other notable features of the Ethereum blockchain and mining

include:

12 second block time

Ethash Mining Algorithm (Uses DAG)
BLOCKONOMI.COM

Static Block Reward of 3 ETH

Miners compensated for gas expended in block.
Extra reward for including Uncles as blocks.

7
 FAT LOSS STRATEGIES

Consensus
Ethereum currently employs a modified Nakamoto Consensus Proof-
of-Work (PoW) consensus model. The PoW consensus in Ethereum is
extremely secure as the network consists of thousands of decentralized
nodes across the world.

Mining in the PoW model of Ethereum utilizes the Ethash (DAG)

04
algorithm which is designed to hash a fast verifiability time. Additionally,
large scale miners get comparatively little benefit from larger
operations due to the large memory requirements of the algorithm.

This model will eventually be replaced by a Proof-of-Stake consensus

implementation with the upcoming Casper upgrade.

Smart Contracts & Dapps

Smart contracts and the ability of developers to build decentralized
applications on Ethereum is its most prominent feature. From building
dapps that function as games to teams releasing their own ERC-20
tokens on Ethereum, a multitude of significant developments in the
broader cryptocurrency industry have been enabled by leveraging this
functionality of the EVM.

Solidity is currently the primary programming language used to write

smart contracts and build dapps, however, Ethereum is currently
experimenting with a new Beta programming language known as Vyper
that is supposed to be a much simpler, secure, and auditable language
for smart contracts in order to mitigate some of the complexity
deficiencies surrounding Solidity.

If Ethereum is able to scale to meet mainstream application and

throughput demands, the possible iterations of dapps on the platform
are endless. Developers will have new avenues to monetize their
creations, users will not be burdened with expensive and inefficient
third-parties, and eventually applications (and even blockchains) will
become interoperable with each other, empowering an entirely new
paradigm of application development and innovation.
BLOCKONOMI.COM

8
 FAT LOSS STRATEGIES

The Future of Ethereum

Ethereum seems invariably placed, alongside Bitcoin, as the center
of the cryptocurrency world. With standards being proposed and
implemented on the Ethereum network, a vast and dedicated
community of developers and various other contributors behind it, and
a vocal, talented leader in Vitalik Buterin leading the way, the Ethereum
future looks bright.

04
Ethereum remains at the bleeding edge of innovation in the industry
with developments such as its planned transition to sharding seen as
some of the most daunting tasks out there, not just in the blockchain
field either, but the larger technical community as well. Ethereum also
lists a number of future technologies they are actively or potentially
developing that include:

Saving Wallets
Crop Insurance
Decentralized Data Feed
Multisig Escrow
Cloud Computing
P2P Gambling
Prediction Markets (i.e. Augur)
Decentralized Marketplaces (i.e. 0x)

Not only is the Ethereum team developing groundbreaking innovations,

but the larger community that participates in the network in the form
of developing their own projects, within the confines of the Ethereum
network, are also making significant contributions. Some interesting
and exploratory uses of Ethereum include projects such as Aragon, 0x,
Augur, Golem, and Loom Network.

BLOCKONOMI.COM

9
 FAT LOSS STRATEGIES

Conclusion
Ethereum is one of the most important and popular platforms in the
blockchain/cryptocurrency industry today. As tech talent continues to
migrate to the space, adoption becomes more mainstream, and scaling
solutions are implemented, Ethereum looks to remain the distributed
world computer for the decentralized applications of tomorrow.

04

BLOCKONOMI.COM

10
 FAT LOSS STRATEGIES

CREDITS
This book is taken from articles first presented on the
Blockonomi.com blog, a leading source of Bitcoin & Cryptocurrency
news and information.

Author Credits

04
Brian Curran

Copyright Information
Copyright © 2019 Kooc Media Ltd.

All rights reserved. No part of this publication may be reproduced,

distributed, or transmitted in any form or by any means, including
photocopying, recording, or other electronic or mechanical methods,
without the prior written permission of the publisher, except in the
case of brief quotations embodied in critical reviews and certain other
noncommercial uses permitted by copyright law. For permission
requests, email the publisher, addressed “Attention: Permissions
Coordinator,” at the address below.

Blockonomi
Kooc Media Ltd
International House,
61 Mosley Street, Manchester,
M2 3HZ
UK
blockonomi.com

hello@blockonomi.com
BLOCKONOMI.COM

11