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A Comprehensive History of Ethereum

Updated: May 6, 2022

Ethereum is a leading blockchain platform that hosts a titular cryptocurrency, ETH, currently second to Bitcoin in the market. Ethereum has built a huge reputation, surpassing other competing Bitcoin alternatives and leading the way in security and diverse technological innovations offered to the crypto community.

Ethereum devised a means of hosting more than 3000 dApps on its vast blockchain via smart contracts, extending blockchains’ functionality from cryptocurrency to endless decentralized application possibilities.

However, before getting to this prestigious position in the market, the company and its development team showed a lot of grit to overcome the obstacles that arose. By doing so Ethereum paved the way to become the second-largest cryptocurrency.

Let’s explore Ethereum’s voyage up the rocky hills to prominence; from its inception and developing years to its actualization.

Back Story of Ethereum's Founder

The history of Ethereum and its founder Vitalik Buterin, are so entwined that one can be told without the other.

Vitalik Buterin was born on January 31, 1994, in Kolomna, Russia. Though Russian-born, most of Vitalik’s upbringing was in Canada, as his family moved there shortly after his birth. Vitalik was a child prodigy, gaining admittance into a program for gifted children at the young age of 8, after displaying exceptional capabilities in mathematics and programming.

Vitalik wasn’t as keen to partake in extracurricular activities or social gatherings, and would rather take to online peer-to-peer gaming in his free time. World of Warcraft was his favourite video game at the time. Fast forward a few years, and World of Warcraft would be considered as one of the earliest causes in the butterfly effect leading to Ethereum. Unfortunately, World of Warcraft developers made a minor change to the game which would have a rather devastating effect on Vitalik’s mood. It was at this juncture that he realized the pitfall of centralized systems and took an interest in crypto.

At first glance, Vitalik had the same attitude towards Crypto as other people. The idea that something without tangible backing could accrue value was simply bizarre to him. Digging deeper into the nature of currencies, in general, made him realize that fiat currencies aren’t any different.

His interest soon turned into a writing gig for Bitcoin Weekly. Vitalik wasn’t keeping the job for its generous paycheck (he was earning only $1.5 per hour in Bitcoin, which had very little value at the time), but he cherished the learning opportunity. Unfortunately, Bitcoin Weekly went bankrupt, but not before Vitalik made a reputation as a writer in the crypto niche.

Shortly after Bitcoin Weekly shut down, Vitalik got an offer in September 2011 from Mihai Elisi; a crypto devotee who intended to start up a publishing company. Mihai saw Vitalik’s talent and was keen to make him co-founder and head editor/writer at Bitcoin Magazine. Vitalik accepted the offer, making him a business owner at the early age of 17. He was largely invested in the business and started to spend more time researching and writing about crypto. However, Vitalik didn’t completely sidestep school. He went on to perform to high standards and gain further academic achievements till he graduated high school.

Vitalik took up education at the University of Waterloo. There, he served as a research assistant to Ian Goldberg, a cryptographer famous for his stint as the board of directors chairman for the Tor Project. Vitalik came third place at the International Olympiad in Informatics events (the biggest Olympiad competition, behind the International Mathematical Olympiad).

However, he couldn’t juggle crypto and his academic life with the same degree of success at this point. Hiss career in crypto became more demanding. Between the business trips around the world to interview crypto entrepreneurs and enthusiasts, it is easy to see why.

Hiss adventures on these interviews lead to the discovery of common drawbacks and negative reviews associated with crypto projects. In essence, most crypto projects lacked flexibility. They were always designed for one use case only. Soon enough, Vitalik found out that this rigidness could easily be triumphed by adopting a new programming language. Despite his attempts to pitch this solution to many friends he encountered during his interviewing sprees, they wouldn’t buy into this vision.

In 2013, he worked in an Israeli brokerage firm called eToro. While being an employee at the said establishment, Vitalik drafted a white paper describing some applications of blockchain technology aside from digital currencies. However, due to development differences, he split from eToro.

Seeing that crypto industry heads would not give an ear to his idea, Vitalik took the charge of bringing his dream to fulfilment alone. He took a tour around several countries to rub minds with fellow programming devotees and found that some caught on to the idea.

The Development of Ethereum

Ethereum Whitepaper

Vitalik proposed the idea of Ethereum in a whitepaper publication in 2013. This paper acknowledged the service of pre-existing blockchain technologies in the circulation of digital currencies with no central control or physical backing but went further to suggest extended applications of its distributed consensus system. He introduced the concept of Smart Contracts and Decentralized Application Platforms, which would give users the ability to adjust the rule or consensus algorithm to suit a designated use case. This model would be achieved using a Turing-complete programming language.

After receiving funding for his dream project via a $100,000 grant from the Thiel Fellowship, Vitalik eventually dropped out of the University of Waterloo in 2014 to focus on the Ethereum project after releasing this whitepaper.

On the 26th of January, Vitalik attended a North American Bitcoin Conference in Miami; as a lead writer in Bitcoin Magazine, where he announced the Ethereum project to a larger audience. He introduced the idea of decentralized applications and gave examples of many possible applications.

Moved by his presentation, a few attendees at the conference took interest and sought a better understanding of the project. This group of people came to form the founding members of Ethereum.

Users on 4chan dispersed rumours about Vitalik’s death on the 25th of June 2017.

Frequently Used Ethereum Terms

For those who find the technical jargon confusing, let’s take a slight detour to explain the terms.

What is a Smart Contract?

As the name suggests, smart contracts are virtual agreements between a buyer and seller, written in lines of codes saved on a decentralized blockchain. The code contains a function for processing the outcome of a transfer between the two parties. These transactions are usually irreversible.

What makes smart contracts so useful is their autonomously executable nature. Transactions are solely initiated by agreeing parties, no double-check or authorization is required from a central ruling unit.

Operating Principle of Smart Contracts

To understand smart contracts, it is important to consider the history from which it was derived. In 1994, Nick Szabo, a computer scientist, created the defunct Bit Gold, in which he intended to extend the functionality of electronic payment systems (POS). Unlike traditional payment methods, an unassuming computer code replaces an officiating authority and executes the order in the transacting entities terms.

The distributed, decentralized blockchain consensus means a copy of every transaction order is computed by all the participants on the network.

Still not making any sense of this? Let’s consider an example:

Suppose Mary Jane wants to sell her couch to John Doe. Mary Jane inputs the price at which she is willing to sell into the system, along with other necessary inputs. The system collects all her inputs and drafts a smart contract. As soon as John Doe, a willing buyer completes the terms for fulfilling the transaction (by sending the accurate amount of ETH specified by Mary Jane), the system automatically sells the couch to John Doe and funds Mary Jane’s account with the equivalent ETH.

Before Ethereum, the blockchain was solely used for virtual currency transfer between wallets. Now, there is a full-blown marketplace where assets can be directly traded for money.

Decentralized Application Platforms

Decentralized applications, dApps in short, are open-source applications that run simultaneously on a network of computers. Protocols are observed via an algorithm (smart contract) without the interference of third parties. Unlike traditional applications run on one server, all participants in the decentralized network have access to its code. This gives the advantage of a continuously online server.

Apps like Facebook, Instagram and PayPal for example run on one computer. This computer consists of the backend, containing the one server that handles authorization, monitors and facilitates the interactions of multiple computers on the client-side.

dApps is the new world order for applications, flipping out the totalitarian control exerted by traditional application developers in the past. Protocol changes and upgrades are voted by the application users. This presents a utopian app completely dictated by the customer’s feedback.

The concept of dApps is not at all new. Before now, applications existed that integrated numerous computers connected on a peer-to-peer network. dApps like uTorrent, BitTorrent and so on, allowed users to upload data into applications databases, and contribute processing power by seeding downloads.

On the other hand, dApps hosted on a blockchain give users the privilege of modifying the code from the original app and uploading it on the blockchain for interested persons to engage. General activities which change the app’s state are irreversibly and permanently recorded on the blockchain.

Usually, dApps generates objects having an intrinsic value within its virtual space called tokens. One entity is not allowed to have major stakes in the total amount of tokens in circulation. Tokens are distributed and earned by users according to an algorithm. Sometimes, a certain number of tokens are distributed evenly to all users at the initial app launch.

The Building Blocks

Vitalik decided on the name of the project by browsing a list of sci-fi elements. He found Ethereum while scanning the list, and immediately felt convinced that was the one. His intention was a non-profit project to build a stellar environment for future dApps.

The project first took off as a subsidiary of a Switzerland company and operated under the name Ethereum Switzerland Gmbh. The first order of business was uploading smart contracts into the blockchain; a task successfully carried out by Gavin Wood (acting chief technology officer). Shortly after, Vitalik’s ambition of a non-profit organization was realized. In July 2014, online crowdfunding was initiated through the sales of Ethereum tokens for alternative digital currencies, which lasted for less than a month. Many were impressed by the potential of the project. However, others felt it should be more scalable and secure, and as time would later reveal, they weren’t particularly wrong either.

Official Launch

Between 2014 and 2015, the developing team tested the waters with more than a dozen prototype pre-releases to smoke out any residual bugs that could have been missed during the development stage. The first officially released prototype, under the pseudonym ‘Frontier’, was released just before the month of July wrapped up and a block was laid on Ethereum’s blockchain for the first time.

So far, Ethereum’s software has gone through several deliberate protocol changes, each one pivotal to the platform's performance and initiated using hard forks.

A hard fork is a split in a blockchain into two or more distinct ledgers, which persist for long periods of time. They are fundamentally caused by a change in the rules used for adding new blocks to the blockchain. This separation is usually resolved by encouraging participants to use old protocols to perform an upgrade or having participants on the new protocol downgrade to the older one if backward compatibility is enabled.

Digital Autonomous Organization (DAO)

Think of DAO’s as a community of people without a king. Instead, decisions are arrived at through a mutual agreement by every individual in the group. Each entity is given the same power to pitch into the rules and policies governing the community.

DAO provides a platform for applications operating on this same decentralized principle. Apps hosted in this environment are called Decentralized Apps (dApps). dApps are essentially open-source applications, where each user holds a portion of control over the entire system. The systems protocols are defined by the users, and a proposal must be tabled before any revisions can be implemented.

Recall that earlier on Vitalik Buterin had a heart-shattering experience when an in-game characteristic changed in World of Warcraft, setting him on the path of creating decentralized apps free from central control in the first place. In 2016, he eventually achieved this ambition (talk about holding a grudge).

After completing the task of setting up a functional blockchain, the next order of business was achieving a decentralized autonomous organization powered by smart contracts. On April 30, 2016, Ethereum protocol engineer Christoph Jentzsch launched the DAO.

To this end, another online crowdfunding was organized in June 2016 and Investors made Ether deposits in exchange for DAO tokens. The token sale generated $150 million. This was a record number of the crowd raised funds at that time.

Unfortunately, one-third of this amount was lost in June 2016, when the DAO was compromised by a hacker. A few hours after the DAO release, concerned developers reported a bug they discovered in its smart contracts that could be exploited to siphon funds. In the process of putting out a proposal to resolve the bug, a hacker already took advantage of the leak.

After much debating over how to ameliorate the impact of the hack, Ethereum eventually decided to create a separate chain where all counterfeit transactions will be reversed, returning the system to its original state. A fraction of users on the network refused to migrate to the new chain, causing a split in Ethereum's blockchain. The untempered version is called Ethereum, while the chain affected by the hack is referred to as Ethereum Classic. Unfortunately, this wasn’t the last time Ethereum’s network faced attacks. Ethereum was forced to perform two more hard forks in response to hacks after the initial $50 million theft.

Ethereum’s Current Status

Several crypto-related organizations rallied together to co-found the Enterprise Ethereum Alliance (EEA) in May 2017. This number tripled in the next couple of months, as other prominent companies such as MasterCard, Toyota Research Institute, Microsoft and so on, joined the group.

Ethereum attained the second-highest market capital in January 2018 and hasn’t bulged ever since.

In 2019, an Ethereum employee was detained for conducting a blockchain conference in North Korea.

The Future of Ethereum

A new Ethereum update, Ethereum 2.0, is in the works with a planned launch date around the second quarter of 2022.

One phase, the Beacon Chain, out of the three-staged plan already saw its launch on the first day of December 2020. The Beacon Chain is a new and improved blockchain that weighs the vote of participants validating transactions on the network according to the amount of Ether owned. This blockchain will serve as the backbone for the upcoming Ethereum 2.0.

The second phase acts as a merger, enforcing the new PoS (Proof of Work) protocol on the old blockchain by joining it with the Beacon Chain.

The last phase, Shard Chains, will permit multi-chain transactions, increasing the speed of transactions on the network.

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