Vitalik Buterin allegedly came up with the idea of creating Ethereum after a spell modification in World of Warcraft made his character obsolete. This need for more horizontality and transparency in decisions taken by a centralized body is strongly reminiscent of Bitcoin’s positioning towards banks.
In December 2013, Vitalik Buterin and 7 others founded Ethereum by uploading the Ethereum Whitepaper with two objectives: to relieve the Bitcoin blockchain and create a network of decentralized computers capable of managing applications and programs.
The idea charmed entrepreneur Joseph Lubin, who had already been interested in the concepts of cryptography for a while.
In July 2014, the 42-day presale took place and unlocked the sale of 60 million Ether for 31,591 BTC (about 18 million of dollars).
In November 2015, the ERC-20 became the new standard for the whole Ethereum community. This technological innovation allowed anyone to create their own token and created a project-specific economy while taking advantage of the stability of the Ethereum network.
One of the first large-scale projects to adopt this standard is ‘The DAO’ (now extinct). Each of the $DAO tokens granted its holder voting power over the distribution of Ether contained in the smart contract.
Despite the project encountering massive, though unexpected, success ($100 million raised), it was short-lived and investor confidence was shaken when 3.6 million ETH was stolen in June 2016. The hacker took advantage of a security flaw in the smart contract to siphon funds from the DAO. Since 45 days were needed to release the funds, he threatened to sue the Ethereum foundation if a ‘fork’ was ever considered to save time.
A quick word about ‘forks’.
When the code that runs a blockchain needs to be updated, it’s called a ‘fork’.
There are two types of ‘forks’:
– Hard Fork: the blockchain is split in two and the modification will directly impact the blockchain. For example, it is possible to rewrite the blockchain in order to cancel transactions.
– Soft Fork: the blockchain is not split, only its operation changes — e.g, changing the fees system.
To rewrite part of the transactions on the blockchain, it is necessary to create a new chain of blocks, though it will still be possible to operate on the old blockchain. A ‘Hard Fork’ usually occurs when a consensus wasn’t reached among the community.
The decision made at that time by 86% of the community was to rewrite the blockchain to undo the hack, resulting in a ‘hard fork’ of Ethereum: the blockchain ‘remembering’ The DAO hack was called Ethereum Classic (ETC) while the rewritten blockchain kept the name: Ethereum. The hacker never followed through on his threat…
After two ‘soft forks’ of the protocol (Tangerine Whistle and Spurious Dragon) to secure the network against Dos attacks, Ethereum regained trust from its users in 2017 and enabled projects such as Bancor (a decentralized token exchange protocol) or Status (a messaging application on Ethereum, allowing both to send money and messages) to carry out their ICO. The success of the investors was so important that the blockchain became saturated with it, extending the time to complete transactions exponentially and rendering the network unusable.
It was in the middle of 2017 that the Larva Labs team experimented with a project that infused new life into the Ethereum blockchain. Releasing 10,000 ERC-20 tokens, each containing a different image of pixelated punks, the company created the first NFTs on this blockchain: the CryptoPunks. The CryptoPunks release was only known about by a few seasoned collectors. Owning an Ethereum wallet was enough to claim your punk, which ensured ease of access. In the months that followed, a large number of projects launched their own ICOs, taking advantage of the public’s reignited enthusiasm for cryptocurrencies.
CryptoPunks inspired what would become the standard for non-fungible tokens in January 2018: the ERC-721. Thanks to this, it has become possible to create unique and indivisible assets, paving the way for many projects, especially in the world of video games. Due to a fall in the value of the crypto market during this period, many initiatives went under the radar.
Fortunately, this sector being famously resilient, all the tools necessary to facilitate its development ended up being created:
Gradually, more games and art platforms appeared, increasing the possibilities of buying and selling assets offered on Ethereum. The real difficulties encountered in this ecosystem occurred during the summer of 2020 when Decentralized Finance (DeFi) attracted an increasing number of users, resulting in congestion of the network.
This problem, already encountered in 2017, should be resolved in the future by the ETH2 update which began its deployment in December 2020 with the Beacon Chain update. Its impact on end-users will only be seen in a few years. In the meantime, overlay solutions like Matic make it possible to avoid excessive costs and ensure greater speed of transactions which are favored by more and more users.