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An Introduction to Ethereum and the ETHetc - ETC Group Physical Ethereum (ZETH)

 

Introduction

In the world of cryptocurrencies, bitcoin and Ethereum do not need much of an introduction. While institutional investors around the globe have increasingly allocated funds to certain cryptocurrencies such as bitcoin or Ethereum throughout 2020, the world-renowned digital payment service PayPal (PYPL) launched a new service that allows users to buy, hold and sell cryptocurrencies within its digital wallet. This is proof of a faster than ever developing and increasing maturity of the cryptocurrency market as a whole.

Bitcoin, founded in 2009 by an unknown individual or group of people operating under the acronym of Satoshi Nakamoto, is currently the biggest cryptocurrency, standing at a market capitalization of nearly $900 billion[1]. It was the first successful such currency at the time of its launch, gaining significant traction and adoption. Following bitcoin’s success, the foundation was laid to inspire development of additional cryptocurrency projects.

Enter Ethereum, with its cryptocurrency called Ether (more commonly known and herewith referred to as “Ethereum” or “ETH”), after bitcoin the most significant cryptocurrency project today, with Ethereum occupying the second place of all cryptocurrencies in terms of market capitalization, amounting to a total of over $175 billion with the current supply of around 115,000,000 ETH in circulation.[2]  The Ethereum project went live in 2015, and Ethereum took one of the key innovations behind bitcoin, the blockchain, and repurposed it to support a broader range of functions.

ETC Group (www.etc-group.com) is the issuer behind 2020’s most successful Bitcoin exchange traded product launch in Europe[3], namely the Bitcoin Exchange Traded Crypto (“BTCetc” or commonly known under its primary ticker “BTCE”).

Through the recent launch of the ETHetc - ETC Group Physical Ethereum ETC (Ticker symbol: ZETH) with primary listing on Deutsche Börse XETRA, ETC Group decided to provide investors now with the opportunity to gain exposure to increasingly important cryptocurrency Ethereum.

 

Investors Guide to Ethereum

What is Ethereum?

Ethereum is a platform for creating decentralized applications based on the blockchain and smart contract technology. The so called Ethereum network consists of software running on a network of computers that ensures that data and smart contracts (which technically are small computer programs) are replicated and processed on all the computers on the network, without a central coordinator. It extends the blockchain concepts from Bitcoin which validates, stores, and replicates transaction data on many computers around the world (hence the term ‘distributed ledger’). The official website is https://www.ethereum.org.

Blockchains are digital ledgers that keep permanent incorruptible records of information. These records are continually verified by a network of computer nodes similar to servers, which are not centrally controlled by anyone. Ether is just one of many cryptocurrencies that use some form of blockchain technology, which was invented by above mentioned “Satoshi Nakamoto” when the bitcoin blockchain was released over a decade ago.

While several cryptocurrencies may rely on similar core concepts of blockchain technology, their use cases are different. Bitcoin - the cryptocurrency investors usually discover first - is optimized for security and anti-seizure, which enhances its use case to serve as digital gold.

Ethereum on the other hand today is the largest blockchain optimized for programmability (or digital “contracts”)[4]. Importantly, this may be one of the most exciting applications of blockchain technology.

How is Ethereum similar to Bitcoin?

While Ethereum is a network or platform, Ethereum’s cryptocurrency fuelling the network is called Ether, shortened to ETH. It is cryptocurrency that can be traded for other cryptocurrencies or other sovereign currencies, just like bitcoin. Ownership is tracked on the Ethereum blockchain, just like BTC ownership is tracked on Bitcoin’s blockchain.

Like Bitcoin, the main Ethereum network is a public, permission less network – ie anyone can download or write some software to connect to the network and start creating transactions and smart contracts.

Like Bitcoin, mining participants create valid blocks by spending electricity to find solutions to a mathematical puzzle. Ethereum’s challenge called Ethash works slightly differently to Bitcoin’s, and this allows common hardware to be used for mining. This reduces the efficiency edge of task-specific hardware known as ASICs, which are common in Bitcoin mining. On Ethereum’s roadmap there is a plan to move from electricity-expensive Proof-of-Work mining to a more energy-efficient Proof-of-Stake protocol, the first step already being achieved in December 2020 with the launch of Ethereum 2.0 (“Eth2”). Eth2 refers to a set of interconnected upgrades that will make Ethereum more scalable, more secure, and more sustainable.[5]

How is Ethereum different to Bitcoin?

In Ethereum the time between blocks is around 14 seconds, compared with Bitcoin’s ~10 minutes. This means that on average if you made a Bitcoin transaction and an Ethereum transaction, the Ethereum transaction would be recorded into Ethereum’s blockchain faster than the Bitcoin transaction getting into Bitcoin’s blockchain. You could say Bitcoin writes to its database roughly every 10 minutes, whereas Ethereum writes to its database roughly every 14 seconds.

In Bitcoin, the maximum block size is specified in bytes (currently 1 MB) whereas Ethereum’s block size is based on complexity of contracts being run – it’s known as a Gas limit per block, and the maximum can vary slightly from block to block.

Currently the maximum block size in Ethereum is around 1,500,000 Gas. Basic transactions or payments of ETH from one account to another (ie not a smart contract) have a complexity of 21,000 Gas so you can fit around 70 transactions into a block (1,500,000 / 21,000). In Bitcoin you currently get around 1,500-2,000 transactions in a block.

Compared with Bitcoin’s primitive scripting language, the code that can be deployed in Ethereum and run as smart contracts is more advanced and familiar to developers. Smart contract code is run by something called the Ethereum Virtual Machine, which runs on the computers of all participants on the network.

In many descriptions, Ethereum smart contracts are called “Turing complete”. This means that they are fully functional and can perform any computation that you can do in any other programming language. It is worth mentioning that Ethereum even developed its own programming language, namely Solidity[6] in order to implement smart contracts on the Ethereum platform through a statically typed, contract-oriented, high-level language.   

What is a smart contract and why is it useful?

Smart contracts are self-executing contracts with the terms of the agreement between e.g. buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. The code controls the execution, and transactions are trackable and irreversible.

Smart contracts are useful as they permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.[7]

 

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