Ethereum

1974 - 75 Porsche 911 Targa with infamous Whale Tail
1974 – 75 Porsche 911 Targa with infamous Whale Tail

 

Ethereum is the world’s second largest cryptocurrency after Bitcoin.

Both Bitcoin and Etherium both use blockchain distributed ledger technology to keep track of transactions.

Bitcoin’s transaction system is focused on tracking the ownership of each Bitcoin.   Etherium on the other hand provides the capability to execute and monitor applications on the Ethereum virtual server without fail.

The Ethereum cryptocurrency system manages the Ether coin. The coin was created to collect donations to the Ethereum.org for the development of the Ethereum system. Investors were to be rewarded with so many ether coins at the time of go live.

The system runs on the Ethereum non-stop architecture which features it’s own block chain. Using Etherium non stop technology facilitates the construction of “always on” applications. Furthermore, it enables multiple third parties to participate in a distributed around the globe transaction system.

For example, a multi-store retail system could use the Etherium system to

  1. track sales and generate inventory change transactions on a computer hosted at the retail location.
  2. Once an item is reordered, a  supplier is alerted to the order transaction.
  3. At a point in the future, the supplier would receive a delivery notice transaction  for the order and ship the order to a central warehouse or to the store location.
  4. Such a system would eliminate outages in all stores when a centralized point of sale system fails.

This concept of always available processing is not new. Tandem non stop computers were popular in the 1990’s in systems like banking systems which could use the technology to guarantee the execution of a transaction.

System Components

Key system components include:

  1. Distributed application architecture
  2. Blockchain distributed transaction system.
  3. SmartContracts
    Trigger the execution of the terms of a contract in the form of code and an agreement to execute the code on behalf of an unknown third party.
  4. Ethereum Virtual Machine (EVM)
    Executes the SmartContracts scripts on a public node network.
  5. Gas
    Determines the cost of executing a smart contract transaction. Cost controlled by Gas price and Gas Limit. Also serves as an Anti-spam feature since there is a cost associated for each transaction. After the targeted account activated by hacker runs out of Gas, the Ethereum transaction is terminated.
  6. Ether coins.
    There are roughly 154 million Ether coins in circulation.

Ethereum Community

The Ethereum community consists of the following actors:

  1. Miners are “manufacturers” of crypto currencies. Miners deliver Ether coins to one or more pools, The pools are essentially Ether coin wholesalers. Miners receive payments from the pool for creating blocks in the block chain and executing transactions. Pools typically charge the miner a fee for belonging to a pool. Pools earn their income from selling Bitcoins to brokers who act as currency exchanges.   Pools typically support Bitcoin, Ether and other cryptocurrencies. Miners are tasksed with finding a new block chain address for an outstanding transaction. All miners processing the transaction are in competition  with other miners working on the transaction.  Only the first to find the address is paid.
  2. Pools
    The largest Ethureum pools are:

    1. Ethpool/Ethermine (http://ethpool.org/) Ethpool has no fees and pays out after 10 confirmations. Supports distributed denial of service attacks in Europe, Asia and US.
    2. F2Pool (Chinese only)
    3. Dwarfpool. Dwarfpool charges a 2% fee with daily payouts for balances above one Ether.
    4. EthereumPool.co Charges 1% and pays out two times per day for balances over 0.5 Ethers.
    5. Eth.suprnova.cc Charges 1% fee.   Payouts are made according to your schedule for balances over 0.1 Ethers.
  3. Mining computing systems.
    The faster the computer the more money the miner will earn. Mining system components include:

    1. Mining computers which use the power of graphics video cards to solve puzzles and create new blocks in the Ethereum block chain   An alternative to owning your own computer is to a cloud implementation of the mining system from companies such h as Genesis Mining[1]. There are two data centre models:
      1. Remote hosted mining Case where large scale miners manage their mining server farms from a remote location.
      2. Cloud hosted mining Server farms consisting of virtualized cloud servers where the miner purchases a part of the server infrastructure from the cloud provider. Servers are optimized for mining. Servers are sold by the CPU power. The provider operates the system and guarantees 24/7 uptime.
    2. Mining Software Searches the blockchain for a range of open slots which are used as block chain ledger entries. Example is Genoils Miner and Claymore Miner. The ssolution depends on the type of Graphics (Nividia or AMD) the computer is configured with.
  4. Digital Wallets
    Wallets such as CoinBase facilitate Ether coin  transactions.  For example, the pool would  credit a miner’s wallet for every coin produced.
  5. Brokers
    Create retail markets for Ether coins.  Brokers convert currency such as USD to Ether and Ether to USD. Examples are:

    1. Poloniex
    2. Kraken
    3. Gatecoin
    4. Bittrex
    5. LiveCoin
    6. HitBTC
    7. Exmo
  6. Futures Market
    Like trading real currency, Ether futures options enable an investor to bet on the future price of Ether coins.
    One example is BitMEX.

Hacked

The Distributed Anonymous Organization application running on the Euthereum platform was created for the purpose of crowd sourcing of funds. Launched with US$150M in funding in May 2016, the system was hacked with a loss of US$50M in Ether cryptocurrency. The next steps for Etherueum.org was to invalidate the lost currency and compensate the currency owners. The alterative was essentially to do nothing. Compensating currency holders won out.

Hackers stole 153,000 ether coins worth USD$32 million on July 20, 2017 from Edgeless Casino, Aeternity, and Swarm City. This followed a theft of USD$7M theft from  CoinDash’s coin IPO  on July 17, 2017.

The 32M hack exploited a flaw in Parity’s wallets that supported multiple signatures. The coindash hack repointed IPO funding coins to an alternate server which is an indication of how poorly the web system is designed, implanted and tested.

No word was reported on how the hackers laundered their coins into real currency.

Pricing

The exchange Ether/USD chart   shows the current Ether/USD price.

Physical Coins

Unlike Bitcoin, there are no physical Ether coins available from an ATM in Toronto.

Value Proposition

There is no practical use for Ether coins other than converting Bitcoins into an alternative cryptocurrency. Give me cash any day!

At least I can pay for stuff like the Wanna  Cry ransom with BitCoin.

The value in Ethereum is for organizations who need to develop distributed applications on private networks.

Status as a Currency

Ether is a good and not a recognized currency in Canada and hence not subject to capital gains taxes.