Programmable Blockchains
Programmable Blockchains
Programmable Blockchains
Digital Currency
Programmable Blockchains
Session 1.4: Objectives
Objectives
• Learn about Ethereum, its history and current version
• Understand the functionality of smart contracts and programmable money
• Discuss the present and future of Ethereum
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Agenda
1. What is Ethereum?
2. Key Ethereum Concepts
3. Ethereum’s Present and Future
4. Conclusions
5. Further reading
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1. What is Ethereum?
1. What is Ethereum?
Fundamentals of Ethereum
Ethereum, conceptualized as a "world computer," is a The 2014 Ethereum whitepaper by Vitalik Buterin, the
decentralized platform that enables the execution of founder, identified key limitations in Bitcoin's scripting
smart contracts and decentralized applications capabilities:
(dApps). Launched in 2015, Ethereum leverages
• Lack of Turing-completeness: Bitcoin's scripting language
blockchain technology for network state is not Turing-complete, it can’t perform all possible
synchronization and security, and it features its native computational operations.
cryptocurrency, Ether, for transaction processing and
• Value-blindness: Bitcoin scripts cannot natively assess the
network operations.
value of transactions.
• Lack of state: Bitcoin lacks a mechanism to track and store
It can be viewed as an internet framework that the state of complex applications.
operates without central intermediaries. It relies on a
• Blockchain-blindness: Bitcoin scripts have limited ability
vast network of participant computers, which
to interact with or understand blockchain data beyond
collectively perform computations and maintain the simple transaction details.
network. This structure allows for the running of
internet applications directly on the blockchain, Ethereum was designed to overcome these limitations
independent of traditional service providers like and to address the need for creating new blockchains
Google or Amazon. for different functionalities.
Source: Ethereum Whitepaper | ethereum.org, Vitalik Buterin Created Ethereum Following World of Warcraft Debacle (businessinsider.com)
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1. What is Ethereum?
“Gavin* can also be largely credited for the subtle change in vision from
viewing Ethereum as a platform for building programmable money, with
blockchain-based contracts that can hold digital assets and transfer them
according to pre-set rules, to a general-purpose computing platform. This
started with subtle changes in emphasis and terminology, and later this
influence became stronger with the increasing emphasis on the “Web 3”
ensemble, which saw Ethereum as being one piece of a suite of
decentralized technologies, the other two being Whisper and Swarm.”
Vitalik Buterin,
Ethereum Founder
*Gavin Wood
Ethereum Co-founder, Polkadot Founder
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1. What is Ethereum?
Fundamentals of Ethereum
Ethereum was initially envisioned as a flexible blockchain to encompass:
• Financial Applications: Ethereum's infrastructure supports a wide array of financial services, including
cryptocurrency transactions. It is integral to the decentralized finance (DeFi) ecosystem, offering platforms
for lending, borrowing, and asset management without traditional financial intermediaries. Additionally,
Ethereum enables asset tokenization, converting real-world assets into digital tokens, facilitating fractional
ownership and improved liquidity.
• Semi-Financial Applications: Ethereum blends financial mechanisms with other functionalities. A notable
use case is identity verification, where blockchain technology ensures the security and integrity of personal
data while enabling verifiable and tamper-proof digital identities. This feature is crucial for sectors like
banking, healthcare, and government services.
• Non-Financial Applications: Beyond finance, Ethereum supports various non-monetary use cases. Online
voting systems on Ethereum can enhance transparency and reduce fraud, revolutionizing electoral
processes. Decentralized governance models on the platform can lead to more democratic and participatory
decision-making processes in organizations. Digital identity solutions on Ethereum offer a secure and unified
way to manage and share personal identity information.
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1. What is Ethereum?
Fundamentals of Ethereum
Ethereum (like Bitcoin, but unlike centralized schemes) is:
1. Open-Source and Permissionless: Enables unrestricted access and participation, fostering
innovation and collaboration without central authority approval.
2. Borderless: Facilitates seamless global financial activities, bypassing traditional banking systems and
reducing transaction complexities and costs.
3. Censorship Resistant: Ensures freedom from external control or manipulation by any single entity,
including governments and corporations, enhancing transactional freedom.
4. Immutable: Provides a permanent, unalterable record of network activities, securing and ensuring the
reliability of transaction histories.
5. Transparent: Promotes trust and fraud reduction through openly auditable and verifiable public
transaction records.
6. Global: Operates beyond specific national jurisdictions, creating a diverse, international community of
developers, users, and investors.
7. Decentralized: Maintained by a distributed network of nodes, eliminating centralized control and
enhancing security, resilience, and trust.
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1. What is Ethereum?
Ethereum and EVM compatible Blockchains
Ethereum has inspired the creation of several • Avalanche: Offers rapid transaction processing and
blockchains compatible with the Ethereum Virtual lower latency, targeting a more energy-efficient
Machine (EVM), allowing them to run Ethereum-based approach. Avalanche's smaller network size,
smart contracts and dApps. EVM compatibility means compared to Ethereum, might affect its network
these blockchains can execute programs in the same security and decentralization level.
way Ethereum does, fostering interoperability.
• Tron: Tron's architecture allows for high transaction
This compatibility is crucial for developers who want to throughput and efficient energy use. Its governance
leverage Ethereum's extensive tooling and community model, however, tends toward centralization,
support while exploring different blockchain features. impacting its decentralization and potential
resistance to censorship.
Examples of EVM-compatible blockchains include:
• Cardano: Emphasizes a research-based
• Binance Smart Chain (BSC): BSC provides higher development approach, aiming for high sustainability
transaction throughput and lower fees than and formal verification of smart contracts. Cardano's
Ethereum. However, its consensus mechanism leads methodical development approach and current stage
to a more centralized network structure, which of dApp ecosystem growth contrast with Ethereum's
influences its security and decentralization aspects. more established dApp environment.
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1. What is Ethereum?
Understanding the Different Tradeoffs Between Chains
The disadvantages (limitations) of decentralized blockchain systems are
summarized by the Blockchain Trilemma, proposed (in this form) by Vitalik
Buterin:
It states that blockchains by design can only be:
• Scalable and Secure, but not Decentralized
• Decentralization: The distribution of control across a network of nodes, ensuring no
single entity has undue influence
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1. What is Ethereum?
Towards a multi-chain or omni-chain future
The term ‘Multi-Chain’ denotes a future where multiple blockchains operate simultaneously, each serving
specialized purposes or offering unique features, like enhanced privacy, scalability, or governance models.
Similarly, ‘Omni-Chain’ Integration focuses on the seamless interaction among diverse blockchains, enabling
the transfer of assets and information in a secure, efficient manner across different blockchain networks.
• The EVM compatibility may prove central to this vision as it allows for the consistent execution of smart
contracts across various blockchains, ensuring interoperability and simplifying development processes.
• Cross-Chain Communication Protocols will also be essential for omni-chain integration, these protocols
enable different blockchains to communicate and share information, vital for asset transfers and data
synchronization.
• Sidechains and Layer 2 Solutions can also enhance scalability and efficiency by offloading transactions and
processes from the main blockchain, crucial for supporting a multi-chain ecosystem without overburdening
individual networks.
• Blockchain Bridges are specialized tools or protocols that connect two or more blockchains, enabling the
transfer of assets and data between them, a key component in building an omni-chain environment.
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• Smart contracts are fundamental to blockchain applications. They operate as self-executing scripts where
the terms of the agreement are embedded directly in the code.
• The best way to conceptualize them is through "if-then" logic. They function by following a simple principle:
"IF condition A is met, THEN execute function B."
• In a more technical context, they are immutable and deterministic computer programs. They operate within
the EVM. This setup enables them to run on Ethereum's decentralized infrastructure, often referred to as the
world computer.
• This means that all EVM-compatible blockchains can execute similar contracts, fostering interoperability and
easing developer transition between different blockchain environments.
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2. Key Ethereum Concepts
Smart contracts – An example
The vending machine
The example considered to be the primitive ancestor of smart contracts, is the
humble vending machine. Within a limited amount of potential loss (the amount in
the till should be less than the cost of breaching the mechanism).
The machine takes in coins, and via a simple mechanism, which makes it a
freshman computer science problem in design with finite automata, dispenses
change and product according to the displayed price. The vending machine is a
contract with bearer: anybody with coins can participate in an exchange with the
vendor. The lockbox and other security mechanisms protect the stored coins and
contents from attackers, sufficiently to allow profitable deployment of vending
machines in a wide variety of areas.
Smart contracts go beyond the vending machine in proposing to embed contracts
in all sorts of property that is valuable and controlled by digital means.
Derived from "Formalizing and Securing Relationships on Public Networks" , by
Nick Szabo, in 1997 (!)
This Photo by Unknown Author is licensed under CC
BY-NC-ND
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2. Key Ethereum Concepts
Dissecting the definition
Unpacking the definition of Smart Contracts:
Computer Programs: At their core, smart contracts are computer programs. The term "contract" is a
misnomer in this context, as it does not imply any legal binding in the traditional sense.
Immutability: Once a smart contract is deployed on the blockchain, its code becomes immutable. This means
any changes to the contract's functionality require deploying a new instance, distinguishing it from traditional,
modifiable software.
Determinism: Smart contracts yield consistent outcomes for all users, dependent on the transaction context
and the state of the Ethereum blockchain at the time of execution. In simpler terms, their computations are
all-or-nothing, ensuring they either execute entirely as programmed or not at all.
Execution within EVM: Operating within the Ethereum Virtual Machine (EVM), smart contracts have a limited
and specific execution context. They can access their internal state, the details of the transaction that triggered
them, and certain recent blockchain data, ensuring a secure and isolated operational environment.
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2. Key Ethereum Concepts
Advantages and challenges of smart contracts
Advantages Challenges
Efficiency: Automate contract execution, reducing the need for Expertise: Developing and understanding smart contracts requires
manual intervention and streamlining processes. a certain level of technical expertise, limiting accessibility for
non-technical users.
Reduced intermediaries: By automating contract execution, smart Dependence on Inputs: Smart contracts may rely on external data
contracts reduce the need for traditional intermediaries, streamlining sources (oracles), introducing potential points of failure.
processes and reducing costs associated with traditional contract
enforcement.
Transparency: Transactions are recorded on a public blockchain, Scalability: Scalability challenges can arise as blockchain networks
providing a transparent and auditable history. grow, impacting transaction speed and cost.
Security: Utilizes cryptographic principles and blockchain technology Security: Vulnerabilities in code may lead to exploits, emphasizing
for a secure and tamper-proof environment. the need for rigorous auditing and testing.
Trustless transactions: Enables parties to transact without relying on Legal Recognition: The legal status of smart contracts varies
trust, as the contract's execution is enforced by code and the globally, and their enforceability may face challenges in traditional
blockchain. legal systems.
Immutabilty: Once deployed, the code of a smart contract is Immutability: Code is immutable, meaning errors or vulnerabilities
immutable, meaning it cannot be altered or tampered with, providing a cannot be (easily) rectified once deployed.
high level of trust.
Programmability: Flexible and programmable, allowing for complex Evolving Technology: Ongoing technological advancements may
conditional statements and diverse applications. introduce uncertainties and necessitate updates to smart contract
standards.
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2. Key Ethereum Concepts
Smart Contracts Enable dApps
• dApps is short for decentralized applications. They are like normal applications, and can offer
similar functions, but the key difference is they are run on a peer-to-peer network, i.e., a
blockchain.
• That means no one person or entity has control of the network. The wide consensus in the
crypto community is that the following must be true for something to be considered a dApp:
• It must be open-source and operate on its own without any one entity controlling it.
• Its data and records must be public.
• It can use a cryptographic token to help keep the network secure.
• dApps can be simple programs, games, financial applications and more. Decentralized Finance
(DeFi) is merely a popular subset of all possible dApps.
• Optionally, the collection of users of a dApp can be given (and share) the governance of the
dApp’s future behavior, through so-called governance tokens. Essentially, those bestow voting
rights.
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2. Key Ethereum Concepts
Ethereum Virtual Machine (EVM)
There are two different types of accounts in Ethereum: externally owned accounts (EOAs) and
contract accounts. EOAs are controlled by users, often via software such as a wallet application that is
external to the Ethereum platform. In contrast, contract accounts are controlled by program code (also
commonly referred to as “smart contracts”) that is executed by the Ethereum Virtual Machine (EVM).
• The EVM is a computation engine which acts like a decentralized computer that has millions of
executable projects. It acts as the virtual machine which is the bedrock of Ethereum’s entire operating
structure.
• It is considered to be the part of the Ethereum that runs execution and smart contract deployment.
• The role of the EVM is to deploy a number of extra functionalities to the Ethereum blockchain
• Every Ethereum node runs on the EVM to maintain consensus across the blockchain.
• EVM is completely isolated meaning the code inside the EVM has no access to network, file system or
other processes.
• Most of the source code for using smart contracts is written in the programming language Solidity.
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2. Key Ethereum Concepts
The Ether token
• Ether is the native token of the Ethereum blockchain. Ether is referred to with
is ticker name, ETH, or by the Greek letter Ξ (Xi) which resembles a stylized
version of the letter “E” as in Ether. Sometimes it is also represented by the
symbol ♦ resembling Ethereum’s Octahedron logo 👉
• Ether can be subdivided into smaller units, similarly to how bitcoins are
subdivided to satoshis. The smallest possible unit is named wei, with 1 ETH
equal to 1 quintillion wei. (1 * 10^18 or 1,000,000,000,000,000,000) The
network executes all internal transactions in wei.
• Ether powers all applications that run on the Ethereum blockchain, from
simple transactions to complex decentralized applications. This Photo by Unknown
Author is licensed under CC
• While Ethereum’s purpose is not primarily to be a payment network, and BY-NC
ether’s purpose is not to serve the function of money, due to its high utility it is
often used as a currency and as a speculative instrument.
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2. Key Ethereum Concepts
Consensus Mechanism
Different blockchains can use different kinds of consensus mechanisms that help network participants reach distributed
consensus solving the Byzantine Generals’ Problem.
Ethereum, like Bitcoin used PoW in the past. However, Ethereum it has upgraded to a Proof-of-Stake (PoS) consensus
protocol.
• PoS is an energy-efficient and cost-effective alternative to PoW. It operates by assigning responsibility for maintaining
the public ledger to participant nodes in proportion to the amount of virtual currency tokens (stake) they hold.
PoW PoS
Basic Concept Nodes (miners) compete to solve complex puzzles Validators are chosen to create a new block based
to add a new block to the blockchain. on the amount of cryptocurrency they hold and are
willing to "stake" as collateral.
Energy High energy consumption due to competitive Generally more energy-efficient, as it doesn’t rely on
Consumption mining. heavy computation.
Decentralization Decentralized, but centralization can occur with the Aims for decentralization, but can face challenges if
concentration of mining power. wealth becomes highly concentrated among a few
validators.
Cost of High, as it requires significant investment in Lower entry barrier, as participants only need to
Participation expensive mining hardware. stake cryptocurrency, and can delegate their stake to
a pool.
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3. Ethereum’s Present and Future
The Surge: Increasing Scalability
The Surge is an advancement aiming to increase scalability to 100,000 transactions per second
while maintaining security. It introduces "proto-danksharding" to achieve this. Proto-danksharding
shifts the focus from Ethereum's execution layer to its data layer for securing rollup transactions.
This prevents direct competition between rollup and mainnet transactions. The technical aspect
involves dividing transaction data into smaller shards, each handling a subset of transactions. This
optimizes resource usage, enabling Ethereum to process a higher volume of transactions
simultaneously, significantly improving scalability without compromising security.
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3. Ethereum’s Present and Future
The Scourge: Addressing Censorship
The Scourge addresses censorship resistance and decentralization concerns in Ethereum by
tackling Miner Extractable Value (MEV) and front-running. The technical approach includes
optimizing consensus mechanisms and smart contract execution to reduce MEV incentives,
altering transaction execution order, implementing private transactions, and fair ordering
mechanisms. Additionally, it promotes decentralization through decentralized oracle networks and
governance mechanisms, reducing reliance on central entities. These measures enhance
Ethereum's resilience against censorship, protect transaction integrity, and align with the network's
core principles of security and decentralization.
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3. Ethereum’s Present and Future
The Verge: Facilitating Efficiency
The Verge aims to introduce a Verkle tree structure to replace the current data storage format. This
innovation aims to streamline the verification process of blocks. By utilizing Verkle trees, Ethereum
can efficiently verify blocks, reducing the computational overhead required for this task. In
essence, Verkle trees enhance the network's scalability and efficiency by optimizing the way data
is organized and accessed.
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3. Ethereum’s Present and Future
The Purge: Simplifying Ethereum
The Purge will focus on optimizing the Ethereum network by reducing computational burdens and
simplifying the protocol. One of its key objectives is the introduction of history expiration. This
change means that not all node operators are obligated to store the complete historical data of all
previous blocks. By allowing for more flexible data retention, The Purge aims to make running
Ethereum nodes more accessible and cost-effective. This optimization helps in decentralizing the
network further, as it becomes more manageable for a wider range of participants.
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3. Ethereum’s Present and Future
The Splurge: Fixing everything else
The Splurge encompasses various fixes and improvements that do not fall neatly into the previous
categories. Among its key technical changes, it includes "Account Abstraction," which reduces
External Owned Accounts (EOAs) and Contract Accounts to a single account type. Additionally, it
introduces "Proposer/Builder Separation" (PBS), a mechanism that differentiates between block
builders and block validators. These technical adjustments enhance Ethereum's overall efficiency
and flexibility while addressing issues that don't neatly fit into other upgrade categories,
contributing to the network's evolution and optimization.
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4. Conclusions
6. Conclusions
Key Takeaways
• Ethereum's Evolution: Ethereum has evolved from a cryptocurrency platform to a versatile
ecosystem supporting smart contracts and decentralized applications (dApps).
• Smart Contracts: Smart contracts automate and secure agreements, offering transparency and
efficiency while posing challenges such as immutability and code security.
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5. Further reading
7. Further reading
Resources
• Who is Vitalik Buterin, Ethereum Creator? - Decrypt
• What Is 'The Merge'? Ethereum’s Move to Proof of Stake – Decrypt
• Smart contract – Wikipedia
• Programmable Money: The Future of Financial Services (intellecteu.com)
• Central bank digital currencies are in the spotlight - KPMG Global
• What is the blockchain trilemma? | The Block
• An Incomplete Guide to Rollups (vitalik.ca)
• Ethereum – Future and Present: Onward to the Surge, Verge, Purge and Splurge w/ Vitalik
Buterin - YouTube
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