Exploring Ethereum: Whitepaper[0]

Bitcoin was introduced to the masses with the sole purpose of creating an online currency that lacks any central issuer. The concept behind the creation is to give the power back to the people where they can really own their money and avoid the “legal intruders” who constantly violate the privacy of the citizens “legally”.

To the beautiful eyes reading this, I would recommend beginning with the trilogy of articles dissecting Bitcoin that I have published:

Dissecting Bitcoin: Whitepaper [0]

Dissecting Bitcoin: Whitepaper[1]

Dissecting Bitcoin: Whitepaper[2]

However, the technology powering Bitcoin aka Blockchain has several use cases beyond that. The technology powering the Bitcoin revolution can be used for several other aspects resulting in a transition in our way of life. Ethereum was created with a vision to provide a platform for all builders to create their worlds and their tools. Custom currencies, diversified financial instruments, ownership of proof of physical devices, domain names[eg. ens], crypto gambling, crypto exchanges, and smart contracts are some of the instances where the blockchain facilitates the backbone while Ethereum provides the infrastructure. The main motive behind Ethereum is to provide users with a Turing-complete programming language that they can use to create sophisticated systems for themselves or for the world by writing a few lines of code.

The glory of Ethereum

One of the major applications of blockchain technology on the Ethereum platform is the creation of smart contracts. Smart contracts, as the name suggests are the pre-specified rules that live on the blockchain which allow for autonomous transactions between the agreed-upon parties if certain conditions are fulfilled. The extension of such smart contracts are DAOs which contain digital assets and are essentially long-term smart contracts. DAOs stand for Decentralized Autonomous Organizations.

If you want to explore the original version of the Ethereum whitepaper, refer below:

ethereum.org/669c9e2e2027310b6b3cdce6e1c529..

The notion of an anonymous cash transfer mechanism in the form of digital assets has been always attempted for decades. The b-money was close to execution, but it failed to solve the Byzantine-fault tolerance problem effectively. Although b-money was able to successfully implement the idea of the generation of money through decrypting the given cryptographically encoded issues, there were several other attempts including Hal Finney’s attempt in 2005 but they all could not guarantee a secure decentralized solution. One of the many flaws amongst the above systems was the inability to prevent Sybil's attack. The systems would not be able to perform efficiently if one of the nodes initiates a malicious activity by creating the other nodes and systems which purposefully attack the network together. The genesis of Bitcoin initiated a new wave of hope in the community of decentralized economy fans as it solved the 51% attack problem with the help of assigning computational power as the most important aspect while determining the effect of a node on the network. This makes it exponentially difficult for a single node to attain more computational power than the whole network. A node can create a botnet program to mimic the existence of distinct nodes but the generation of fake computational power is impossible by a single node in the network that can counter the remaining computational power of the network.
Now, let’s grasp the concept of Bitcoin as a state transition system. A classic example of Alice and Bob is given in the whitepaper of Ethereum. This example is frequently used in the field of cryptography to simplify complex concepts.

Alice sends x$ to Bob,

Steps needed to perform the above transaction:

Check whether x<alice[money].

if(yes):
Deduct x from alice[wallet].

Add x to Bob[wallet].

[else-> error]

Return values of Alice's wallet to Alice and Bob’s wallet to Bob[ this step is not in the transaction but should be performed by the service involved.]

Now, coming back to the context of Bitcoin, there is UTXOs are identified by the signature of the owner and a denomination that they possess. Thus, we also have to determine that the UTXOs do belong to the owner by verifying the signature. This would add one more step to the transaction process.

Alice sends x$ to Bob,

Steps needed to perform the above transaction:

Check (sign(UTXO)==Alice’s wallet/decentralized storage):

Check whether x<alice[money].

if(yes):
Deduct x from alice[wallet].

Add x to Bob[wallet].

[else-> error].

An analogy while taking the centralized banking structure as the guinea pig might be helpful to further our understanding of the topic. Consider an account number assigned with the holder's name that represents an entity, group of individuals, or a single individual. The process of transfer of money from this account requires some sort of verification from the user’s side signaling the bank to transfer the money to a specific account. UTXO verification is quite similar to the process described above.

We would learn more about the history of decentralized finance and explore the Ethereum use cases in the next iteration of the ongoing series. Do let me know what you would like me to cover in the upcoming articles. I express my gratitude for giving your precious time to this article.