Ethereum – ETH

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Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.

These apps run on a custom built blockchain, an enormously powerful shared global infrastructure that can move value around and represent the ownership of property.

This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middle man or counterparty risk.

The project was bootstrapped via an ether presale in August 2014 by fans all around the world. It is developed by the Ethereum Foundation, a Swiss nonprofit, with contributions from great minds across the globe.

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what is ethereum 1

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How are ethers created?

The total supply of ether and its rate of issuance was decided by the donations gathered on the 2014 presale. The results were roughly:

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  • 60 million ether created to contributors of the presale
  • 12 Million (20% of the above) were created to the development fund, most of it going to early contributors and developers and the remaining to the Ethereum Foundation
  • 5 ethers are created every block (roughly 15 seconds) to the miner of the block
  • 2-3 ethers are sometimes sent to another miner if they were also able to find a solution but his block wasn’t included (called uncle/aunt reward)

Note that after the Byzantium update is implemented, the mining and uncle reward is reduced to 3 ethers and 0.625-2.625 ethers, respectively.

How do I mine ether?

The Ethereum network is kept running by computers all over the world. In order to reward the computational costs of both processing the contracts and securing the network, there is a reward that is given to the computer that was able to create the latest block on the chain. Every 15 seconds, on average, a new block is added to the blockchain with the latest transactions processed by the network and the computer that generated this block will be awarded 3 ether. Due to the nature of the algorithm for block generation, this process (generating a proof of work) is guaranteed to be random and rewards are given in proportion to the computational power of each machine.

This process is usually called mining in the crypto-currency lingo

Is the ether supply infinite?


 

No. According to the terms agreed by all parties on the 2014 presale, issuance of ether is capped at 18 million ether per year (this number equals 25% of the initial supply). This means that while the absolute issuance is fixed, the relative inflation is decreased every year. In theory if this issuance was kept indefinitely then at some point the rate of new tokens created every year would reach the average amount lost yearly (by misuse, accidental key lost, death of holders etc) and there would reach an equilibrium.

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But the rate is not expected to be kept: sometime in 2017 Ethereum will be switched from Proof of Work to a new consensus algorithm under development, called Casper that is expected to be more efficient and require less mining subsidy. The exact method of issuance and which function it will serve is an area of active research, but what can be guaranteed now is that (1) the current maximum is considered a ceiling and the new issuance under casper will not exceed it (and is expected to be much less) and (2) whatever method is ultimately picked to issue, it will be a decentralized smart contract that will not give preferential treatment to any particular group of people and whose purpose is to benefit the overall health and security of the network.

 

 

Ethereum Blog blog.ethereum.org

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