Ethereum Whitepaper: a next generation smart contract and decentralised platform

• Satoshi Nakamoto’s development of Bitcoin in 2009 has often been hailed as a radical development in money and currency, being the first example of a digital asset which simultaneously has no backing or “intrinsic value” and no centralised issuer or controller. However, another, arguably more important, part of the Bitcoin experiment is the underlying blockchain technology as a tool of distributed consensus.
• What Ethereum intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create “contracts” that can be used to encode arbitrary state transitions functions, allowing users to create any of the systems above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code.
• UTXO: Unspent Transaction Outputs
• A “full node” in the Bitcoin network, one that stores and processes the entirety of every block, takes up about 15GB of disk space in the Bitcoin network as of April 2014, and is growing by over a Gigabyte per month (100GB in 2022).
• A protocol known as “Simplified Payment Verification” (SPV) allows for another class of nodes to exist, called “light nodes”, which download the block headers, verify the proof of work on the block of headers, and then download only the “branches” associated with transactions that are relevant to them.
• Namecoin: created in 2010, Namecoin is best described as a decentralised name-registration database.
• Colored  coins: the purpose of coloured coins is to serve as a protocol to allow people to create their own digital currencies - or, in the important trivial case of a currency with one unit, digital tokens - on the Bitcoin blockchain.
• With Ethereum, we intend to build an alternative framework that provides even larger gains in ease of development as well as even stronger light client properties, while at the same time allowing applications to share an economic environment and blockchain security.
• “Contracts” in Ethereum should not be seen as something that should be “fulfilled” or “complied with”; rather, they are more like “autonomous agents” that live inside of the Ethereum execution environment, always executing a specific piece of code when “poked” by a message or transaction, and having direct controls over their own ether balance and their own key/value store to keep track of persistent variables.
• Although there are many ways to optimise Ethereum virtual-machine execution via just-in-time compilation, a basic implementation of Ethereum can be done in a few hundred lines of code.
• One of the main problems cited about cryptocurrency is the fact that it’s volatile.
• Identity and reputation systems: the contract is very simple; all it is, is a database inside the Ethereum network that can be added to, but not modified or removed from.
• Decentralised file storage: Ethereum contracts can allow for the development of a decentralised file-storage ecosystem, where individuals users can earn small quantities of money by renting out their own hard drives and unused space can be used to further drive down the costs of file storage.
• “Decentralised Dropbox contract”
• Decentralised Autonomous Organizations: The general concept of a “decentralised autonomous organisation” is that of a virtual entity that has a certain set of members or shareholders which, perhaps with a 67% majority, have the right to spend the entity’s funds and modify its code.
• ShellingCoin may prove to be the first mainstream application of futarchy as a governance protocol for decentralised applications.
• The Greedy Heaviest Observed Subtree (GHOST) protocol is an innovation. The motivation behind GHOST is that blockchains with fast confirmation times currently suffer from reduced security due to a high stale rate — because blocks take a certain time to propagate through the network, if miner A mines a block and then miner B happens to mine another block before miner’s A block propagates to miner B, miner B’s block will end up wasted and will not contribute to network security.
• Because every transaction published into the blockchain imposes on the network the cost of needing to download and verify it, there is a need for some regulatory mechanism, typically involving transaction fees to prevent abuse.
• In reality every transaction that a miner includes will need to be processed by every node in the network, so the vast majority of the cost of transaction is borne by third parties and not the miner that is making the decision of whether or not to include it. Hence the tragedy-of-the-commons problems are very likely to occur.
• There is another factor disincentivising large block sizes in Bitcoin: blocks that are large will take longer to propagate, and thus have a higher probability of becoming stales.
• An important note is that the Ethereum virtual machine is Turing complete; this means that EVM code can encode any computation that can conceivably carried out, including infinite loops.
• The Ethereum network includes its own built-in currency, ether, which serves the dual purpose of providing a primary liquidity layer to allow for exchange between various types of digital assets and, more importantly, of providing a mechanism for paying transaction fees.
• A permanently growing linear supply, as opposed to a capped supply as in Bitcoin.
• The permanent linear supply-growth model reduces the risk of what some see as excessive wealth concentration in Bitcoin, and gives individuals living in present and future eras a fair chance to acquire currency units, while at the same time retaining a strong incentive to obtain and hold ether because the “supply-growth rate” as a percentage still tends to zero over time.
• Note that in the future, it is likely that Ethereum will switch to a proof-of-stake model for security, reducing the issuance requirement to somewhere between zero and 0.05x per year.
• Bitcoin: at the time of this writing, the top three mining pools indirectly control roughly 50% of processing power in the Bitcoin network.
• One common concern about Ethereum is the issue of scalability. Like Bitcoin, Ethereum suffers from the flaw that every transaction needs to be processed by every node in the network.
• The concept of arbitrary state transition function as implemented by the Ethereum protocol provides for a platform with unique potential.
• The main difference between Ethereum and Bitcoin with regard to the blockchain architecture is that, unlike Bitcoin, Ethereum blocks contain a copy of both the transaction list and the most recent state.