The Ethereum Story · Module 1 · 2013 to 2014 · 35 min
Ethereum started from one question: what if a blockchain could run small programs, not only keep track of coins?
What you will learn
Explain what a smart contract is using an everyday example.
Say what Ethereum was designed to do that Bitcoin was not.
Name the people and papers behind the original idea.
The lessons
Lesson 1: Bitcoin’s limits
Bitcoin is built to do one job very well: move and record money. Its programming language is deliberately simple, because every extra feature is another place for something to go wrong.
That left a gap. People who wanted to build other things, such as a shared record of who owns a domain name, or a contract that pays out automatically when a condition is met, found Bitcoin hard to use for it. Some tried to build on top of Bitcoin, and some built entirely separate chains.
A young programmer named Vitalik Buterin followed these experiments closely and came to believe that a different approach would work better: a blockchain with a general-purpose programming language built in.
Remember: Bitcoin is simple on purpose. Ethereum asked what happens if a blockchain is flexible on purpose instead.
Lesson 2: Vitalik Buterin and the white paper
In late 2013 Vitalik Buterin shared the Ethereum white paper. It described a blockchain with its own programming language, so that anyone could write programs that run on the network and keep their results on the shared record.
In January 2014 the project was announced at a Bitcoin conference, and a group of co-founders joined to help build it. In April 2014 Gavin Wood published the Yellow Paper, a precise technical description that other programmers could build from.
In the summer of 2014 a public presale of ether, the network’s coin, raised money to pay for the early work. Selling coins before a network exists is a way of funding that later became very common, and, as Ethereum module 4 explains, also very risky.
Remember: The idea came from one person’s white paper, and a team turned it into something real.
Lesson 3: Smart contracts explained
A smart contract is a program stored on a blockchain. When its conditions are met, it runs exactly as written, and everyone can see that it did.
The classic picture is a vending machine. You put in the right amount, press a button, and the machine hands over the snack. No shop assistant has to agree and nobody can change their mind halfway. A smart contract works the same way, but with digital items and money.
The idea is older than Ethereum. The computer scientist Nick Szabo wrote about smart contracts in the 1990s. What changed is that a blockchain gave them somewhere to run that no single company controls. The name is a little misleading, though: a smart contract is not smart, it only follows its code, and it is not necessarily a legal contract.
Remember: A smart contract does exactly what its code says, every time. That is its strength and its risk.
Key dates
When
What happened
Why it matters
1990s
Nick Szabo writes about smart contracts
The idea existed long before a blockchain could run one
Late 2013
Vitalik Buterin shares the Ethereum white paper
The core idea is public
January 2014
Ethereum is announced at a Bitcoin conference
Developers and early supporters begin to gather
April 2014
Gavin Wood publishes the technical Yellow Paper
A detailed specification that other programmers can build from
Summer 2014
A public presale of ether pays for the early work
An early way for a new project to fund itself
Key terms: smart contract, programmable money, virtual machine, white paper, ether. Open the glossary
Module quiz
4 questions. Tap an answer to see if you are right and why.
1. What is a smart contract?
Like a vending machine, it does exactly what its code says.
2. What did Ethereum add compared with Bitcoin?
It added a general-purpose programming language.
3. Who shared the Ethereum white paper in late 2013?
Vitalik Buterin, with co-founders joining soon after.
4. What was the Yellow Paper?
A precise technical description other programmers could build from.
Do it yourself
Think of a doubles vendor as a vending machine. Write one if-then rule for it, such as if the customer puts in the right amount, then hand over the order. Now say what could go wrong if the rule had a mistake.
Not financial advice. This lesson is history and education only. Prices are rounded and shown only to explain how big the swings were.