Ethereum enters the enterprise

Earth globe within a locked cage

Read an article the other day on NYT (Business Giants Announce Creation of … Ethereum).

In case you don’t know Ethereum is a open source, block chain solution that’s different than the software behind Bitcoin and IBM’s Hyperledger (for more on Hyperledger see our Blockchains at IBM post or our GreyBeardsOnStorage podcast with Donna Dillinger, IBM Fellow).

Blockchains are a software based, permanent ledger which can be used to record anything. Bitcoin, Ethereum and Hyperledger are all based on blockchains that provide similar digital information services with varying security, programability, consensus characteristics, etc.

Earth globe within a locked cageBlockchains represent an entirely new way of doing business in the digital world and have the potential to take over many financial services  and other contracting activities that are done today between organizations.

Blockchain services provide the decentralized recording of transactions into an immutable ledger.  The decentralized nature of blockchains makes it difficult (if not impossible) to game the system to record an invalid transaction.

Miners

Ethereum supports an Ethereum Virtual Machine (EVM) application which offers customers and users a more programmable blockchain. That is rather than just updating accounts with monetary transactions like Bitcoin does, one can implement specialized transaction processing for updating the immutable ledger. It’s this programability that allows for the creation of “smart contracts” which can be programmatically verified and executed.

MinerEthereum miner nodes are responsible for validating transactions and the state transition(s) that update the ledger. Transactions are grouped in blocks by miners.

Miners are responsible for validating the transaction block and performing a hard mathematical computation or proof of work (PoW) which goes along used to validate the block of transactions. Once the PoW computation is complete, the block is packaged up and the miner node updates its database (ledger) and communicates its result to all the other nodes on the network which updates their transaction ledgers as well. This constitutes one state transition of the Ethereum ledger.

Miners that validate Ethereum transactions get paid in Ethers, which are a form of currency throughout the Ethereum ecosystem.

Blockchain consensus

Ethereum ledger consensus is based on the miner nodes executing the PoW algorithm properly. The current Ethereal PoW algorithm is Ethash, which is an “ASIC resistant” algorithm. What this means is that standard GPUs and (less so) CPUs are already very well optimized to perform this algorithm and any potential ASIC designer, if they could do better, would make more money selling their design to GPU and CPU designers, than trying to game the system.

One problem with Bitcoin is that its PoW is more ASIC friendly, which has led some organizations to developing special purpose ASICs in an attempt to dominate Bitcoin mining. If they can dominate Bitcoin mining, this can  be used to game the Bitcoin consensus system and potentially implement invalid transactions.

Ethereum Accounts

Ethereum has two types of accounts:

  • Contract accounts that are controlled by the EVM application code, or
  • Externally owned accounts (EOA) that are controlled by a set of private keys and represent external agents (miner nodes, people, transaction generating entities)

Contract accounts really are code and data which constitute the EVM bytecode (application). Contract account bytecode is also stored on the Ethereum ledger (when deployed?) and are associated with an EOA that initiates the Contract account.

Contract functionality is written in Solidity, Serpent, Lisp Like Language (LLL) or other languages that can be compiled into EVM bytecode. Smart contracts use Ethereum Contract accounts to validate and execute contract actions.

Ethereum gas pricing

As EVMs contract accounts can consume arbitrary amounts of computation, bandwidth and storage to process transactions,   Ethereum uses a concept called “gas” to pay for their resource consumption.

When a contract account transaction is initiated, it identifies a gas price (in Ethers) and a maximum gas amount that it is willing to consume to process the transaction.

When a contract transaction takes place:

  • If the maximum gas amount is less than what the transaction consumes, then the transaction is executed and is applied to the ledger. Any left over or remaining gas Ethers is credited back to the EOA.
  • If the maximum gas amount is not enough to execute the transaction, then the transaction fails and no update occurs.

Enterprise Ethereum Alliance

What’s new to Ethereum is that Accenture, Bank of New York Mellon, BP, CreditSuisse, Intel, Microsoft, JP Morgan, UBS and many others have joined together to form the Enterprise Ethereum Alliance. The alliance intends to work to create a standard version of the Ethereum software that enterprise companies can use to manage smart contracts.

Microsoft has had a Azure Blockchain-as-a-Service online since 2015.  This was based on an earlier version of Ethereum called Project Bletchley.

Ethereum seems to be an alternative to IBM Hyperledger, which offers another enterprise class block chain for smart contracts. As enterprise class blockchains look like they will transform the way companies do business in the future, having multiple enterprise class blockchain solutions seems smart to many companies.

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Photo Credit(s): Miner by Mark Callahan; Gas prices by Corpsman.com; File: Ether pharmecie.jpg by Wikimedia