Why Ethereum is perfect for payments

Technology enthusiasts like new and cool things, so whenever we discuss Ethereum, we rarely discuss what Bitcoin can do a long time ago. However, the current user experience of using Bitcoin for payment has become poor and even more painful, so it is time to see if Ethereum can help us solve this problem.

Ethereum enthusiasts usually shy away from talking about its payment function. Because many people have already tried Bitcoin (using cryptocurrency to complete payments), they are generally not interested in provoking debate in this regard.

But I would say that Ethereum is not only capable of completing online payments, it is actually very suitable to be used as a payment tool.

Using Ethereum to pay is easier

There is a common misconception that Ethereum is a very complex technology. Indeed, if you want to properly utilize all the smart contract features, you need to understand many technical details and forks.

However, if you don’t need those advanced features and just want to make payments, Ethereum is very easy to use for the following reasons.

UTXO, oh no!

Actually (technically speaking), there is no such thing as Bitcoin. A Bitcoin transaction is made up of many Bitcoin incomes that you have previously received. In other words, a Bitcoin transaction combines or divides the history of previously completed payments (UTXO).

If I send you 10 bitcoins, I could simply forward a previously received 10 bitcoins from someone else. But more likely, I will combine many previous smaller transactions (to get to 10 bitcoins) to complete the payment. And I usually won't find a combination of exactly 10 bitcoins, so I have to give myself change.

In this way, users have a lot of control when sending some bitcoins that have historical transaction dependencies. However, when you use a Bitcoin wallet, you rarely pay attention to UTXO. The developers of wallet tools know what they want to do: to implement the software as elegantly and powerfully as possible, and for users, they don’t care what the specific scheme of UTXO is.

Wallet developers have put a lot of effort into abstracting this layer of complex technology (UTXO) and hiding it inside the software implementation, so that users have no way of knowing it. But there is no such thing as a wall without ventilation. In a heavily congested network, this wall is very porous.

For example, every once in a while, someone complains about the high fees of Bitcoin. At this time, Bitcoin veterans will help you check the high-fee transaction and patiently explain to you that it is actually due to the large number of historical transactions input. What do you say in this case? They are right, these are some complex details that the wallet software itself does not want to bother users.

In Ethereum, this simply doesn't happen. User accounts are modeled as... just accounts. So no matter how many transactions have happened before, you only have a single balance. Wallets are simple, nothing weird pops up for users, and transaction fees are easy to estimate and account for. All transactions have the same fee, no matter where they originated.

Easier security

Implementing smart contracts yourself

If the security of the private key cannot be guaranteed, there is no point in using it for payment or collection.

You can generate multi-signature addresses and cold store them in multiple secure places. But once you do that, it will be difficult to use the money in them. You can save a key on your phone for access, but this is difficult to ensure security.

These situations usually happen when you use multiple devices. You may have a mobile wallet with a small amount of pocket money. And in a hard wallet, you have your life savings. But in actual use, people often need to be able to send larger amounts of funds as quickly as possible. But there are always incidents where the hot wallets of some Bitcoin exchanges are hacked, and even if the exchange has discovered that it has been hacked, users may still send Bitcoin to it. Because the script function of Bitcoin is very weak, the hacked exchange has no way to regain control.

We can solve the problem better like this:

1. You can set the upper limit of the transaction amount in different processes, so that even if you suffer losses, you will not lose all your coins at once.

2. When you use cold-stored multi-signature keys, you should be able to replace one of the private keys without having to use the other private keys in cold storage.

3. The security scheme for stopping money from leaving your wallet should be different from the security scheme for initiating transactions. The key that can trigger "immediately stop people from moving this money" should be readily available. The key that can trigger "okay, send my life savings" should be carefully hidden.

Usually people discuss smart contracts in terms of how people interact with each other. However, smart contracts are also useful when you consider storing keys in different places, or need to restrict funds to be sent only through user-defined rules. This link is an example of using the above method to protect funds using Ethereum smart contracts.

We don't need to write an academic paper to describe it, and readers don't need to do a lot of research to figure out what it actually does.

Functionality like this is completely impossible with Bitcoin.

Escape from the ivory tower of tech geeks

One lesson from the early days of Bitcoin is that regular users are terrible at managing private keys. This isn’t a well-solved problem on any platform yet. But for crypto to move out of the nerdy ivory tower (and into the mainstream), we need some new tools. With state and a suitable functional scripting environment, we’re starting to see a lot of new and imaginative solutions like uPort, which allows you to distribute trust between friends.

Better expansion

Right now, Ethereum’s transaction fees are orders of magnitude lower than Bitcoin’s. But if people want to switch from Bitcoin to Ethereum, they must want to know if they will run into the same dilemma once Ethereum has more users. The good news is that Ethereum can handle much larger payments than Bitcoin.

A built-in governance solution for scaling, not an endless political war

Bitcoin has been limited to 1MB blocks for several years, and while most Bitcoin users say they support a larger block size (it still hasn’t happened), Ethereum adjusts its blocks naturally through an automated process.

More mature expansion technology

To deploy a full Bitcoin node, it is notoriously slow. To validate new blocks, your node needs to know the current history of all spendable transactions. To create this database, it must look at every single one, all the way back to Satoshi’s first genesis block. Only once it has fully downloaded these blocks can it begin to “prune” them, discarding most of the data it just downloaded, keeping only the data necessary to validate new transactions.

There are some proposals to use UTXO sets to make it easier for clients with less historical information. With UTXO Commitment, the database can be organized in a tree structure and its hash is stored in the header of each block. While everyone agrees that this is a useful solution, its specific implementation is still at the stage where bad-tempered tech geeks fight each other on the developer mailing list.

In Ethereum, this is a fundamental part of the design. Each block contains a hash of a tree of the current state of the database. If you can determine which block belongs to the longest valid chain, you can confirm the state of anything in the database. This has many benefits, one of which is that it is safer to sync a node without downloading everything that has ever happened on the Internet. As a result, despite having more data on the Ethereum blockchain than Bitcoin, a full node can only take up about 15 GB.

Off-chain systems have better prospects

The off-chain payment system is the smart contract system

For a long time, one of the demands for Bitcoin expansion has been that in the future, it is not necessary to send every transaction to the chain. Most transactions can take place off-chain, and only when problems arise and need to be resolved on-chain will they go to the main chain.

This can be done on Bitcoin, even though Bitcoin's scripting language is very limited. But it's hard to do, and even harder to do securely. People who try to build these kinds of systems in detail usually end up realizing that they need to change parts of Bitcoin's scripting language. At that point, however, they have to wait for Bitcoin developers to stroke their beards and try to think of all the possible ways in which these new features are good or bad and every detail.

These (off-chain transaction) systems are smart contract systems, and Ethereum is designed for smart contracts. Because it already has an unlimited scripting language and the ability to store and read information in the state database, off-chain systems can be simple, elegant, and include many features that are impossible to implement in Bitcoin, at least without constantly asking developers: "Please add this soft fork."

The best approach to privacy protection, but it will take time

Privacy is a weakness when using Ethereum for payments. The UTXO model provides better privacy than the account model, so in short, Ethereum tends to provide less privacy protection than Bitcoin. If you want to switch from Bitcoin to another altcoin to protect privacy, you can choose solutions like Monero and ZCash, which have made great progress in this regard.

Ethereum itself does not provide a good solution for private transactions. However, because it allows developers to write their own contract logic, these ideas for privacy-preserving systems can be ported to Ethereum without changing Ethereum itself. Instead of redefining currency based on privacy technology, you can wrap existing Ethereum tokens in contracts that provide privacy protection. If a better technology is born, you can use it immediately. This may not be of much help to you today, but it is a promising way to protect privacy that is developing rapidly and experiencing growing pains.

Better Currency

Ethereum is a great technological innovation that allows people to complete transactions online. Although it is not purely for payments, it is really great for payments.

Translation note: Further reading – Coinbase co-founder Fred Ehrsam: Ethereum, the new frontier of digital currency