What is Ergo? A Combination of Bitcoin and Ethereum

The Rise of Blockchain Ecosystems

Cryptocurrency has gradually become an integral part of modern financial systems, and the competition among blockchain platforms for market dominance has intensified significantly. Over the past decade, the number of cryptocurrency projects has increased more than 100-fold. However, Bitcoin remains the most popular cryptocurrency with the highest market capitalization.

While Bitcoin is indeed the oldest cryptocurrency with the highest level of security and value retention, it lacks several important features that were developed later. For instance, blockchain platforms such as Ethereum, Solana, Avalanche, and Algorand are all smart contract blockchains. The applications of smart contracts are extremely vast and can be applied across all aspects of life.

Smart contracts can be implemented in the financial sector, including lending and borrowing protocols. These blockchain technology applications in finance have created the decentralized finance (DeFi) sector, which has revolutionized traditional financial services by removing intermediaries and enabling peer-to-peer transactions.

Most blockchain platforms today utilize the Proof-of-Stake consensus algorithm to secure their networks. This mechanism, instead of using expensive mining equipment, only requires users to stake the ecosystem's native coins. This approach significantly reduces mining costs and energy consumption, making blockchain technology more accessible and environmentally sustainable.

Who Created Ergo?

The lead developer behind the Ergo project is Alexander Chepurnoy, a blockchain veteran who has been involved in Bitcoin development since 2011. Chepurnoy has co-authored and published numerous papers on blockchain technology and holds a degree from Saint Petersburg National Research University. His first major project was the NXT platform, which laid the foundation for his later work on Ergo.

Together with Dmitry Meshkov, they created Ergo. Meshkov holds a PhD in Physics and has extensive experience in software development. At the time of Ergo's launch, Chepurnoy clearly articulated the essence of Ergo's vision:

"We exploit a smart contract approach that aligns with Bitcoin's original concept, but with minor additions to enable application to 99% of current use cases. Ergo allows people to synchronize with the network by downloading less than 1 megabyte of data, reducing the process from several weeks to just a few minutes and making it possible on mobile devices – all with the same level of security as third-party solutions."

This statement encapsulates Ergo's mission to combine the best aspects of Bitcoin's security model with the flexibility of smart contract platforms, creating a more efficient and accessible blockchain ecosystem.

Ergo Shares Many Similarities with Cardano

Charles Hoskinson, the founder of Cardano, has supported Ergo since 2017, calling the project a "technological marvel." The relationship between Cardano and Ergo is not surprising, as Chepurnoy was formerly a research fellow at Cardano's IOHK foundation. Several of Ergo's developers also worked on Facebook's Libra cryptocurrency project, bringing valuable experience from large-scale blockchain initiatives.

It appears that Ergo's core developers are pursuing a philosophy similar to Cardano's approach. Both Cardano and Ergo emphasize thorough research before implementation. While this approach may slow down project execution speed, it can significantly reduce code vulnerabilities and security risks. This methodical approach prioritizes long-term stability and security over rapid deployment.

In a notable development, on October 12, 2021, Ergo's open-source developers organized the second Hackathon – ErgoHack 2.0. Joseph Armeanio, Ergo's business director, shared that submissions included contributions from artists, traders, and miners. The third hackathon event focused on privacy issues, specifically developing solutions to protect transactions from prying eyes.

"We need to preserve the privacy aspect… Otherwise, in my opinion, we are downgrading. It may be a technological upgrade, it may create more efficiency, but in terms of human freedom and welfare, it's still not a suitable product."

During the same period, they also organized an official logo design competition. The Ergo project has never conducted an ICO, received venture capital funding, or engaged in pre-mining activities, maintaining its commitment to decentralization and fair distribution.

What is Ergo?

The Ergo team recognized that both Bitcoin and Ethereum have significant shortcomings. Ergo was created to address these deficiencies by combining the best features of both platforms. Ergo uses Proof-of-Work consensus similar to Bitcoin to enhance blockchain network security. At the same time, Ergo is also a programmable blockchain platform on which smart contracts can be deployed, similar to Ethereum.

With this combination, Ergo appears to resolve the shortcomings of both Bitcoin and Ethereum through several key innovations:

• ERG uses a different mining algorithm than Bitcoin, which does not require excessive electricity consumption to solve complex cryptographic puzzles like Bitcoin. The mechanism Ergo uses is Autolykos, a mining mechanism that is more energy-efficient because it creates an upper limit on both mining pools and specialized ASIC machines. This approach allows mining with standard GPUs, democratizing the mining process and reducing the barrier to entry for individual miners.

• Ergo's advantage over Ethereum is that it does not have prohibitive gas fees. Ethereum is notorious for high gas fees when the network is congested, sometimes reaching hundreds of dollars per transaction. In contrast, Ergo has very stable and negligible transaction fees – approximately 0.0011 ERG, equivalent to just $0.01, making it practical for everyday transactions and microtransactions.

These two features make Ergo stand out in the competitive blockchain landscape. Primarily, because it uses Proof-of-Work consensus, it has higher fault tolerance compared to Proof-of-Stake blockchains like Ethereum – 50% versus 33%. This higher threshold means the network is more resistant to attacks and provides stronger security guarantees, which is particularly important for financial applications.

This is why Ergo's development team calls it an "Resilient Platform for Contractual Money." By combining the benefits of the Bitcoin and Ethereum networks while addressing their respective shortcomings of energy waste and poor security, Ergo positions itself as a next-generation blockchain platform that learns from the successes and failures of its predecessors.

How Does Ergo Work?

Thanks to the user-friendly ErgoScript programming language, each Ergo token stored in smart contracts has a protective layer. It specifies when tokens can be used, by whom, and under what conditions. ErgoScript uses the Sigma protocol as a building block for zero-knowledge proofs, enabling advanced cryptographic operations while maintaining simplicity for developers.

In practice, this means the Sigma (Σ) protocol revolves around a 3-layer verification mechanism to ensure contractual money security:

• The first message is sent from the prover to the verifier, initiating the verification process
• A random challenge comes from the verifier, testing the prover's knowledge
• The second message is sent from the prover to the verifier, completing the proof

Based on these sigma protocols, ErgoScript makes deploying smart contracts easier and more secure than traditional approaches. Additionally, Ergo supports light nodes, which are blockchain software packages that do not need to maintain a full copy of the blockchain and do not need to run 24/7. Therefore, they make Ergo very mobile-friendly, as storage space and computing power requirements are significantly reduced, enabling blockchain access on smartphones and tablets.

Furthermore, the ErgoScript programming language is specifically designed to be the best tool for creating code for decentralized finance applications. Specifically, contractual money is designed to be Turing-complete while reducing the possibility of spam attacks thanks to its pre-deadline estimation feature. This balance between computational completeness and security is a key innovation that sets Ergo apart from other smart contract platforms.

Finally, similar to Tezos, Ergo is a self-amending blockchain that can be easily upgraded in the future without requiring hard forks. Ergo has no block size limit, allowing for dynamic adjustment based on network demand. It can shrink or increase based on network needs, but its growth rate is limited to a certain ratio to prevent explosive growth in a short period, ensuring network stability and predictability.

Notable Ergo DApps

Like other smart contract platforms, Ergo can support a wide range of complex decentralized applications. Some notable DApps on the platform include:

ErgoMixer

Praised as the first non-custodial and non-interactive cryptocurrency mixer, it ensures user privacy by sending tokens in batches and then mixing them together. This makes tracking user transactions significantly more difficult compared to sending tokens directly from one wallet to another. ErgoMixer represents a major advancement in blockchain privacy technology, allowing users to maintain anonymity while conducting transactions on a transparent blockchain.

The mixing process is fully decentralized, meaning no single entity controls the mixing process or has access to user funds. This non-custodial approach eliminates the risk of theft or seizure by the mixer operator, providing users with complete control over their assets throughout the mixing process.

SigmaUSD

Built on the AgeUSD protocol, it is the first stablecoin based on the UTXO model. Unlike USDC or USDT, SigmaUSD is a decentralized stablecoin developed in collaboration with Cardano's IOHK and Emurgo. This stablecoin maintains its peg through an algorithmic approach rather than relying on centralized reserves, making it more resistant to regulatory pressure and third-party risk.

The AgeUSD protocol uses a reserve mechanism that ensures the stablecoin remains fully collateralized at all times, providing users with confidence in its stability and redeemability. This innovative approach to stablecoin design demonstrates Ergo's commitment to creating truly decentralized financial instruments.

Ergo Auction House

A smart contract blockchain would be incomplete without an NFT marketplace. The Ergo Auction House has conducted 222 auctions with a total value of approximately 1,012 ERG, equivalent to $10,300. While Ergo has not yet launched a decentralized exchange or crowdfunding platform, the Auction House demonstrates the platform's capability to support NFT trading and digital collectibles.

The auction mechanism is fully on-chain, ensuring transparency and fairness in the bidding process. This decentralized approach eliminates the need for trusted intermediaries and reduces the risk of fraud or manipulation in NFT transactions.

Tokenomics

ERG is a deflationary token with a capped supply of less than 100 million ERG. It does not have long emission periods, and its block rewards gradually decrease after approximately two years. When ERG launched on the mainnet, block rewards were set at 75 ERG. After eight years, it will decrease to zero, at which point the total ERG supply will reach a stable figure.

The maximum supply of ERG is 97,739,924 ERG, with a circulating supply of approximately one-third of that amount at 32,012,428 ERG. To put ERG's emission into perspective, Bitcoin's emission will be completed over more than 100 years, with nearly 75% mined in the first 8 years of BTC's existence.

Improving upon Bitcoin's design, ERG has a feature called storage boxes – UTXO. If they have been inactive for more than four years, miners will receive storage rent fees instead of transaction fees. This approach provides miners with a revenue source after block rewards decrease to zero, ensuring long-term network security. Additionally, storage fees will restore lost coins back into Ergo's economy at a rate of approximately 0.13 ERG every 4 years, preventing the permanent loss of coins and maintaining economic activity.

Since its launch, ERG price reached its all-time high on December 16, 2017, at $22.37. It continued to create new peaks three years later at levels below $5. Over the past period, ERG price has risen above the $10 level. ERG has a relatively small market capitalization at $327.64 million, suggesting significant growth potential as the project matures and gains wider adoption.

Mining Ergo

Mining the entire supply of Ergo will take place in the first 8 years after the mainnet launch. The prerequisites for mining ERG are quite simple and accessible to individual miners. Miners only need to set up an Ergo node with a GPU with 4 GB VRAM, though 8 GB or more is more efficient and recommended for optimal performance.

Ergo has tested and proven that miners can use multiple GPUs for a single Ergo node, allowing for scalable mining operations. Similarly, miners can take advantage of mining pools to increase their chances of earning rewards. Ergo's development team also provides a recommended list of mining pools to choose from, ensuring miners can find reliable and efficient pool options.

Ergo supports four types of wallets, two of which are web wallets – Yoroi and Viawallet. However, only Yoroi supports ERG at this time. So far, Ergo's official desktop wallet version is the best option with support for native assets, multisig support, and scripting capabilities. If you want a lighter option, the mobile version of Ergo wallet is available on the Google Play Store with a 4.5-star rating, providing users with convenient access to their ERG holdings on the go.

FAQ

What is Ergo? How does it combine the characteristics of Bitcoin and Ethereum?

Ergo is a decentralized DeFi platform merging Bitcoin's scarce supply model with Ethereum's smart contract capabilities. It uses PoW consensus and an Extended UTXO model, enabling programmable finance while maintaining security. With a limited ERG supply under 100 million, it functions as programmable digital gold.

What are the advantages of Ergo's UTXO model compared to Ethereum's account model?

Ergo's UTXO model enables superior parallel execution efficiency and better transaction privacy. It avoids state bloat issues, allows stateless clients, and provides enhanced security through immutable UTXOs compared to Ethereum's mutable account state model.

Does Ergo support smart contracts? What is its programming language?

Yes, Ergo supports smart contracts through its dedicated programming language designed for creating, testing, and compiling smart legal contracts efficiently and securely.

What are the main application scenarios of Ergo?

Ergo is primarily used for creating and managing smart legal contracts, widely applied in contract automation, supply chain finance, insurance, and lease agreements. Its JavaScript compilation capability extends its application range across various DeFi and enterprise scenarios.

What is the function of ERG tokens and how to obtain them?

ERG tokens fund Ergo blockchain community projects, including smart contracts and payment frameworks. The primary way to obtain ERG is through mining, where block rewards are distributed to miners securing the network.

What are the main differences and advantages/disadvantages of Ergo compared to Bitcoin and Ethereum?

Ergo offers faster transaction speeds and lower fees than Bitcoin and Ethereum. It supports more complex smart contracts with better scalability. However, Bitcoin leads in security maturity and network effect, while Ethereum dominates DeFi ecosystem adoption and developer community.