Have you ever heard of Ethereum (ETH) and wanted to understand it better but felt like you did not have the technical knowledge? Don’t worry, you are not alone! The world of blockchain technology can be challenging to navigate, especially for beginners.
But if you have heard of Ethereum and want to learn more about it, this guide is for you! We will cover the basics of Ethereum, how it works, why it is important, and some standard terms often used in the Ethereum space.
By the end of this article, you should have a good grasp on the fundamentals and be ready to dive deeper into more advanced topics. So, let’s begin!
Understanding The Internet
But before we break down what Ethereum (ETH) is, let’s first understand the Internet.
Today, important information such as financial data, passwords, and personal data is stored by other people on their computers—in servers and cloud storage spaces owned by companies such as Amazon, Facebook, or Google. This setup is convenient since the companies deploy experts to secure the information and eliminate the hosting and uptime costs. Nonetheless, this is where the vulnerability comes in.
It is common knowledge that a government or any malicious hacker can access your data by gaining access to these servers. This means that they can change, leak, or steal your data.
According to Brian Behlendorf, the creator of the Apache Web Server, the centralization of data is the “original sin” of the Internet. Such individuals believe that the Internet should be decentralized, and Ethereum technology provides a solution for this challenge.
Ethereum aims to remove these internet third parties. In short, it seeks to build a decentralized “World Computer” to democratize the client-server model.
Now, let’s look closer at what exactly is Ethereum.
What Is Ethereum (ETH)?
Ethereum (ETH) is a decentralized, open-source, and distributed computing platform that enables the creation of smart contracts and decentralized applications (dApps).
Smart contracts are pieces of code that automatically execute once conditions set in an agreement are fulfilled. They can be used in all aspects of industries to specify the responsibilities of all parties involved in a contract, emulate the logic of contractual clauses, and select automated flows of value. Additionally, a smart contract operates based on the ‘if’ logic. For example, if action ‘a’ happens, then ‘b’ is executed automatically.
Brief History Of Ethereum (ETH)
Vitalik Buterin, the co-founder of Ethereum, published its whitepaper in November 2013. However, the Ethereum platform was not publicly announced until January 2014. This announcement followed an Initial Coin Offering (ICO) in August 2014, which raised $18.4 million.
The Olympic, Ethereum’s testnet, was released in May 2015, and in July of the same year, the first stage of Ethereum’s development, “Frontier,” was released.
The DAO hack happened in June 2016, where $50 million worth of Ethereum was stolen, and 15% of the total Ethereum in circulation at the time was lost. Notably, Ethereum Classic (ETC) forked from the original Ethereum protocol in October of the same year.
How Does Ethereum (ETH) Work?
The Ethereum Blockchain works like any other ledger—it records and verifies information, ensuring that all parties involved in a transaction see an accurate representation of what happened. As mentioned earlier, its use of smart contracts makes it different.
This means you can use Ethereum to perform transactions with confidence. For example, if you want to rent out your apartment on Airbnb, you can set up a smart contract so that when the agreed amount is received, access details for your home will be sent automatically to your guests. That way, both parties can rest assured knowing that their end of the deal will be fulfilled—all thanks to Ethereum’s blockchain technology!
Ether, The Fuel That Powers Ethereum
Ether, or ETH, is the cryptocurrency that powers Ethereum. It’s used as a form of payment to process transactions, fuel computations, and secure the network.
Without Ether, developers would not have access to the Ethereum Virtual Machine, or EVM for short. That’s the engine that enables users to interact with smart contracts and allows Ethereum-based applications to run smoothly.
Basically, ETH is like a car running on gasoline—without it, you won’t get anywhere. Because everyone needs ETH to run their dApps or trade on exchanges, its value increases as more people use it and demand increases!
Also Read: 7 Ways On How To Reduce Your Ethereum Gas Transactions
Ethereum & Bitcoin Key Differences
While Ethereum and Bitcoin may have a lot in common, there are some key differences that you should be aware of:
Transactions
Bitcoin was created as a digital currency for payments and a store of value, whereas Ethereum is more focused on programming applications and contract functionality.
Block Times
One of the most important differences between the two blockchain networks is the speed of transactions. Bitcoin blocks take 10 minutes to mine, but with Ethereum, it takes only seconds, which is an important factor when creating applications on the platform.
Supply
Both Bitcoin and Ethereum have different tokenomics and differences in their monetary policies. Bitcoin’s maximum supply is strictly limited to 21 million coins, which will eventually be mined by 2140.
Ethereum, on the other hand, has a flexible supply mechanism. While there’s no definitive cap, the rate at which new Ether is created can be adjusted through governance changes. This means that Ethereum’s scarcity relative to Bitcoin could fluctuate over time.
Advantages Of Smart Contracts And Decentralized Applications
- Autonomy – This implies that after a smart contract launches, the parties in an agreement no longer have to participate in the process.
- Auto-Sufficiency – This means that they can collect money, realize transactions, and spend funds to increase storage capacity and computation power.
- Decentralized – They are not focused on a central server but distributed by various network points.
- Downtime – The decentralized applications never shut down unexpectedly and can never be switched off.
- Censorship – Ethereum nodes (computers running the protocol) are distributed worldwide, thus eliminating censorship from a central authority.
- Anti-Fraud – The contract cannot be changed, hacked, or manipulated.
- Autonomy – the contract is autonomous and doesn’t need an intermediary.
With these, Ethereum will enable similar functionality globally, providing a platform where people can compete fairly to offer their services.
For instance, when scrolling through a typical application store, you will notice several apps for fitness, banking, messaging, and even books. These applications rely on third-party services to store your confidential information.
Additionally, the choice of the applications to download is controlled by these third parties, as they maintain and curate the specific apps you can download. Take, for instance, a document storage application such as Goodge Docs. With the Ethereum technology, users can control the data on such applications, and all creation rights will be restored to the author.
Notably, users currently do not have control over their contents, and the application could shut down suddenly, taking all the contents offline.
Theoretically, Ethereum and blockchain combine users’ control of their previous information with the easy-to-access information in this digital age. Each time a user changes the contents, the changes are saved on each node in the network.
Ethereum can decentralize any centralized service. Consider all the services that require third-party intervention today, such as loans to the voting system, regulatory compliance, and more.
Some Core Technological Blocks From Smart Contracts
Cryptographic Addresses And Tokens
This mathematically secure and unique voucher system allows building assets on existing blockchains. It is used as the standard for computing value or numeraire. It can be used to pay for goods and services and represent a mathematically secured identity.
Virtual Machine
Before Ethereum was created, the design of blockchain applications limited their operations. For instance, Bitcoin and other virtual currencies were exclusively developed to operate peer-to-peer digital currencies.
As such, developers had two choices: expand the operations of the blockchain applications, which could be time-consuming and very complicated, or create an entirely new platform. Understanding this challenge, Buterin came up with a new approach.
Buterin said at the time,
“I thought (those in the Bitcoin community) weren’t approaching the challenge in the right way. I thought they were going after individual applications; they were trying to explicitly support each use case in sort of Swiss Army Knife protocol.”
As such, he eventually developed the Ethereum Virtual Machine (EVM), which runs on the same network. Thanks to this new platform, anyone with enough time and memory can run a program developed in any programming language. Additionally, it is easy to create a blockchain application with a virtual machine. More specifically, instead of building an entirely new application, the machine allows the creation of thousands of applications all on one platform.
Consensus Algorithms
This entails agreeing on the current state of the blockchain. For instance, the Ethereum blockchain reaches consensus in approximately 15 seconds, while the Bitcoin blockchain is changed about once every 10 minutes.
These pillars of decentralized applications technology are designed to enable smart contracts. Additionally, the Ethereum platform is being used to develop other digital currencies. Thanks to the ERC-20 token standards defined by the Ethereum Foundation, other developers can develop their tokens under Ethereum.
The Future Of Ethereum (ETH)
Ethereum’s ultimate goal is to become a global, decentralized computer capable of running any type of application. This vision, combined with its strong community and developer ecosystem, positions Ethereum as a major player in the future of blockchain technology.
Both dApps and NFTs are becoming increasingly popular on the Ethereum network as developers continue to explore their full capabilities. With more powerful computing resources available, developers can create more complex applications and ideas that leverage the power of the blockchain.
Final Thoughts
To conclude, Ethereum is a powerful and versatile technology that is transforming how we interact and trade online. It is about digital currencies and smart contracts, allowing automated transactions between two or more parties. Ethereum also enables the transfer of value securely and quickly in an efficient and transparent manner.
We have now covered the basics of Ethereum, from its definition and workings to its applications in the real world. Overall, it is an exciting technology that will continue to grow and develop!
