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An Overview of Ethereum
In the broadest sense, Ethereum is a decentralized global software platform that is powered by blockchain technology (link phrase to “what is blockchain technology” article). Ethereum is most commonly associated with its native cryptocurrency, Ether (ETH), but houses a whole host of other functionalities and tokenized assets. Anyone can access and utilize the Ethereum blockchain to create secure digital technologies: whether that be NFTs, DeFi, Decentralized Exchanges or anything else in the blockchain world. Generally, ethereum is the blockchain of choice for developers/programmers, cryptocurrency enthusiasts, and natively curious individuals. It’s relatively scalable and easily programmable structure and design makes it easy to grasp and extremely flexible in application.
Ethereum natively supports mainstays of blockchain technology like smart contracts, which is among the most prevalent and important technologies in the cryptocurrency and decentralized finance spaces. Smart contracts are important to the usability of Ethereum because they are commonly used in conjunction with different blockchain technologies, thus making it paramount that these different tools can function together harmoniously.
Here’s what you should take away from this section of the article.
- Ethereum is a blockchain technology-based platform that emphasizes a decentralized ecosystem and is best known for its cryptocurrency, Ether.
- Blockchain technology allows for users of Ethereum, as a platform, to create and maintain secure digital ledgers.
- Ethereum changed from proof-of-work to proof-of-stake in September of 2022 (More on this later).
- Ethereum is the fundamental building block of most blockchain technologies and breakthroughs that you might’ve heard about recently.
How Did Ethereum Start?
In 2014, Ethereum was introduced by Russian-born programmer Vitalik Buterin via a white paper. The platform as a whole wouldn’t be broadly introduced until some time in 2015 by Buterin and fellow programmer Gavin Wood) ,being billed as a more open-ended and limitless counterpart to the contemporaneously popular blockchain technology of the time—Bitcoin. At the basis of its construction, the Ethereum network is a permissionless network of computers (commonly referred to as nodes) that build and come to a consensus on a batch of blocks (data). While not hugely dissimilar from what we now know as blockchain technology, Ethereum was and still is one of the most outwardly user-friendly and open-source platforms in the world of cryptocurrency and blockchain technology.
How Does Ethereum Work?
Ethereum is a decentralized blockchain platform that functions as a peer-to-peer network, relying on individual users to execute and parse data via its secure application code (smart contracts). The core function of a blockchain, and Ethereum in specific, is to accomplish projects and create applications that don’t rely on the oversight of a singular entity. In essence, what Ethereum encourages is individual ownership and accountability over monolithic governance and oversight. What governance the blockchain does have is set by users in direct communication with other users utilizing smart contracts. Quickly, let's break down what smart contracts are and what some of the other ethereum tools and mechanisms at work are exactly.
Smart contracts are simply the rules and conditions that must be met before the transfer of data or money can be allowed. This programmable agreement between users is stored on the blockchain and allows users to digitally represent their transactional interests. The huge advantage of smart contracts is how they interact with the blockchain. Once the conditions of a smart contract are met, the transfers of data and/or money are done automatically, initiated and completed via automation on the blockchain. The beauty of this system is that the system is trustless: relying on automatically initiated conditions upon completion and not on the goodwill of a random user whom you might be doing business with. There’s less room for fraud and impropriety with this system of self-governance.
One thing that Ethereum and Bitcoin had in common is that they shared a central approach to transaction validation. Both of these blockchain systems were built around a consensus protocol known as proof-of-work (PoW). Proof-of-Work was a validation system that saw users individually mining nodes in competition with one another to win the right to add another block to the blockchain—a process that happened about once every 10 minutes. Since very recently, however, Ethereum has moved to a Proof-of-Stake (PoS) system: a move that many are calling the beginning of “Ethereum 2.0”.
Proof-of-Stake requires users to, instead of mining nodes, deposit and lock away an amount of Ether in order to become Ethereum network validators. The reason for this is that it will allow the Ethereum blockchain to support the implementation of new “shard chains”—smaller blockchains of limited amounts of blocks that allow users to process individual data easier, which allows the Ethereum blockchain as a whole to process a whole lot more data at a time. One of the other big reasons for this shift is the reduction in energy consumption since Proof-of-Stake no longer requires users to have high-powered rigs in order to mine nodes for validation status. Within that benefit is another aspect of this shift, which is that the barrier for entry is now much lower for those wanting to get into blockchain technologies and Ethereum in specific.
Ethereum Virtual Machine (EVM)
The Ethereum Virtual Machine is the native processing system for the Ethereum blockchain, allowing developers to write smart contracts and, in turn, nodes to interact with the criteria of said smart contracts. Ethereum developers use a programming language known as Solidity to write the smart contracts, which is then converted into a language that the computers can understand (known as opcodes) and read by the EVM. Each Ethereum node has its own version of the EVM which allows use to be more specified. When a person sends an ethereum transaction to a smart contract (via the Ethereum network), every node reads the smart contract criteria and runs the transaction through their own EVM. In this simulation, every node can see the end results and whether or not that result constitutes a valid Ethereum transaction. If all nodes reach the same valid outcome, the updated state is recorded on the blockchain and any changes are made.
Ether is the native cryptocurrency for Ethereum and is needed to do just about anything and everything with the technology. Executing smart contracts requires the usage of Ether and is referred to as “gas”. How much “gas” you must pay in order to execute the plan you wish to depends on the complexity of the transaction and the number of other Ethereum transactions awaiting processing at the time. There are a couple of different ways in which Ether is stored on the Ethereum blockchain, but mostly through two main kinds of accounts: EOAs and Contract accounts. Externally owned accounts (EOAs) are what users generally have and allow them to hold and send ether. Contract accounts are different from EOAs in that they hold the smart contracts that are then triggered by Ethereum transactions.
What is Ethereum Used For?
The ethereum blockchain is accessed via nodes, which is a fancy way of saying that users connect their computers to Ethereum by downloading a proprietary software client. After accessing the technology, the use cases for ethereum are varied but possibly not that unexpected based on what we’ve talked about thus far.
The most obvious use for the ethereum network is for decentralized finance (deFi) purposes. As previously explained, the main draw of Ethereum and blockchain technology in general is the decentralization of everyday functionality: removing the oversight of a central authority over innocuous activities such as banking. Ethereum allows for finance to be accomplished quickly and without the normal hangups of conventional online banking/trading. Ethereum transactions happen fast and without interruptions, with users able to send money anywhere in the world, access stable currencies and cryptocurrencies, trade tokens, borrow/lend funds, and a whole host of other options.
Another big use case for the Ethereum network is the world of Non-fungible tokens (NFTs). NFTs are tokens that can be attached to unique items, giving the attached item a non-interchangeable status. They allow value to be given to art, music, etc., in terms of digital currency like Ether or Bitcoin. There is no copy/pasting of NFTs, as they exist as entirely unique entities with sole ownership to the user. NFTs are generally compatible with all functionality on the Ethereum platform, but can be sold anywhere on the global market.
Conclusion: Ethereum in Review
Ethereum is an emerging technology that is currently hitting huge peaks of popularity and usage, especially in the worlds of cryptocurrency and NFTs. It’s incredibly important, whether you are a web developer or not, to be aware of the rising trends in current technologies: hence the necessity of a piece like this. Across all of its use cases (including ones not listed here) and possibilities, Ethereum is a platform that is only going to grow in possibilities, so keeping your eye on its development is undoubtedly important. The range of applications is wider than Bitcoin and it’s potential is only just being understood.
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