What Is Ethereum

"Ethereum is open access to digital money and data-friendly services for everyone – no matter your background or location. It's a community-built technology behind the cryptocurrency ether (ETH) and thousands of applications you can use today."

Ethereum.org
William Tempest

Introduction

Ethereum is decentralized, programmable software, powered by its native currency (Ether).

 

Often looked at as Bitcoin 2.0, Ethereum is famous for the use of ‘Smart Contracts‘ on its blockchain, as well as its bustling ecosystem.

 

Currently, the network is secured by a ‘Proof of Work‘ consensus algorithm, however, Ethereum’s developers are transitioning to a ‘Proof of Stake‘, a change that is expected any time between 2020 and 2022.

Ethereum's Layers

Think of the Ethereum network as 3 layers.

 

Base Layer: Nodes

Software Layer: Languages

Application Layer: DApps

The base layer is a network of decentralized computers connected to the internet that have software running the Ethereum blockchain. At its core, this is where transaction data is validated, broadcasted and stored on the blockchain - actions performed by miners.

This process involves computational work and for this output, the miners are rewarded with Ether.

The software layer is home to several programming languages, like Solidity and Vyper that live in libraries.

Developers use these languages to write smart contracts, which power the Ethereum Ecosystem.

The combination of the Base Layer and Software Layer = the Ethereum Virtual Machine (EVM).

The application layer is where DApps live. At present, there are approximately 3,000 DApps running on the Ethereum Blockchain, with solutions like Stablecoins, Decentralized Exchanges, and prediction markets proving to be popular choices amongst market participants.

Ethereum's Pillars

Decentralization

Data is recorded and stored on multiple devices in multiple locations around the world. No one controls the data recording and storage process. The data is stored and managed on the network by nodes.

Transparency

Transactions recorded on a ledger can be seen by anyone at any time. If you tried to see how your tax dollars are spent, you can't. The government will not show you these records and even if they did, they control the data, so it can be manipulated. Imagine being able to see a live, running ledger of how tax dollars are spent.

Immutability

The data cannot be changed, forged, or changed. This is done through cryptography and hashing processes.

ETH and Gas

Ethereum v 'ETH'

Ethereum and ETH are often used interchangeably, however, they are technically different. Ethereum refers to a decentralized Blockchain based software platform, while ETH is the native currency of the Ethereum Blockchain. ETH was created to fuel the Ethereum network but is also used as a Store of Value and for payments.

Gas, and ETH as a fuel for the Ethereum Blockchain

Let’s imagine a developer wants to build a new DApp on the Ethereum blockchain. To do this, they have to pay for the computing power and space using ETH.

 

The amount of fees for network usage is determined by a pricing system called Gas.

"Gas refers to the unit that measures the amount of computational effort required to execute specific operations on the Ethereum network.

Since each Ethereum transaction requires computational resources to execute, each transaction requires a fee. Gas refers to the fee required to successfully conduct a transaction on Ethereum."

Ethereum.org
Ethereum.org, Liam Cobb

Ethereum's Future - ETH 2.0

A common criticism of Ethereum is its lack of scalability, something that’s become quite the talking point in 2021.

 

With the Decentralized Finance (DeFi) ecosystem booming, transactional throughput is at an all-time high, as such, network fees are setting new records, forcing users to consider alternative blockchains.

 

At present, Ethereum is only capable of processing 10-15 transactions per second, however, Eth2 promises to fix this by switching from the current proof-of-work consensus system to proof-of-stake (PoS).

 

The new upgrade will be delivered via the Beacon Chain and ultimately, Ethereum will become more scalable, and more environmentally friendly.

 

James

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Proof Of Work

“Proof of Work (PoW) is the mechanism that allows the decentralized Ethereum network to come to consensus, or agree on things like account balances and the order of transactions. This prevents users “double spending” their coins and ensures that the Ethereum chain is incredibly difficult to attack or overwrite.”

 

– Ethereum

Ethereum

Ethereum is a decentralized computing platform that uses ETH (also called Ether) to pay transaction fees (or “gas”). Developers can use Ethereum to run decentralized applications (dApps) and issue new crypto assets, known as Ethereum tokens.

 

– Coinbase