Ethereum has transformed into a global phenomenon in no time. The feature-rich palette of the ethereum blockchain has started a new era of the internet. Witness this internet revolution by learning what is ethereum.
Ethereum is an open-source, programmable blockchain platform behind the cryptocurrency Ether(ETH) and hundreds of decentralized applications. Ethereum blockchain isn’t just a vehicle for cryptocurrencies, it is blockchain fabric which supports almost everything that can be coded.
This article covers the entire spectrum of the ethereum blockchain. It advances from a high-level overview of ethereum to concepts like mining and ethereum 2.0.
What is Ethereum blockchain?
From being the brainchild of the genius Vitalik Buterin to becoming a global phenomenon, Ethereum has taken the world by storm. Ethereum has established itself as ‘the programmable blockchain’.
There are chances that you may have also identified ethereum as a cryptocurrency carrier. However, ethereum is far more than a cryptocurrency vehicle. Think of an email. It is just a simple use of the internet. Similarly, cryptocurrency is a simple use of the ethereum blockchain. Ethereum platform is capable of supporting almost everything that you can code.
Let’s understand the basics first.
What is a blockchain?
The websites and applications that you use today are powered by central servers. These central servers have the data stored on their databases. What if the servers are damaged or hacked? Past successful hacking attempts are proof of their vulnerability. Also, the central management of data can be lethal for your privacy. You must already know how these central powers can misuse your data by selling it for ill-purposes.
Blockchain is a decentralized ledger of data. The term ‘blockchain’ underlines that data is stored in blocks and is chained to the previous blocks. This means if you wish to hack the data in a blockchain network, you have to simultaneously hack all the blocks chained to it. This makes hacking a blockchain network nearly impossible. Also, the data is safeguarded with advanced cryptography.
So, safety is guaranteed on a blockchain network. What about central governance? As defined above, blockchain is a ‘decentralized ledger’ of data. This means it is managed by volunteers (like you and me). The data is stored in thousands of nodes(computers) across the globe. If you are using a blockchain network, a part of the data is also stored on your machine.
But how is ethereum blockchain different?
Ethereum provides the security of a blockchain network and the flexibility of the internet. Using ethereum blockchain, you can trade, make games, trade-in digital currency, and whatnot. All of this without compromising your data.
Earlier blockchain networks were meant to trade digital currencies. If you wish to deploy apps on the network you require expertise in coding. Ethereum changed this status quo by introducing ‘smart contract functionality’.
Smart contracts are lines of code that execute automatically based on the real-world inputs.
These digital agreements facilitate the decentralized applications(dApps) on the ethereum blockchain.
They are based on ‘IF-THEN-approach’. For instance, IF a user asks for the stock price THEN, provide data from the mentioned real-world source. IF a user sends some amount THEN send that amount to another user. This if-then approach can be used in many ways for facilitating digital transactions, accessing weather reports, betting, etc.
Smart contracts eliminate fraud. For instance, two parties can agree on a bet using a smart contract. If one loses, the other will have to pay as the money is locked in an escrow (third-party that holds funds) and released as per the condition agreed upon. Smart contracts also eliminate ‘middleman’ as you can now transact with strangers without worrying about security.
Ethereum blockchain is a programmable blockchain that has a variety of uses such as digital transactions, apps, games, loans, banking, and the list goes on.
Ethereum is a progress-friendly blockchain. It is always developing to make its system more robust, secure, and efficient. The progress is divided into two layers viz Layer 1 and Layer 2. Layer 1 is associated with developing the core protocols of ethereum blockchain whereas layer 2 deals with the technologies built on the blockchain network.
Ethereum 2.0 is the major upgrade for Ethereum’s core protocols. It is also dubbed as ETH2.0 or Serenity. Ethereum 2.0 promises sharding, proof-of-stake, a new virtual machine (eWASM), and more. This upgrade will be released in three phases – Phase 0, Phase 1, Phase 2.
Let us look at some of the advancements.
As discussed earlier, ethereum blockchain is managed by volunteers. To be more specific, the blockchain is managed by miners. This is termed as a ‘proof-of-work approach’.
In the proof-of-work approach (Ethereum’s current approach), a miner validates the transactions and earns a reward. A miner solves cryptographic puzzles to verify the transactions and adds a new block to the blockchain. This requires machines with higher computation power which results in high electricity consumption. Now, there is a trend of opening mega warehouses of computers to become miners. This increases the risk of centralization.
In the proof-of-stake(PoS), the consensus is based upon the validator’s vote. The validators have to lock ether as a deposit. The validators earn a portion of the network’s transaction fee and additional interest on their deposit. There are two types of PoS – chain-based, and BFT-Based.
In the PoS based approach, the algorithm selects a validator during each time slot, (a period of 10 seconds) for creating a block. In the BFT-based approach, the algorithm selects a validator randomly. These randomly selected validators create canonical blocks which are finalized after the voting of other validators on the node.
There are three layers to scale a blockchain system – decentralization, scalability, and security. However, the scalability trilemma claims that at most, only two of these three base layers can be achieved.
Ethereum blockchain can only process 7-15 transactions per second. To scale the number of transactions, sharding provides a promising solution.
In the blockchain system, each node processes all the transactions. Ethereum blockchain occupies approximately 1TB of storage. This makes processing the transactions costly and thus, discouraging the participation of regular people.
Sharding removes this major roadblock by producing subsets of data. The term ‘sharding’ refers to creating a small part of a whole.
Think of a country; a country is better managed when divided into different states. The states can independently make their own decisions, but still, states are a part of the country. Similarly, sharding divides the ethereum blockchains into small parts. These ‘shards’ will have their own independent state but they will still remain a part of the ethereum blockchain.
How to buy Ethereum?
The term ethereum is often confused with the cryptocurrency. Ethereum is a blockchain network while Ether (ETH) is the cryptocurrency that powers the blockchain. So when you say how to buy ethereum, you are looking for Ether.
Ether is a decentralized currency, no banks or government has control over Ether. You can send or receive ETH without any intermediaries like banks or central authorities.
The cryptocurrency Ether is the second-largest cryptocurrency by market capitalization, after bitcoin. As of writing this article, one Ether is valued at 407.68 USD. The best part about Ether is that it is divisible up to 18 decimal places. This means you can even buy 0.000000000000000001 ETH if you want.
There are various platforms to acquire Ether, some of them are listed below.
The easiest way to buy Ether is through exchange platforms. Before choosing an exchange platform, make sure it operates in your region and accepts the fiat currency you want to trade in. You need to register yourself on an exchange platform.
After you have successfully registered at the exchange platform, set your currency to Ether (ETH), and choose a deposit method. A certain deposit fee will be charged by the exchange. Your deposited funds will appear on your exchange account.
After you have obtained your ETH, it is advisable to store it in a wallet.
Buying Ether using peer-to-peer platforms is considered a more private and secure way to do it. Peer-to-peer platforms are like e-commerce platforms, where sellers post their products and customers buy them. These platforms do not have buying or selling limits. In peer-to-peer platforms, you have different buying options to choose from. The service fee is also low as compared to exchanges. The transaction takes a few hours to validate. These platforms are secure as they provide an escrow service.
Just as you withdraw cash from the traditional ATMs, you can withdraw Ether from an Ethereum ATM. Before using this service, you need to have an ethereum wallet. Buying ethereum from cryptocurrency ATMs is quite simple. You have to locate the nearest ATM and hold your wallet’s QR code against the ATM’s camera while it scans the code. Now, insert your fiat currency and you are good to go. Your Ether will be deposited in your wallet. This process usually takes 30 minutes.
Miners are crucial for the ethereum blockchain as it currently operates on the proof-of-work consensus. As blockchain is decentralized, there are no central authorities to validate the transactions. Miners validate the transactions and create new blocks in the blockchain. They are rewarded 5 Ether per mined block. In vague terms, miners are record-keepers of the blockchain network. They ensure that the blocks are not created out of thin air. Miners also ensure that the users do not cheat the system by spending the same digital asset twice.
Mining is a competitive process in which the miner who first solves the cryptographic puzzle is rewarded. Miners run the block’s unique header metadata through a hash function by changing the ‘nonce’ value. This gives them a resulting hash value. If this hash value matches their current target, this block is broadcasted to the network and they are rewarded.
The mining process is termed as ‘proof-of-work’ as there is no way to cheat this process. You have to ‘work’ to validate the block on the network, you cannot cheat the process.
Every 12-15 seconds a miner validates a new block. The algorithm automatically readjusts the difficulty of the problem to keep miners within this timeframe.
The mining process favors high computing ability. If you mine Ethereum with a high computing device, chances are you would validate the next block. “Well, then I will buy a costly machine that promises high compatibility and I will be the best miner.” Did you have this same thought?
To prevent such activities, ethereum blockchain used their native mining algorithm ‘ethash’. Ethash makes it harder to mine using expensive specialized mining chips – ASCIs. This makes the ethereum mining process more transparent and secure.
So, if you are looking to invest in costly machines to mine ethereum, it would not be the best option.
Ethereum 2.0 update will be migrating towards proof-of-stake consensus. This is considered a more robust consensus for validating transactions.
Ethereum for Developers
As of now, you are aware that ethereum is much more than a cryptocurrency network. Ethereum has the attention of developers as it enables them to run and deploy apps on top of the ethereum network.
Ethereum has opened the pandora’s box for developers by introducing the smart contract functionality. Decentralized finance applications (Defi), gaming apps, prediction markets, lending platforms; you name it and you have it.
Ethereum also launched its ‘One Million Devs Initiative’ to increase the developer base on their platform. There are nearly 200,000 developers on the ethereum platform. Ethereum blockchain network is trusted by tech behemoths like Microsoft and JP Morgan.
Ethereum blockchain powers a myriad of applications but it is currently dominating the decentralized finance applications. (Defi) space.
Many experts believe that the ethereum blockchain will dominate the world of decentralized applications after its Ethereum 2.0 release.
Before you consider buying ethereum, you must ensure a safe place to store it. This place in the crypto world is your ‘wallet’.
Wallets are a software program where you can store your digital asset and can seamlessly conduct your cryptocurrency transactions. There are numerous options available in the market. You should choose your wallet depending on your use.
Ether isn’t a physical currency, so, what do these wallets store?
Wallets store your ‘private keys’ that enables you to access your digital funds. Wallets also have your public address which allows others to send cryptocurrency to your address. You must safeguard your private keys to avoid any possible thefts.
Let us look at different types of wallets.
Hot wallets operate on internet-connected devices like computers, mobile phones, and tablets. These wallets are recommended when you want to store a small sum of Ether. You must refrain from storing your savings in these wallets.
As these wallets generate your public and private keys over the internet, hot wallets cannot be deemed 100% secure.
These wallets are more secure as they generate your public and private keys over an offline environment. These types of wallets are preferred for storing large sums of Ether.
Cold wallets are physical devices like USB devices or your personal computer. The most secure cold wallet is ‘paper wallet’.
Desktop wallets are installed on your personal computer. These wallets cannot be accessed on other machines. Hardware wallets like USB devices are plugged into your computer to generate keys. Hardware wallets can not be tampered with even if they are attached to malware-infected devices.
Paper wallets are your keys printed on a piece of paper. If you are aware of the technical nitty-gritty of wallets, you can print this as it is the safest wallet available. Make sure you print a paper wallet in an offline environment.
Ethereum Secrets – Some Lesser Known Facts About Ethereum
Here are some lesser-known facts about ethereum.
- Ethereum was started by 19 years old guy, Vitalik Buterin. No one can imagine that a 19-year-old would give birth to the internet revolution. Vitalik Buterin was recognized as a special child, his arithmetic prowess was much greater than the children of his age.
- Ethereum was ‘crowdfunded’. It is astonishing that this crypto invention was not backed by powerful investors. It shows that it is possible to create powerful, world changing technologies by a bottom-up approach. Vitalik also poured the prize money from his ‘Theil’s Fellowship’ into this venture.
- The Ethereum Alliance (EEA) is joined by fortune 500 companies like Microsoft, JP Morgan, Intel, and many more.
- Unlike bitcoin, which is capped at 21 million coins, Ethereum is not capped. Ethereum has already exceeded the 100 million mark. This creates a possibility of inflation. But it is discussed that this issue can be addressed with Ehtorum 2.0.
In a Nutshell
Ethereum is an open-source, programmable blockchain platform that powers almost everything that can be coded. It is a cryptocurrency vehicle and a global app store for decentralized applications. The smart contract functionality became a stand-out feature of Ethereum. Ethereum powers thousands of decentralized applications on its network.
Ethereum is creating a smart economy by eliminating the intermediaries. Ethereum blockchain is the second-largest blockchain platform in terms of market capitalization.
Whether it is the fortune 500 or the common vendors, everyone is embracing Ethereum.
Ethereum is creating the ‘World Computer’ by creating an internet of value where everyone is welcomed.