What is Ethereum? The Only Guide You Need
While Bitcoin ruled the crypto space in 2017 and is indeed the most popular of the digital currencies till date, what most people do not know is that there are several other cryptocurrencies that performed far better. For instance, while Bitcoin delivered returns of around 1,300% in 2017, Ethereum rose to more than 9,000%. While Bitcoin made blockchain technology a buzzword, beyond Bitcoin, there are coins like Ethereum whose technology is far more impressive. While Bitcoin applications are rising, Ethereum’s decentralized applications are shaping up the future of blockchain.
Until recently, creating blockchain applications meant complex background coding, mathematics, cryptography, and a lot of resources. But things have changed significantly in the past few years. Applications that were unimagined before, like recording property assets digitally, electronic voting, trading and regulatory compliance are now being developed actively and are deployed much faster than before.
By offering all the tools that developers might need for these applications, it is Ethereum that is making all this a possibility. If you are interested in cryptocurrencies or blockchain technology, this Ethereum guide is for you. What this second most popular digital currency is, who created it, how does it work, mining Ethereum and its future are some of the most important topics discussed in this Ethereum guide.
What is Ethereum?
In simple words, Ethereum can be defined as an open software platform which uses blockchain technology as its backbone. It can be used by developers to build and deploy applications that are decentralized in nature. It uses peer-to-peer approach and all the interactions that take place within the Ethereum ecosystem are supported only by the people who are part of the ecosystem without any central authority.
The entire global ecosystem of Ethereum relies on ‘nodes’ who are volunteers that have downloaded the whole blockchain of Ethereum to their computers and are responsible for fully enforcing consensus rules and maintaining network integrity. Just like Bitcoin mining, these volunteers or node holders are rewarded in Ethereum (ETH) for their efforts.
Image Source: Ethereum Blog
Ethereumblockchain makes use of ‘smart contracts’ to dictate the consensus rules and all the other important aspects of its network. These smart contracts are programmed to perform transactions as well as many other actions in the Ethereum network with other parties that you do not trust automatically. Both the parties involved in the transaction have their terms pre-programmed in the contract. Once these terms are completed, a transaction or other particular action is triggered.
Apart from this, the network also uses EVM (Ethereum Virtual Machine) which is a runtime environment to manage Ethereum smart contracts. With the help of EVM, users have the security for executing untrusted codes and also ensure that none of the programs interfere with another. However, EVM is in no way related to the Ethereum network, making it an excellent tool for improving and testing smart contracts.
Last but not the least, the platform uses ‘Ether’, a cryptocurrency. A lot of people are confused between Ether and Ethereum coin. As you can see, Ether is a cryptocurrency while Ethereum is a whole blockchain-based open-source network.
Who developed Ethereum?
VitalikButerin first described the idea of Ethereum in his white paper in 2013. He sent the white paper to some of his friends who then forwarded it to others. In a matter of two months, more than 30 people contacted Vitalik to further discuss the concept.
In January 2014, Ethereum was announced publicly by the core team made up of VitalikButerin, Anthony Di Iorio, Mihai Alisie, Gavin Wood, Joe Lubin, and Charles Hoskinson. After a few months of launching the project, the team held a crowdsale for Ether, the network’s native token, for funding the development.
Is Ethereum a cryptocurrency?
While you might have seen Ethereum value fluctuate every day, as mentioned above, Ethereum is only a software platform and not a cryptocurrency. The system is designed as such that it needs a digital currency which can be used to pay for computational resources which are required for running applications on Ethereum’s network. Ether is that native currency for Ethereum network.
Ether can be defined as a digital asset which does not require any 3rd party for payment processing. But apart from being a digital currency, Ether also works as a ‘fuel’ used by the apps on Ethereum network. To make any changes to an app on Ethereum, the network charges a processing fee to make the changes.
This transaction fee is calculated automatically on the basis of the ‘gas’ required by the action. The calculation is done on the basis of the computing power needed for processing the action and how long will the power be needed to complete the action.
Is Ethereum similar to Bitcoin?
While Ethereum has a lot in common with Bitcoin, like it uses blockchain technology, has a cryptocurrency, can be mined, and can be stored in Ethereum wallet, the similarities are only limited to a few cryptocurrency aspects. Both of them are very different projects aiming to do something entirely different.
For instance, Bitcoin uses the blockchain technology for a single application. It is a P2P electronic cash system which can be used for sending value (Bitcoin) to anyone on the Bitcoin blockchain. On the other hand, Ethereum has created a blockchain network which can be used for running many different types of decentralized applications.
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Apart from the main idea behind the two, there are several other differences. While Bitcoin is limited to 21 million coins and no Bitcoin can be created after this limit is reached, generation of Ethereum is practically unlimited. Moreover, the mining time of a Bitcoin’s block is around 10 minutes, while Ethereum only takes 12 seconds to process a block. This means much faster confirmations.
Another important difference between Ethereum and Bitcoin is the fact that Bitcoin mining has become very expensive now. It is only profitable if you have industry-scale mining farms. However, the proof-of-work algorithm ofEthereum encourages individual miners for decentralized mining.
Also, the internal coding of Ethereum is Turing complete. This means that everything on the Ethereum blockchain can be calculated if you have time and computing power required to do so. However, the same is not possible with Bitcoin. With the help of complete Touring code, the possibilities of Ethereum is literally endless. However, the complexity can also result in security complications.
Working of Ethereum
If you are planning to invest in Ethereum coin or want to know about Ethereum mining, it is very important to understand how Ethereum works.
As discussed above, Ethereum is a blockchain-based protocol whose blockchain design is tweaked when compared to Bitcoin’s blockchain to enable applications beyond sending value. The most important similarity between both is the fact that their respective blockchains store all the transaction histories, however, Ethereum’s blockchain can do much more than just store histories.
All the Ethereum nodes are required to download current information or the latest state of every smart contract within its network, all the user’s balance and even the code of smart contracts no matter where they are stored on the blockchain.
Every single state in the blockchain is made up of millions and millions of transactions. All these transactions are divided into blocks and each block is linked to the previous block. Before any new transaction is added to the block, they are verified through the mining process.
With Ethereum mining, several nodes use their computing power for completing POW (Proof-of-work) challenge. This challenge is similar to math-related puzzles. The more power a computer has, the faster it is able to solve these puzzles. The answer to the puzzles is also a POW which guarantees block validity.
Miners throughout the world compete to solve these puzzles and validate blocks as the validation process results in the generation of virgin or new Ethereum coin and the miner or group of miners who have solved the puzzle receive this as a reward. The miners work as the backbone of Ethereum network as they not only validate the blocks but it is through them that new Ethereum is generated just like Bitcoin.
Popular apps on Ethereum platform
Ethereum can open up the decentralized application world even for people who not have a strong technical background. It has the potential to make blockchain a mass-adopted technology.
Currently, you can use Mist, Ethereum’s native browser which has a user-friendly interface and has an Ethereum wallet for trading and sending Ether. It can be used for writing, managing, and deploying smart contracts. Moreover, you can also use the MetaMask extension for Mozilla Firefox and Google Chrome to access Ethereum network through your browser.
The platform can disrupt several industries, like banking, real estate, insurance, etc. which rely on centralized control. Currently, it is used by developers to create a wide range of decentralized apps.
Some of the most popular apps on Ethereum platform include-
In a recent interview with CoinTelegraph, VitalikButerin stated that he wants to ensure that Ethereum remains the leading decentralized platform in future. The core developers behind Ethereum are currently focusing on improving the security and technical issues of the network.
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However, industry experts believe that Vitalik is being very modest with the Ethereum’s future. Several bigwigs in the industry believe that if there is one blockchain platform or digital currency that has the potential to be adopted by the masses in future, it has to be Ethereum. Its infrastructure is defined as impressive by a lot of experts and they believe that it can significantly transform a lot of industries in future.
Overall, the majority of the people from the crypto industry are highly positive about the future of Ethereum. However, there is no shortage of old-school experts who believe that the technology powering Ethereum and Bitcoin might not turn out to be as popular as people expect it to be in future.
As for the price of Ethereum coin, this second largest cryptocurrency was only worth a few cents in 2015 but crossed the $1,350 mark in December 2017. Currently, it is trading around $700.
How can you get Ether?
There are basically two ways to obtain Ether- mine it or buy it.
The easiest way to obtain Ether is to simply buy it from a crypto exchange. You can create an Ethereum wallet to store the purchased Ether. Just like Bitcoin, it is not necessary to buy an entire Ether. You can also buy $100 worth of Ether if you want. Some of the most popular exchanges are-
The other way to obtain Ether is by Ethereum mining. If you have a computer with a GPU and 3GB RAM, you can use it to mine Ether. However, most miners prefer using high-end mining rigs as they process the mathematical puzzles faster.
Ethereum is better than Bitcoin in several ways and has exceptional potential. If you are looking to invest in a solid cryptocurrency, Ethereum can be a great option. Buy it or start mining as you now have all the information needed for both.
However, before investing your money, make sure that you first understand how volatile cryptocurrencies can be. Movement of 50% or even more in either direction is very common in the crypto world. If you don’t have any trading experience, ensure that you only invest a small amount of money and then build your way to bigger investment after you understand how the crypto world functions.