Ethereum is an open, decentralized blockchain platform that uses its native coin, Ether (ETH), to pay transaction fees (called “gas”). The platform has a lot of potential. It can transfer currency and non-fungible tokens (NFTs) that can represent any asset and perform advanced processes using so-called “smart contracts”. Developers can use the Ethereum network to launch decentralized applications (dApps) and issue entirely new crypto assets, known as ERC-20 tokens.
Ethereum (ETH) – what is it?
The Ethereum blockchain was first described in detail in a whitepaper published in 2013 by Vitalik Buterin. Designed primarily to run code on a decentralized computing platform. Similar to Bitcoin, Ethereum is able to transfer value. It also uses the processing power of its open, distributed platform to execute Smart Contracts.
Because Ether runs in a distributed manner, the decentralized applications (dApps) that are run are not exposed to human interference and thus at high risk of losing money. They are added to Ethereum technology and can be designed to make the code persistent and immutable. Transparency is the main advantage here – blockchain is publicly visible and easy to examine. Any user participating in the cryptocurrency market can verify the code before interacting with it. Therefore, as a result of trading CFDs, the user is provided with security. CFDs are complex instruments and come with a high risk of losing money quickly.
A New Internet for a New World
The concept of a new Ether-powered internet, steeped in decentralized finance (DeFi) and digital currency, is gaining more and more supporters around the world.
Ethereum not only provides a way to be free from the censorship that plagues traditional web applications. It also gives developers the means to actually create or generate value in the real world.
How does Ethereum work?
Ethereum essentially operates as if it were a vast, decentralized state machine. This means that you can get a snapshot of every single address (account) on the Ethereum blockchain at any time and determine its current state. Actions that occur across the blockchain cause a change in state, and each node updates its snapshot to reflect these changes.
Every state that Ethereum moves to is the result of millions of transactions. These transactions are grouped into what are known as “blocks”. Think of a block as a large batch of transactions, with each block chained to the previous block – forming what we know as a blockchain.
Ethereum’s future built on blocks and chains
The actual process of updating the state of the platform and ordering these batches of transactions is known as Mining. Like Bitcoin, Ethereum blocks are mined using the Proof of Work algorithm. A complete overhaul of Ethereum’s mechanics (ETH2.0) is underway, and soon the crypto platform will transition to the Proof of Stake algorithm, along with other improvements.
Smart contracts running on Ethereum are triggered by transactions. When a user interacts with a contract, each node executes the contract’s code while recording the output. This is made possible by the Ethereum Virtual Machine (EVM), which translates smart contracts in a way that is understandable to connected computers.
What are Smart Contracts?
At its core, a “Smart Contract” is a code. While code itself is neither “smart” nor “contract” in the traditional sense, we see it as smart because it can respond to stimuli or conditions. It can be thought of as a contract because of its ability to contract between multiple entities.
It is believed that the famous computer scientist Nick Szabo created the concept of smart contracts in the 90s. He used an example in which he compared smart contracts to the way a traditional vending machine works – a user inserts a coin, selects the desired item, and the machine delivers it to him. Now that you understand how contracts work, let’s move on to what follows.
Supercharged Digital Vending Machines?
By following the logic of the machine and applying it to the digital realm, developers are able to specify any action to be taken when a user sends a certain amount of Ether cryptocurrency to the contract.
Developers code these contracts in a way that the EVM can read and then transmit to the computers, which are the operating nodes on the platform. The contract is published in such a way that it is censorship-proof and cannot be removed. Unless the developer sets specific conditions in the code to do so.
Who is the creator of Ethereum?
Ethereum was created by 8 developers coming from all over the world. They first met and joined forces on June 7, 2014 in Zug, Switzerland.
Russian-Canadian developer Vitalik Buterin is the most famous of them. He became a celebrity and the face of this project. The author of the original Ethereum whitepaper from 2013, Vitalik has remained an active contributor to the development of Ethereum. To this day, it is still working on improving the platform.
Gavin Wood, a British software developer, is arguably the second most well-known co-founder of ETH. Gavin has been integral to the evolution of Ethereum. He participated in coding the first iteration of Ethereum in the C++ programming language and creating the concept of the Solidity programming language (currently the basic programming language of Ethereum). He also served as the first CTO of the Ethereum Foundation.
Ethereum used some of the concepts initially put forward by Bitcoin. It has created a powerful open-source blockchain technology platform using smart contracts. As with Bitcoin, Ethereum can transfer and store value. However, the main advantage of the network is its ability to function as a completely new, decentralized Internet – with its own applications.
Ethereum’s main innovation is the execution of smart contracts using blockchain technology. This amplifies the benefits of smart contracts. In the words of Gavin Wood, Ethereum technology was designed essentially to be “one computer for the entire planet.”
In theory, Ether is capable of making any application more robust, censorship-resistant, and secure. This is done by running it on a globally distributed system of public nodes.
A currency for every occasion
In addition to smart contracts, Ethereum’s blockchain technology is able to accommodate other cryptocurrencies, called “tokens.” The ERC-20 token standard allows developers to create entirely new currencies, backed by the power of Ethereum.
Consider yourself an NFT fan? Think about whether you understand what they really are. ERC-721 token standards and the more simplified ERC-1155 are making this new asset class a reality. Ethereum provides the power and security to make all of this happen.