TL;DR
- Ethereum is a decentralized blockchain platform that operates based on blockchain technology and a proof-of-stake mechanism.
- 5 Ethereum features are: Ether, Smart contracts, Ethereum Virtual Machine (EVM), Decentralized applications (Dapps), and Decentralized autonomous organizations (DAOs).
- Ethereum has gained such popularity greatly thanks to EVM compatibility which allows other blockchain network to be built on top of the Ethereum mainnet.
What is Ethereum?
Ethereum is a decentralized global software platform that uses blockchain technology. It is best known for its cryptocurrency, ether. Ethereum can be used to create any secure digital technology. It has a token that is used to pay for work done to support the blockchain, but it can also be used to pay for goods and services. Ethereum is designed to be scalable, programmable, secure, and decentralized. It is the blockchain of choice for developers and businesses creating technology based on it. Ethereum supports smart contracts, which are an essential tool for decentralized applications.
Many decentralized finance (DeFi) and other applications use smart contracts in conjunction with blockchain technology.
In simpler terms, Ethereum is a platform that allows people to create and use decentralized applications. It is powered by blockchain technology, which means that it is secure and transparent. Ethereum is best known for its cryptocurrency, ether, which is used to pay for transactions on the network.
Ethereum is also used to create non-fungible tokens (NFTs), decentralized finance (DeFi) applications, decentralized autonomous organizations (DAOs), and the metaverse.
NFTs are unique digital assets that can be used to represent ownership of items such as art, music, and collectibles. DeFi applications allow people to participate in financial activities such as lending, borrowing, and trading without the need for a central bank or other financial institution. DAOs are organizations that are governed by smart contracts, and the metaverse is a shared virtual world that is built on blockchain technology.
Ethereum is an important platform for the development of Web3, a new vision of the internet that is decentralized and user-owned.
How Does Ethereum Work?
Vitalik Buterin, the creator of Ethereum, published a white paper in 2014 to introduce the platform. Ethereum was launched in 2015 by Buterin and Joe Lubin, the founder of ConsenSys, a blockchain software company.
The founders of Ethereum were among the first to see the full potential of blockchain technology beyond just enabling secure virtual payments.
Since its launch, Ethereum’s cryptocurrency, ether, has become the second-largest cryptocurrency by market value, after Bitcoin.
Blockchain Technology
Ethereum uses blockchain technology to store and verify data in a secure and transparent way. Blockchain is a distributed database that is like a very long chain of blocks. Each block contains a list of transactions and a link to the previous block. This makes it very difficult to tamper with the data because if someone tried to change something in a block, they would also have to change all of the blocks that came after it.
Ethereum uses a proof-of-stake algorithm to reach consensus on the validity of new blocks. In a proof-of-stake algorithm, people who have staked their ETH (Ethereum’s cryptocurrency) are chosen to validate new blocks. This means that people who have staked their ETH have a financial incentive to act honestly because if they try to cheat, they could lose their stake.
This process makes it very difficult for anyone to tamper with the Ethereum blockchain. It would require a majority of the people who have staked their ETH to collude with each other, which is very unlikely.
Proof-of-Stake Mechanism
Proof-of-stake (PoS) is a consensus mechanism that uses a network of validators to verify blocks. Validators are chosen based on how much ETH they have staked. This means that validators have a financial incentive to act honestly, as they would lose their stake if they tried to cheat.
Proof-of-stake differs from proof-of-work (PoW) in that it does not require the energy-intensive computing referred to as mining to validate blocks. Instead, validators are chosen randomly to create new blocks.
To become a validator, you must stake 32 ETH. This means that you must lock up 32 ETH in a smart contract. If you act honestly, you will earn rewards for validating blocks. If you try to cheat, you will lose your stake.
Validators can also join a validation pool. This allows individuals to stake smaller amounts of ETH and share the rewards.
Validators who act dishonestly are punished. They may have their staked ETH burned and be removed from the network.
Burning refers to sending crypto to a wallet that has no keys, which takes them out of circulation.
Wallets
Ethereum owners use wallets to store their ether. A wallet is a digital interface that allows you to access your ether stored on the blockchain. Your wallet has an address, which is similar to an email address in that it is where users send ether, much like they would an email.
Ether is not actually stored in your wallet. Instead, your wallet holds private keys, which you use like a password when you initiate a transaction. You receive a private key for each ether you own. This key is essential for accessing your ether. That’s why it’s important to secure your keys using different storage methods.
Ethereum vs. Bitcoin: What’s the difference?
Ethereum and Bitcoin are the two leading cryptocurrencies, but they were created with different visions and purposes.
Bitcoin was designed to be a digital alternative to traditional fiat currencies. It is primarily used as a store of value.
Ethereum was designed to go beyond the financial use case of Bitcoin. It introduced the concept of smart contracts, which allow for the development of decentralized applications (Dapps). Ethereum’s native cryptocurrency, ether, is used to pay for transactions on the network and to execute smart contracts.
Bitcoin and Ethereum also use different consensus mechanisms. Bitcoin uses proof of work, while Ethereum is now using proof of stake. Proof of stake is considered more energy-efficient and enables faster transaction processing times.
Ethereum Features
- Ether: Ethereum’s cryptocurrency.
- Smart contracts: Self-executing contracts stored on the Ethereum blockchain.
- Ethereum Virtual Machine (EVM): A software platform that executes smart contracts.
- Decentralized applications (Dapps): Applications that run on the Ethereum network and are not controlled by any single entity.
- Decentralized autonomous organizations (DAOs): Organizations that are governed by smart contracts.
These are the essential features of Ethereum. They allow Ethereum to be used for a variety of purposes, including:
- Creating decentralized applications and organizations.
- Storing and transferring value.
- Executing financial transactions.
- Managing digital assets.
Ether
Ether (ETH) is the cryptocurrency of Ethereum. It is used to pay for the computational resources and transaction fees for any transaction executed on the Ethereum network.
Ether is like gasoline for a car. It is needed to power the Ethereum network and to make transactions.
Ether can be used for a variety of purposes, including:
- Building decentralized applications (Dapps)
- Building smart contracts
- Making regular peer-to-peer payments
To deploy a smart contract on Ethereum, you need to pay a gas fee in ether. Gas is the execution fee paid by a user for running a transaction in Ethereum.
Ether can be purchased and sold on cryptocurrency exchanges.
Smart Contracts
Smart contracts are self-executing contracts that are stored on the Ethereum blockchain. They can be used to facilitate the exchange of any asset between two parties, such as money, shares, property, or digital assets.
Smart contracts are immutable, which means that they cannot be changed once they are deployed. This makes them very secure and reliable.
Smart contracts are also decentralized, which means that they are not controlled by any single entity. This makes them very transparent and fair.
Ethereum Virtual Machine
The Ethereum Virtual Machine (EVM) is a software platform that executes smart contracts. Smart contracts are self-executing contracts that are stored on the Ethereum blockchain.
The EVM is responsible for compiling and deploying Ethereum-based smart contracts. It is the engine that understands the language of smart contracts, which are written in the Solidity language.
The EVM can be operated in a sandbox environment, which means that you can deploy your own stand-alone environment for testing and development. Once you are satisfied with the performance and functionality of your smart contract, you can deploy it on the Ethereum main network.
Any programming language in the smart contract is compiled into the bytecode, which the EVM understands. This bytecode can be read and executed using the EVM.
Solidity is one of the most popular languages for writing smart contracts. Once you write your smart contract in Solidity, that contract gets converted into the bytecode and gets deployed on the EVM. This guarantees security from cyberattacks, as the bytecode is very difficult to tamper with.
Decentralized Applications (Dapps)
Traditional applications
When you log in to a traditional application, such as Twitter, the application’s code is running on a central server. This server is owned and operated by the company that created the application.
The server stores all of the application’s data, such as your user profile and your tweets. When you perform an action on the application, such as posting a tweet, the server processes your request and updates the application’s data accordingly.
Decentralized applications (Dapps)
When you log in to a Dapp, the application’s code is running on a decentralized network of computers. This network is not owned or operated by any single entity.
The Dapp’s data is stored on the blockchain, which is a distributed ledger that is shared by all of the computers in the network. When you perform an action on the Dapp, the transaction is processed by the network and the Dapp’s data is updated accordingly.
Advantages of Dapps
Dapps have a number of advantages over traditional applications, including:
- Decentralization: Dapps are not controlled by any single entity. This makes them more resistant to censorship and attack.
- Transparency: All transactions on a Dapp are transparent and can be viewed by anyone. This makes it difficult to commit fraud or abuse power.
- Security: Dapps are very secure because they are built on the blockchain. The blockchain is a tamper-proof ledger that is very difficult to hack.
Examples of Dapps
There are many different types of Dapps, including:
- Decentralized finance (DeFi) applications: DeFi applications allow users to borrow, lend, and trade assets without the need for a central authority.
- Non-fungible token (NFT) marketplaces: NFT marketplaces allow users to buy and sell unique digital assets.
- Decentralized social media platforms: Decentralized social media platforms give users more control over their data and protect them from censorship.
Dapps are a new and emerging technology with the potential to revolutionize the way we interact with the internet. By using Dapps, we can create a more decentralized and secure web.
Decentralized Autonomous Organizations (DAOs)
A decentralized autonomous organization (DAO) is a digital organization that operates without hierarchical management. It is governed by smart contracts, which are self-executing contracts that are stored on the blockchain.
DAOs are funded by their members, who are given tokens that represent their share of the organization. These tokens are used to vote on proposals, and the decision with the most votes is implemented.
How can Ethereum get so big?
The main reason why Ethereum got so big so far is thanks to the EVM compatibility. EVM compatibility allows developers to build Dapps that work on multiple blockchains. This makes it easier to create interoperable Dapps that can access and interact with data and assets on different blockchains.
Layer 2 networks are EVM-compatible blockchains that are built on top of Ethereum to improve scalability and efficiency. They do this by moving computation off-chain, while only committing final state changes back to the mainnet. Some of the most popular EVM-compatible blockchains include Ethereum, BSC, Arbitrum, Polygon, Avalanche, Optimism, Fantom, Cronos, Klaytn, and Canto.
All in all, EVM compatibility allows Ethereum to gain adoption easily and effortlessly through many useful applications of Ethereum itself and other blockchain networks. Therefore, it creates an immense ecosystem for different blockchain users to interact.
Ethereum’s Real-world Applications
Agreements
Ethereum smart contracts can be used to create and manage agreements without the need for a third party. This can be useful in industries where participants are fragmented, there are frequent disputes, and digital contracts are needed.
Shipping
Ethereum can be used to track cargo shipments and prevent goods from being misplaced or counterfeited. Ethereum provides a provenance and tracking framework for any asset required in a typical supply chain.
Voting Systems
Ethereum is being used to create voting systems that are more transparent and fair than traditional voting systems. The results of polls on Ethereum are publicly available, which makes it difficult to rig elections or commit other types of fraud.
Banking Systems
Ethereum is also being used to develop new banking systems. Ethereum’s decentralized system makes it difficult for hackers to gain unauthorized access to data. Ethereum also allows for payments to be made on an Ethereum-based network, so banks can use Ethereum to make remittances and payments.
How Can I Invest In Ethereum?
To buy and store Ethereum, you can use Ready wallet. Ready wallet is a non-custodial wallet that allows you to store, send, and receive ETH and other Ethereum-based tokens. Besides, you can use Ready wallet to chat with your peers and send crypto in a fast and convenient manner. There are so many other features such as portfolio management and cost-efficient swapping. You can experience Ready wallet for FREE here!
