Ethereum is a decentralized blockchain with smart contract capabilities. The platform’s native cryptocurrency is Ethereum(ETH). Ether’s market valuation is second only to that of Bitcoin among cryptocurrencies. The program is open-source. Ethereum was created by programmer Vitalik Buterin in 2013. With Ethereum, users can conduct transactions, stake their holdings to earn interest, use and store nonfungible tokens (NFTs), play games, trade cryptocurrencies, and much more.
Ethereum was created to be scalable, programmable, secure, and decentralized. It is the blockchain of choice for developers and businesses developing technologies based on it to transform the way many industries work and how we live our lives.
History of Ethereum
Vitalik Buterin co-founded the project to address Bitcoin’s problems. In 2013, Buterin presented the Ethereum white paper, which described smart contracts, which are automated immutable “if-then” expressions that allow the building of decentralized apps. While DApp development existed in the blockchain space previously, platforms were not interoperable. Buterin designed Ethereum to bring them together. To him, the only way to sustain acceptance was to standardize how DApps function and interact.
As a result, Ethereum 1.0 was developed. Consider it similar to Apple’s App Store: a single location for tens of thousands of different programs that all follow the same set of criteria. Only that ruleset is hardcoded into the network and enforced autonomously, with DApp developers able to enforce their own rules. There is no central party, like there is with Apple in setting and enforcing laws. Instead, authority is held by the people who operate as a community.
Construction of such a Network was very expensive. As a result, Buterin and his co-founders — Gavin Wood, Jeffrey Wilcke, Charles Hoskinson, Mihai Alisie, Anthony Di Iorio, and Amir Chetrit — launched a token presale to generate $18,439,086 in Ether, which would be used to support Ethereum’s current and future projects.
In addition, the organization established the Ethereum Foundation in Switzerland to maintain and develop the network. Soon after, Buterin revealed that the foundation will operate as a nonprofit, prompting some co-founders to resign.
Developers eventually came to Ethereum with their decentralized ideas. These users established The DAO in 2016, a democratic group that voted on network modifications and recommendations. The corporation was supported by a smart contract, which eliminated the need for a CEO to wield control over Ethereum. Instead, for changes to be implemented, a majority vote was required.
However, everything went wrong when an unknown hacker stole $40 million from The DAO’s holdings due to a security flaw. To reverse the theft, The DAO chose to “hard fork” Ethereum, breaking away from the old network and adopting a new protocol, basically undergoing a massive software upgrade. The name Ethereum was kept by this new fork, whereas the previous network is known as Ethereum Classic.
Blockchain Technology
Blockchain technology is used in Ethereum, as it is in other cryptocurrencies. Consider a lengthy chain of blocks. Every newly generated block receives all of the information stored in each block. An identical copy of the blockchain is circulated throughout the network.
A network of automated systems that obtain an agreement on the veracity of transaction information validates this blockchain. The blockchain cannot be changed until the network achieves an agreement. This makes it extremely secure.
Consensus is achieved via the use of an algorithm known as a consensus mechanism. Ethereum employs the proof-of-stake process, in which a network of people known as validators produce new blocks and collaborate to verify the information contained inside them. The blocks contain information on the blockchain’s current status, a list of attestations (a validator’s signature and vote on the block’s authenticity), transactions, and much more.
What is a Smart Contract?
A smart contract is a self-executing contract in which the conditions of the buyer-seller agreement are directly encoded into lines of code. A decentralized blockchain network hosts the code and the agreements contained inside it. Smart contracts are used to automate the execution of agreements such that the contract executes itself automatically once the requirements are satisfied.
Ethereum before Ethereum 2.0
The Ethereum network, like Bitcoin, lives on thousands of computers throughout the world, owing to people acting as “nodes,” rather than a centralized server. As a result, the network is decentralized and highly resistant to assaults, and it is incapable of going down as a result. It makes little difference if one computer fails since thousands of others keep the network running.
Ethereum operates a computer called the Ethereum Virtual Machine (EVM), which is effectively a single decentralized system. Any interactions must be verified so that everyone can update their copy because each node has a copy of that computer.
Network interactions are referred to as “transactions” and are recorded in blocks on the Ethereum blockchain. Miners validate these blocks before they are committed to the network and serve as transaction history or a digital ledger. A proof-of-work (PoW) consensus approach is used to verify transactions. Each block is identified by a unique 64-digit code. Miners invest their computer power in finding the code and confirming its uniqueness. Miners are compensated in ETH for their efforts, and their computer power provides “proof” of their labor.
Ethereum 2.0
The phrase “Ethereum 2.0” was used to refer to several changes made to the Ethereum blockchain that addressed some of its most urgent technical problems. The Ethereum Foundation likes to refer to the updated blockchain as Ethereum, with the consensus layer being referred to as ETH 2 and the execution layer being referred to as ETH 1.
The upgrade was not a one-time occurrence because Ethereum’s developers have been planning to execute it for several years. But it began formally with the Beacon Chain’s launch in December 2020, which made it possible to stake ether, the Ethereum network’s native token.
In exchange for the right to take part in the network’s consensus and validation procedures, the staking process comprises locking tokens and preventing their use. Fees paid in ETH are compensation for those who stake their ether.
Changes made to Ethereum after Ethereum 2.0
The volume of activity on the blockchain was causing congestion on the Ethereum network. For instance, the gas costs that were often paid to miners in exchange for their labor were extremely exorbitant. As validators started staking their ether following the upgrade, the fees improved.
To activate a single validation node, validators need to lock in 32 ETH. But by participating in a pool or putting their money in an exchange that will stake it for them, anyone can stake any amount of ETH.
Proof-of-stake uses significantly less power than proof-of-work, making it faster and more environmentally friendly. This is because PoS doesn’t pit one miner against another to see who can solve the block hash first, which is what consumed all of the energy. As an alternative, the network protocols choose at random which nodes are allowed to approve transactions and create new blocks.
What are the Uses of Ethereum?
Ethereum has several use cases, some of which are as follows:
Decentralized Applications (DApps)
Ethereum’s smart contracts enable developers to create decentralized apps (DApps). DApps are programs that run on a blockchain network that is not controlled by a single entity.
Digital Identity
Ethereum has the potential to be utilized to create a decentralized digital identification system. A digital identity is an online identity linked to a physical identity. A decentralized digital identification system would provide users with more control over their data while also preventing data breaches.
Supply Chain Management
Ethereum can be used to create a decentralized supply chain management system. Businesses will be able to follow their products from the producer to the end consumer via a decentralized supply chain management system, assuring transparency and accountability.
Financial Services
Peer-to-peer lending, insurance, and crowdfunding are a few examples of decentralized financial services that can be built using Ethereum. These services would do away with middlemen and lower expenses for customers.
FAQs
Q1: What is Gas in Ethereum?
A: Ethereum uses a unit of measurement called “gas” to calculate how much it will cost to process a transaction. On the Ethereum network, each transaction needs a certain amount of gas, which is purchased with ether.
Q2: What is a Hard Fork in Ethereum?
A: A blockchain that has undergone a hard fork permanently diverges from its predecessor. In the context of Ethereum, a hard fork happens when the network’s source code is modified, creating two distinct and incompatible copies of the blockchain.
