In this article, we will be looking into Ethereum in detail – both the platform and the platform’s cryptocurrency, Ether.
Let’s get started.
What is Ethereum?
Ethereum is a decentralized open-source block system that uses blockchain technology to create and run decentralized digital applications. The platform allows users to make agreements and conduct transactions directly with each other to store, buy, or sell goods and services without a middle man’s services. Being decentralized means that any single governing entity does not control it. For example, users can bypass banks to transfer money, skip lawyers to draw their own sales contract or even launch their own fund-raising site for various projects.
Ethereum works as a platform for numerous other cryptocurrencies and also for the execution of decentralized smart contracts.
The platform operates through a global network of computers that work as a supercomputer. In essence, the network is used in assembling and running smart contracts. – that is, applications that are in theory independent from any third-party involvement or censorship, as the Blockchain is resistant to tampering. Smart contracts work based on the way it is programmed, thereby reducing the risk of fraud, and they are self-executing, just like a vending machine or automat that carries out contract terms digitally. In a smart contract, once the terms and conditions have been met, the transfer of payment is executed automatically, and the fund is made accessible to the buyer.
What Is Ether?
Ether is the cryptocurrency that powers the ETH platform and Blockchain. It was developed as a balance due to the high running cost of the computers that execute code to power Dapp, which takes a lot of power. The aim of the token ETH is to use it as a gas on the ethereum blockchain. Making incentive for people to not overuse the network because it’s not free.
The Ether coin serves two major purposes, which is;
- It is used in the platform to run applications and even to monetize work.
- It serves as a virtual coin that is used for trading of other cryptocurrencies.
Outside of smart contracts, the Ethereum platform also houses other cryptocurrencies, which are called tokens, by using its ERC -20 compatibility standard. That is mostly used in the ETH platform, with more than 200,000 ERC compliant tokens having been launched in the platform so far.
History of Ethereum
Vitalik Buterin, 19 years old Russian Canadian, is the founder of Ethereum. However, the project has a total of eight co-founders who met in June 2014 in Zug, Switzerland. Buterin was the author of the original white paper, which explained about Ethereum in 2013 and still works to improve the platform today. His goal was to utilize the technology that powered Bitcoins digital currency and use it to democratize everything from business and organizations and enable users to create their own digital currencies. In doing this, users will have full decision-making rights and also the power to create anything. It will also give users full economic control while taking it away from financial or corporate bodies such as banks.
Before founding Ethereum, Buterin co-founded and wrote the Bitcoin magazine news website.
Another major personality that helped in the development of Ethereum is a British programmer, Gavin Wood, who is seen as the second in line as he coded Ethereum’s first technical implementation in the C++ programming language, proposed the Ethereum native programming language, etc.
Other co-founders are; Anthony Di Lorio, Charles Hoskinson, Mihai Alisie, Joseph Lubin and Amir Chetrit. These individuals helped to develop the platform, and some left a few years later.
The ICO of Ethereum was launched in July 2014, a few months after the unveiling of the project. The duration of the ICO lasted for 42 days. To participate, users were to pay in BTC. The ICO started in July and ended in August 2014. Over one million Ether tokens were sold and raised 31, 529BTC worth more than $18 million. At the current rate, those tokens will be close to half a billion dollars. The amazing thing is that there was no minimum or maximum collection limit set, yet it was the 6th largest fund-raising project in history. In fact, it looked like the company’s development team lost most of its revenue due to fluctuations in the BTC price since the funding was done in BTC.
How Ethereum Works
As we said earlier, the concept of Ethereum emerged from the concept of blockchain introduced by Bitcoin, but it altered its working to support applications beyond money systems. ETH blockchain does a lot more than just facilitating transactions. Outside of the transaction history, every node on the ETH network also requires to download the most current state or the latest information of each smart contract within the network, every user balance and all the smart contract code and where it is stored. Therefore, Ethereum network acts as a world com
Ideally, the Ethereum Blockchain can be defined as a transaction-based state machine. A simple definition of a state machine is something that has the capacity to read a series of inputs and transition to a new state based on those inputs. The machine transitions into another state when transactions are executed.
Each stage of Ethereum houses millions of transactions. Those transactions are grouped to form “Blocks,” with each and every block being joined together with its former blocks. However, before adding a transaction to a ledger, there is a need to validate it, which goes via a process called Mining.
In Ethereum, a new cryptocurrency is created by a process called Mining. The blockchain nodes must verify transactions; the nodes are compensated with new currency. For instance, an Ethereum node (miner) is compensated with a new Ether.
In summary, Mining is a process when a group of nodes apply their computing power to complete a “Proof of Work (PoW)” challenge that is invariably a mathematical puzzle. The more powerful their computer is, the faster it can solve the puzzle. The ultimate answer to this puzzle is the proof of work, which guarantees the block validity.
Ethereum uses proof of work mining. In the ETH mining, the nodes have to show that it has done the work (transaction verification) to receive its Ether compensation. The only disadvantages of this process are that it consumes electricity, making it expensive. However, Ethereum plans to start using the Proof of Stake (PoS) mechanism soon, which consumes less electricity.
What makes Ethereum Unique?
There are so many benefits of the platform. The introduction of smart contracts reduces the need for trusted intermediaries between contractors, thereby reducing transaction costs while also increasing transaction reliability. Most of the other benefits of the platform include;
Immutability: The Ethereum network doesn’t allow third-party interference to make changes to data.
Corruption/tampering of details: Due to the decentralized nature of Ethereum, censorship is unfeasible with the PoW consensus of the platform.
No Downtime: The applications, smart contracts, organizations, etc., are all running on the Ethereum blockchain continuously without any downtime.
Security: With the combination of the PoW consensus, cryptographic techniques used in the transaction model, and no issues of central point failure. It means there won’t be any issues of hacking and manipulation as the network is highly secured.
In summary, the technology behind Ethereum is what makes it unique from Bitcoin and other cryptocurrencies. While bitcoin is only a digital currency, Ethereum is a ledger technology that companies are using to build new programs.
How to Get Ethereum
There are two ways that you can get Ether. It can be through purchasing it or Mining. However, the most common way of getting the token is by buying it in cryptocurrency exchanges. All you need to do is to search for an exchange that trades in Ether and operates within your jurisdiction, set up an account and use either your bank account to purchase the Ether token.
Also, you can get Ether through peer-to-peer trading, which is paying for it with any agreed-upon currency such as BTC or any other cryptocurrencies. This process can be done online or in person. Peer-to-peer trading is done in cryptocurrency exchanges.
Alternatively, you can also get Ether tokens by mining them. Mining Ethereum uses proof of work which means that miners contribute their computing power to solve mathematical issues in order to seal off and confirm a block of actions within the network. When miners complete the task, they are rewarded for every block mined.
Where to Buy Ethereum?
Since it is the second-largest cryptocurrency after Bitcoin, the trading pair will be popular on major cryptocurrency exchanges. Some of the Exchanges where you can purchase Ethereum include; Binance, Coinbase Pro, OKEx, Kraken, Huobi Global, etc.
How to Store Ethereum
Ether, the cryptocurrency of the Ethereum blockchain, doesn’t leave the network. Which means that it is not physically stored anywhere. So, if you need to store Ethereum, you will need a wallet (sometimes called Ethereum Address). The ETH wallet won’t have any Ether inside but will have codes needed to access it. These codes are known as private keys. If you misplace the private keys, you lose your Ether.
There are four main types of wallets that you can use to store your Ethereum.
Hardware Wallet: These are physical storage devices such as USB sticks. One of the most expensive hardware wallets is Ledger Nano S, and it offers safe offline key storage. However, just as a key gets lost, so does the wallet can get lost. So, be careful.
Desktop Wallets: Your desktop wallet can be stored on your computer. In this type of wallet, you will store your public and private keys directly on your computer. It uses a password that you must not misplace, and it can also consume space on your device.
Web Wallet: This is the most popular as it allows you to store your private keys online. An example is the Coinbase Wallet. However, it is not all that safe to use this wallet.
Mobile wallet: It is just like desktop wallets but uses much less space. They are used for storing your public and private keys on your smartphone.
Is Ethereum Safe?
As of August 2020, Ethereum is secured through the Ethash proof of work algorithm, which belongs to the Keccak family of hash functions. However, the platform has plans to move over to a proof of stake algorithm linked to the major Ethereum 2.0 update, which was unveiled late last year.
Ethereum itself is more secure than you might think. However, using a decentralized application or exchange with no reviews could compromise your Ether. So, it is crucial that you store your token in a safe wallet. Also, study the network before using it. Understand the authentication mechanisms and also ensure that you keep your public address and your SEED phrase safe. And lastly, trust no one.
The creation of Ethereum by Vitalik Buterin revolutionized the crypto market with its network that supports altcoins’ creation. This means that altcoin investors depend on the value of Ethereum’s network. Despite being around for a few years, it is still gaining momentum as if it was unveiled recently. Many cryptocurrency enthusiasts agree that it is a disruptive technology that will not only change how the internet works but will also revolutionize services and industries that have been existing for decades. The decentralized nature will likely revolutionize the financial sector.
According to the founder, Buterin, the Ethereum blockchain will be focusing on technical issues and security improvement in future. So, it means that the platform is still developing, and we are yet to see the best of it. In summary, the overall opinion of experts about the Ethereum blockchain is positive.
Written by: Narender Charan