Are you a Beginner in Ethereum? Do you want to know What is Ethereum? Are you inquisitive about about How Ethereum works? That too with much technical terms? If yes, then this Guide about Ethereum is surely for you.!
This is the digital age comprised of digital media, digital transactions, digital currencies and so on. With blockchain technology pacing up at a nano speed, we come across newer avenues in this aspect every other day.
After bitcoins, ethereum is another digital currency you might have heard of, some people even call it etherium. However, rising out of the same complex origin, people are still unaware of this. If you are looking for an answer to What Ethereum is and how does it work – you are at the right place! Here we provide you a complete guide around the “hows” of ethereum!
What is Ethereum?
Like Bitcoin, Ethereum is an open source, public, blockchain based distributed computing platform. Ethereum was proposed by Vitalik Buterin, a cryptocurrency researcher and programmer in late 2013. Development was funded by an online crowdsale in July–August 2014. The system went live on 30 July 2015.
As a result of the collapse of The DAO project, in 2016 Ethereum was divided into two blockchains. These two chains have different numbers of users, and the minority division was renamed to Ethereum.
Ethereum is a decentralized platforms that works on Smart Contract functionality. Smart contracts are the apps that run on a custom built blockchain. The project was developed by Ethereum Foundation, a Swiss non-profit, having contributions from great minds across the globe. For instance, bitcoin is not the only digital currency trading at all time high, ethereum is in the similar race too. In fact, ethereum’s 900% climb is worth stating the fact.
What is Ether?
Ethereum provides a cryptocurrency token called “Ether”. Ether is transferable between accounts and traded on cryptocurrency exchanges. It is used to pay transactional fee and other computational services on the ethereum network.
What is a Smart Contract?
To simplify, let us understand this through pointers appended below:
- Smart Contract is a decentralized application stored in the ethereum blockchain.
- Basically it is a self-operating computer program which gets automatically executed when specific conditions are met.
- They run on the blockchain exactly as programmed without any fraud, downtime or third party interference.
- Instructions embedded in Ethereum contracts are paid in “ether” or “gas” (in technical terms).
- An issue associated with using smart contracts on public blockchain is that bugs, including security holes, although visible to all, cannot be fixed quickly.
What is Ethereum Virtual Machine?
To simplify, let us understand this through pointers appended below:
- Ethereum Virtual Machine is for the runtime environment for smart contracts in Ethereum.
- It is completely isolated from the filesystem, network, or any other processes of the host computer system.
- Every Ethereum node in the Ethereum network runs an EVM implementation and executes the instructions.
- Ethereum Virtual Machines have been implemented in various languages viz. C++, Java, Python, Ruby, Rust, Haskell and WebAssembly.
Major Facts About Ethereum:
Let us look at few facts about ethereum that probably no-one knows:
- Since early 2016, ether remained the second largest market cap of any cryptocurrency. This outshine many other alternative asset protocols like litecoin or ripple. This significant increase has took place as this cryptocurrency space has attracted significant capital inflows – rising almost $7bn in value in Q1 2017. In a broader time frame, this cryptocurrency’s price gains appreciated more than 2800% since 2015.
- Ether’s trading volume has been fluctuating quite a bit since history. Sometimes this volume falls below $100,000, the other times it surges with 24-hour volume near to $600m.
- As the term ethereum gained highest point of popularity, the search interest on Google trends. Over the past 5 years, Switzerland has been the most popular area for these searches followed by Venezuela – claiming 95% of the search interest.
- Ether trading has been started at several exchanges across the globe. Due to the unique design of the ethereum platform, developers have been able to issue their own assets on top of the blockchain network. The number of token sales for ethereum based projects has increased over the past few years. As a result, trading interest and demand is expected to fuel further in the future.
Ethereum wallet is one gate-away towards decentralized applications on the ethereum blockchain. This allow you to hold and secure ether or other crypto-assets built on Ethereum. This also allows to write deploy, write and use smart contracts.
Here are some of the Best Ethereum wallets currently available in India.
Ethereum’s live version of blockchain was launched in 30 July 2015. The initial version called “Frontier” uses proof of work consensus algorithm. Although a later version is expected to replace the same with a proof of stake algorithm.
Since its initial launch, Ethereum network has undergone several planned upgrades called milestones. These milestones are important changes affecting the design overall or even the functionality of the platform.
What is Ethereum Used for?
By now you must have understood what ethereum actually is, but would be wondering about uses of Ethereum. So here we go.
Ethereum Platform has countless uses. Ethereum is often used as a platform for decentralized applications or decentralized autonomous organisations and smart contracts with dozens of functioning applications.
Intended scope of these applications include projects related to internet of things, finance, electricity sourcing and pricing and even sports betting. Earlier there were many possible business models that were either impossible or too costly to run. However, these autonomous organisations have enabled the same to a large extent.
The DAO Hard Fork
In spite of gaining significant attention from the start, Ethereum’s biggest turn-around was in April 2016, with a radical experiment called Distributed Autonomous Organization, or the DAO. Started by a german blockchain startup Slock.it, DAO had an ambitious goal i.e. to build a human-less venture capital firm that will allow the investors to make decisions through smart contracts. There would probably be no leaders, no authorities etc.. Only rules that is coded by humans, and executed by computer protocols.
Launched in April 30th, it took off like a jet. By May 21, it had raised $150 million from around 11,000 investors. This is what’s considered the biggest crowdfunding effort in history.
Then it got hacked! Yes, you hear it right..this got hacked!!
On June 17th, someone started drawing money out of the DAO. People were watching real time as the money got stolen just like a live video feed of any bank robbery. In the end, the hacker, has said that he was taking advantage of a technical loophole in the DAO, had accumulated $59 million in ether, based on current exchange rates.
While the developers who designed and run Ethereum did not really have anything to do with DAO, they were left to deal with this mess. The seven of them, led by Vitalik Buterin decided to hack the hacker.
They somehow managed to stop the theft and moving the funds into another smart contract wherein they currently sit. But that was only a temporary solution. The way code of DAO was written, there is a question whether the original hacker could still lay claim to the funds. Fixing this might require more intervention from the core developers.
One of its underlying tenets is that it is a decentralized platform, which means the power lies exclusively with all of its users. Stepping in to fix this problem, would completely undermine the objective. This has led to a heated argument between those who wanted to return the funds and the “code is king” purists who said that the power of smart contracts lies in its immutability.
The intervention that is being weighed is called as a “fork.” It is a decentralized network’s version of a reset button. It would entail rolling back an entire Ethereum network to previous day. Doing so, will basically eliminate the DAO, and move all the money into a smart contract that will only reimburse investors.
The initial proposal however, was a soft fork. This would entail majority of the Ethereum miners – those who verify transactions on the network voting on the roll back. Unfortunately later, a security flaw found in the voting process, which eliminated this option.
That leaves a hard fork, wherein the developers of Ethereum unilaterally made the decision to create a new version of the network with different rules than the original. Then the miners, exchanges, and some other major apps that were built on it need to decide if they want a part of the new version of Ethereum or its original one. Hence, came the idea of a hard fork!
How Ethereum is different from Bitcoin
In spite of being based on the same blockchain technology, Bitcoin and ethereum differ substantially in their purpose and capabilities. While bitcoin blockchain is used to track ownership of bitcoins, Ethereum blockchain focuses on running programming code of any decentralized application.
Instead of mining for bitcoin, in the Ethereum blockchain, miners work to earn Ether. Ether is also used by developers to pay transaction fees and services on the Ethereum network.
I hope all your question regarding Ethereum are cleared now and you have a full information about What is Ethereum. If incase you still have any questions, do comment below and we will surely give you an appropriate answer.