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What is Ethereum?
Vitalik Buterin, the founder of Ethereum, published Ethereum WhitePaper in 2014, accurately describing Ethereum and its vision. As per the WhitePaper, Ethereum is proposed to be a next-generation blockchain that supports the building of decentralized applications.
Bitcoin’s infrastructure inspired Ethereum but is significantly different from it. This article aims to unravel the fundamental concepts of the Ethereum blockchain, offering a beginner-friendly explanation of its core features and functionalities. By the end of this guide, readers will have a basic understanding of Ethereum.
What is a blockchain?
Before we look into Ethereum, it is important to know what a blockchain is, as it is one of the fundamental infrastructures of the Ethereum ecosystem. A blockchain is a secure, digital, and decentralized method for recording information and transactions. Consider it a chain of blocks, with each block containing a list of data such as transactions or records and a unique code known as a “hash.” This hash connects the blocks in a chronological sequence to form a continuous chain.
Once data is stored in a block, it is nearly hard to change it since changing anything in a block would need changing all following blocks and their hashes. Therefore, tampering with the blockchain is incredibly difficult due to the cryptographic principles at work.
Additionally, instead of a single central authority, the blockchain is maintained by a network of computers known as nodes. Because the data is spread, no single party has complete control over it, making it resistant to tampering and fraud. This attribute makes the blockchain extremely safe and dependable for a wide range of applications, including cryptocurrencies such as Bitcoin and Ethereum.
Bitcoin vs. Ethereum
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Bitcoin fundamentally focuses on the ownership of bitcoins; hence, it can simply be described as digital money. Its state transition only tracks the transfer of bitcoins from one person to another. Therefore, bitcoin is referred to as a superior digital store of value mainly due to this feature.
Ethereum, on the other hand, uses Bitcoin’s infrastructure but with additional features. Ethereum allows decentralized transactions, agreements, and applications to interact with each other without a governing force. This is made possible by smart contracts, a set of instructions written in code and executed in a decentralized manner without the need for intermediaries like lawyers, escrow agents, or banks. Additionally, unlike Bitcoin, the Ethereum platform supports smart contracts, allowing decentralized applications (DApps) to be built on it by anyone.
Smart contracts allow the automatic transfer of money as long as a certain set of defined conditions are met. This invention allows the transfer of value faster and cheaper than relying on banks or other third parties. Thus, Ethereum acts as a store of digital money and a platform to facilitate these decentralized applications.
The Fundamental Aspect of Ethereum
Ethereum is Turing complete. Turing completeness refers to the expressiveness of a programming language that allows it to solve any computational problem regardless of its complexity. Smart contracts are hence unbounded in their complexity and expressiveness. This attribute greatly influences Etherem’s design and security landscape, enhancing the ecosystem’s strength.
Ethereum Infrastructure
The following are the basic building blocks of Ethereum:
i. Open Source Protocol and Code
Ethereum is an open-source blockchain platform built by thousands of developers worldwide. The code is publicly available; anyone can use it, analyze it for bugs, and suggest new features. Anyone can run it and is free to use for any purpose. This level of transparency is important for Ethereum as it leads to stronger security and encourages the project’s growth and evolution.
ii. Blockchain
Ethereum uses blockchain infrastructure to execute smart contracts and store the various states as a record. Anyone can access the records. The process is done in a decentralized manner, with nodes attributing to this.
iii. Native Currency is Ether (ETH)
Ether is Ethereum’s native token necessary for any operation or interaction on the platform. ETH is used to measure the amount of resources that are required to run smart contracts. It can also be used as a currency or payment network like Bitcoin.
iv. World Computer
Ethereum is a Turing-complete distributed machine whose core is the Ethereum Virtual Machine (EVM), its computing platform. Ethereum’s core purpose is to offer everyone a decentralized computing platform through the EVM, allowing the building of DApps. Anyone with ether and internet can interact with this World Computer.
Properties of Ethereum
Let us look into the properties that drive the vision, implementation, and design of the Ethereum infrastructure.
i. Applications are permissionless
Anyone can build, use, and deploy applications or smart contracts on Ethereum. There is no centralized entity governing Ethereum.
ii. High availability and audibility
Ethereum is always up and running. Unlike in our traditional platforms, no downtimes are expected, where websites may break at any given time. Decentralization through nodes allows high availability.
Additionally, everything that happens on Ethereum and its blockchain is auditable. Smart contracts and source codes can be analyzed and examined by anyone.
iii. High transparency and Neutrality
The high suitability of Ethereum enhances the transparency of transactions, source code, and protocol design. These properties make Ethereum a highly neutral platform, as no centralized entity can change its aspects.
iv. Censorship-resistant
From a censorship perspective, nothing can be taken down. Anyone can build whichever application they want without it being removed from the Ethereum ecosystem. This property is different from our traditional platforms, as anything that is deemed harmful or copyrighted can be taken down by the centralized or governing entity.
Impacts of Ethereum on the Blockchain Industry
Since its launch in 2015, Ethereum has significantly impacted the blockchain sector. Here are some of the most notable ways in which Ethereum has influenced the blockchain space:
i. Smart Contracts and Decentralized Applications (DApps)
Ethereum invented smart contracts, which are self-executing contracts with predefined conditions. DApps are created using smart contracts and operate on the Ethereum blockchain. Beyond simple financial transactions, this breakthrough has enabled developers to create decentralized apps for various use cases, including finance, supply chain, gaming, governance, and more.
ii. Tokenization and Initial Coin Offerings (ICOs)
Ether serves as “fuel” for the network and enables the production of new tokens via smart contracts. Tokenization arose due to this functionality, letting projects generate digital assets and raise cash through ICOs or token sales. Tokenization has transformed fundraising and opened new avenues for community and investor engagement.
iii. Decentralized Finance (DeFi)
Ethereum has served as the DeFi revolution’s cornerstone. DeFi platforms and protocols provide various financial services without traditional intermediaries like banks. Users can use their wallets to lend, borrow, trade, and earn interest on their assets. The DeFi ecosystem has expanded rapidly, demonstrating the potential of blockchain technology to reshape the financial environment.
iv. Interoperability and Standards
Since its introduction in 2015, Ethereum’s ERC-20 standard has been the most widely adopted token standard in the blockchain industry. ERC-20 tokens are compatible with many wallets, exchanges, and DApps, fostering interoperability and easy integration within the Ethereum ecosystem. This standardization has aided the expansion of the DeFi space.
v. Influence on Other Projects
The success of Ethereum has inspired several other blockchain projects to incorporate similar principles, such as smart contracts and tokenization. Many projects have been created on Ethereum’s ideas, contributing to the expansion and diversification of the blockchain sector as a whole.
Conclusion
Ethereum is a decentralized blockchain platform that creates a peer-to-peer network for seamlessly executing and verifying software programs known as smart contracts. Ethereum is both a store of value and a platform for creating decentralized applications.
Ethereum has had an enormous influence on the blockchain industry, stimulating innovation, supporting decentralization, and broadening the use cases of blockchain technology far beyond cryptocurrencies alone. Its contributions have cleared the stage for a digital future that is more decentralized and inclusive. Since the blockchain field is constantly growing, it is exciting to see that other projects are making their mark by experimenting with new technology solutions and application cases.
Resources
Below are some relevant links for a more in-depth understanding of the Ethereum blockchain:
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