Sirwin
Sirwin

Blockchains 101: Ethereum

By TradingBull | TradingBull_articles | 17 Feb 2021


Master of Smart Contracts

 

Introduction:

Ethereum is a blockchain network which, unlike Bitcoin, is not built with the exclusive purpose of transferring value via its native cryptocurrency. Instead, it functions as an Operating System (Virtual Machine). Ethereum enables developers to build decentralized applications (DApps), store code, programs and data in its blockchain database through the use of Smart Contracts.

Ether (Ticker: ETH) is the native digital currency of the Ethereum platform.

The Ethereum network went live on July 30, 2015, with 73 million Ether pre-mined (distributed to early participants, founders, and core developers via an Initial Coin Offering (ICO)). Ethereum was the first cryptocurrency to perform an ICO.

a35035b5bd90be404a22c49e57696ffd50d0332c704a41e5fa02f54ba29d626c.png

Description:

Vitalik Buterin is the founder of Ethereum and started to develop the idea in 2013 as an open-source blockchain platform that was inherently different from Bitcoin (BTC).  It was built to support third parties interactions via a protocol later called smart contracts. Smart contracts on Ethereum behave like self-operating computer programs that automatically execute when specific conditions are met. Ethereum allows these smart contracts’ code to run without any possibility of downtime, censorship, fraud or third-party interference.

Ethereum is supported in part by the Ethereum Foundation, a non-profit organization that is part of the larger Ethereum ecosystem including enterprise Ethereum consortiums like the Ethereum Enterprise Alliance.

GPU (Graphic cards) mining rig for Ethereum

ETH 1.0: Mining (Proof of Work):

As with Bitcoin, the Ethereum consensus today is achieved through the process of mining (PoW). However, the consensus algorithm is planned to migrate to the less energy-intensive Proof of Stake (PoS) model. As with Bitcoin, Ethereum miners compete to verify transactions and solve a cryptographic problem of finding the correct hash value for a block of information. The ultimate goal for miners is to validate the block by finding this hash value first and therefore obtain the block reward.

On Ethereum, the mining process and transaction fees revolve around a conceptual token called gas. Miners set the price of gas and can decline to process a transaction if it does not meet their price threshold. Gas prices are denoted in gwei, which is worth 0.000000001 ETH.

Transactions on ETH takes about 10 seconds to complete (its blocktime), compared to the 10 minutes of Bitcoin.

ETH 2.0: Migration to Proof of Stake (PoS):

Since 2017, discussions have been ongoing within the Ethereum community for migrating the network to a PoS model. Unlike PoW, the PoS consensus mechanism for finding new blocks relies on a process called Staking (Locking an amount of ETH in a wallet). Proof of Stake minting is less computational-intensive than Proof of Work mining, and is therefore anticipated to be more energy-efficient and sustainable.

By allocating a “Stake” of their ETH to a Masternode (minimum of 32 ETH), any participant can become a validator, earning a share of the block rewards and transaction fees.

In July 2020, a testnet (Beta) of a PoS side chain for ETH called Beacon went live and after months of testing, was opened to stakers in middle November. By December 1, the minimum staking requirement allocated to Beacon was met, automatically triggering the launch of ETH2.0 network.

Ethereum price since 2015 (TradingBull mobile app)

TradingBull Mobile App View of ETH Price Since 2015

 

Distribution and Supply Model:

73 Millions Ethereum was initially pre-mined and distributed at launch. The initial block reward was of 5 ETH per block but has been reduced to 3 ETH at the end 2017 and to 2 ETH in early 2019.

There is no ‘hard cap’ (max) on the total supply of Ethereum and the future supply will depend on future decisions / consensus of stakeholders, including the Ethereum Foundation, the Ethereum community, and ETH holders.

Tokens:

One popular application of the Ethereum blockchain and its smart contracts has been for the creation of tokens.

ERC20 tokens are used as cryptocurrencies by projects in order to raise funds or to tokenize traditional assets (stocks, properties, and more). Nowadays, due to the open source structure of smart contracts, the costs and technical difficulties to create a token on the Ethereum blockchain are relatively low.

ERC20 tokens on Ethereum are non-natives, which means they are not required for the Ethereum blockchain to operate (which is not the case for the native ETH token). Consequently, tokens do not have their own blockchain infrastructure but use Ethereum or other major blockchains instead, making it a cost effective solution for different projects to deploy.

Another popular token format is the ERC721 non-fungible token standard which allows developers to make every single token unique. Because there are no two tokens that are the same, ERC721 tokens often denote the ownership of something collectible such as artworks, game characters and items, and more recently, celebrity merchandise. ERC721 is a more advanced token type than ERC20, in that it requires a higher coding skill level to deploy.

Build Dapps on ETH with Angular 6 (Wixlib.com)

dApps:

Smart contracts on Ethereum can also be used to build decentralized applications (dApps) that are mini programs running on the Ethereum network and triggering actions when some predetermined conditions are met.

Other Applications:

There are more diverse and complex applications within the Ethereum Blockchain, such as Decentralized Finance (DeFi) solutions: Decentralized Exchanges (DEX), Lending/Borrowing contracts, yield farming, on-chain custody, and far more.

Creating a new Ethereum wallet on the popular MyEtherWallet platform

Storage and Wallets:

As with Bitcoin, there are plenty of ways to store Ethereum. The safest method is to store it in a cold wallet (offline wallets such as paper wallet or hardware wallets) or hot wallet (such as mobile or desktop wallets). Asset holders can also use a custody service that will store their tokens on a centrally managed cold wallet/vault (but thus limiting the benefit of decentralization by involving a third party).

Keeping cryptocurrencies on centralized crypto exchanges and other selling platforms is considered the riskiest option since the large volumes of bitcoin stored may attract hackers’ interest.

Technical Specificities:

  • Type: Native Coin
  • Total Supply: No hard Cap (not limited)
  • Subunit: 10–9 (gwei)/ 10–18 (wei)
  • Consensus: Proof of Work (PoW)/Proof of Stake (PoS)
  • Algorithm: EtHash
  • Encryption: Keckack
  • Blocktime: 13 seconds
  • Coding languages: Go, Rust, Solidity, C#, C++, Java, Python
  • Open source: Yes
  • Privacy: Pseudonymous (low)
  • Current version: Muir Glacier (#9,2M)
  • Previous versions: Olympic (pre-release) — Frontier (#0) — Ice Age (#200K) — Homestad (#1,15M) — DAO Fork (#1,92M) — Tangerine Whistle (#2,463M) — Spurious Dragon (#2,675M) — Byzantium (#4,37M) — Constantinople (#7,28M) — Istanbul (#9,069M)
  • Next Version: Serenity (ETH2.0)

Documentation:

Whitepaper: https://ethereum.org/en/whitepaper/ 

Github code: https://github.com/ethereum 

Official website: https://www.ethereum.org/ 

Explorer: https://www.blockchain.com/explorer 

Twitter account: https://twitter.com/ethereum 

Reddit: https://www.reddit.com/r/ethereum/ 

Wiki: https://en.bitcoinwiki.org/wiki/Ethereum 16667a5f7d9afe10c15d0e1fa905bb1a27865818e94ee4b2cb07a57937a5303a.jpg

How do you rate this article?

4


TradingBull
TradingBull

Cross Exchanges trading and Digital Assets management platform


TradingBull_articles
TradingBull_articles

TradingBull publications about specialized blockchain research, news and industry-related topics.

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.