What is Ethereum
Ethereum is an open source platform that allows developers to create and implement decentralized applications such as smart contracts and other complex legal and financial applications. The same name also bears the cryptocurrency with the second largest market capitalization, and even many people believe that it will overtake Bitcoin at some point.
In 2013, Bitcoin Magazine co-founder Vitalik Buterin shared the Ethereum white paper. The project description claims that Bitcoin needs a scripting language to develop applications. But when he failed to reach the necessary agreement, he proposed the development of a new platform with a more general scripting language. On the Ethereum project, Buterin said:
I am truly grateful to have the opportunity to work in such an interesting and interdisciplinary area of the industry where I can interact with cryptographers, mathematicians and economists, celebrities in their fields. I want to help build software and tools that already affect tens of thousands of people around the world, and work weekly on advanced problems in computer science, economics, and philosophy.
A brief chronology
- November 2013: Vitalik Buterin published the Ethereum white paper.
- January 2014: The development of the Ethereum platform was announced publicly. The original Ethereum development team consisted of Vitalik Buterin, Mihai Alisier, Anthony Di Lorio and Charles Hoskinson.
- August 2014: Ethereum completes its ICO and raises $18.4 million.
- May 2015: Ethereum testnet - Olympic released (Ethereum 0.9)
- July 30, 2015: The first stage of Ethereum's development - "Frontier" - was launched.
- March 14, 2016: Homestead, the first "stable" version of Ethereum, hits block 1,150,000.
- June 2016: The DAO hack happened and $50 million worth of Ether, which was 15% of the total supply at the time, disappeared.
- October 25, 2016: Ethereum hard fork - Ethereum Classic (ETC) emerges.
- October 16, 2017: Ethereum underwent the Byzantium update.
- February 28, 2019: Ethereum underwent the Constantinople update.
- December 08, 2019: Ethereum underwent the Istanbul update
- January 02, 2020: Ethereum has undergone the Muir Glacier update
- October 14, 2020: Ethereum launches the staking contract
- December 01, 2020: Genesis of the Beacon Chain
- April 15, 2021: Ethereum underwent the Berlin update
- August 05, 2021: Ethereum underwent the London update
- October 27, 2021: Ethereum underwent the Altair update
- December 09, 2021: Ethereum underwent the Arrow Glacier update
- June 30, 2022: Ethereum underwent the Gray Glacier update
How Ethereum works
Ethereum is a consensus protocol-based proof-of-stake (PoS) mechanism after its 2022 migration from proof-of-work (PoW). PoS is a blockchain technology that enables higher levels of transaction scalability and security. Unlike the traditional PoW system, where the mining process takes place through which new blocks are added to the chain, PoS requires miners to provide a portion of their coins as collateral to confirm transactions on the network.
When operating a PoS-based network, miners deposit (stake) their coins as collateral. Validators are responsible for creating consensus on the blockchain by verifying each new batch of transactions before they are added to the public ledger. They also receive rewards when they successfully validate blocks, and can incur penalties if they fail to do so.
From the early days of the Ethereum project, Ethereum planned to move from the PoW algorithm to PoS, with the main idea being to solve the network's problems with transaction speed and cost efficiency.
Ethereum enables developers to create decentralized applications. A decentralized application, or dApp, serves a specific purpose to users. Bitcoin, for example, is a dApp that provides its users with an electronic money system that enables online payments with the asset. Because decentralized applications are composed of code that runs on a blockchain network, they are not controlled by any individual or central authority.
Any services that are centralized can be decentralized using Ethereum. Think of all the brokerage services that exist in hundreds of different industries. From services such as loans provided by banks to intermediary services that are rarely available to most people such as property registries, voting systems, regulatory compliance and much more.
The difference between Bitcoin and Ethereum
Is Ethereum Similar to Bitcoin? The answer is both yes and no.
Like Bitcoin, Ethereum is a distributed public blockchain network. While there are some significant technical differences between the two, the most important distinction to note is the purpose and capabilities that come from them. Bitcoin offers one particular application of blockchain technology, an electronic money system that enables peer-to-peer (P2P) Bitcoin payments online.
While Bitcoin's blockchain is used to track ownership of digital currency, Ethereum's blockchain focuses on the execution of the program code of each decentralized application.
With Ethereum, instead of mining BTC, miners work to earn ethers (ETH), a type of cryptocurrency that powers the network. Beyond the tradable cryptocurrency, ether is also used by app developers to pay fees for transactions and services on the network.
To include transactions in their block, miners pay the so-called gas fee. Each execution of the smart contract requires a certain amount of gas to be sent along with it to get the miners to release it into the blockchain.
Although all blockchain networks have the ability to process code, most are severely limited. Ethereum is different. Instead of giving a limited set of operations, this blockchain allows developers to create whatever they want. This means they can create thousands of different apps that surpass anything we've seen before.
What is gas on the Ethereum network?
In theory, gas is a unit of measurement for the computational work of transactions or smart contracts executed by miners at their own expense to keep the Ethereum network running.
This is the fee or pricing value required to successfully complete a transaction or contract on the Ethereum blockchain platform. Valued in small fractions of the cryptocurrency ether (ETH), commonly referred to as gwei and sometimes nanoeth, gas is used to allocate resources on the Ethereum Virtual Machine (EVM) so that decentralized applications such as smart contracts can self-execute in a secure but decentralized manner.
The exact price of gas is determined by the supply and demand between the network's miners, who can refuse to process a transaction if the gas price does not meet their threshold, and the network's users, who are looking for computing power.
What is a smart contract?
Ethereum works with smart contracts. A smart contract is computer code that defines the guidelines of a contract and then ensures that the parties involved execute the contract according to those terms.
Blockchain technology allows two parties to initiate and execute a smart contract with each other without using a traditional third-party intermediary. Smart contracts are transparent and immutable, making it impossible for one party to later change the terms of the contract in their favor.
Most people think of contracts in a legal sense. Smart contracts can involve legal issues, but often don't. They are simply lines of code that perform a function.
You can think of a smart contract as a specialized type of business software. Developers create smart contracts to run their applications. Since these applications run on a decentralized network, they are called decentralized applications or dApps.
What is an Ethereum Virtual Machine (EVM)?
Virtual machines are machines that try to reach a higher level of abstraction than your usual operating system or OS. Unlike Windows or iOS, virtual machines are built on top of common operating systems to function like a physical computing machine.
In other words, virtual machines approach the computing power of physical machines by using a virtual architecture. They can run on many different types of operating systems and hardware, making them an ideal engine for a decentralized ecosystem.
EVM allows developers to create smart contracts in a programming language called Solidity. A popular application of smart contracts is to manage the generation and exchange of tokens. Many applications and protocols use tokens to reward users for actions that are important to its purpose. Without EVM none of this would have been possible.
The merger
A merger describes the event where Ethereum switches from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS).
Ethereum initially launched a separate Beacon Chain on December 1, 2020. It ran parallel to the Ethereum mainnet.
On September 6, 2022, the Ethereum community released a Bellatrix update to begin a process called "The Merger." With this first upgrade, the community decided to switch the PoW chain to a PoS-based one upon reaching a certain value of Total Terminal Difficulty (TTD) in the original Ethereum blockchain.
However, the Merger itself does not solve the problem of high gas prices – it only initiates a series of improvements that will ultimately reduce costs. These improvements were known as Ethereum 2.0, but that terminology was abandoned in early 2022.
How to buy Ethereum?
1. Choose a crypto exchange
There are numerous cryptocurrency exchanges and exchanges that range from easy-to-use systems to complex dashboards for advanced traders.
Since Ethereum is so popular, you will be able to purchase the token on most cryptocurrency exchanges, but it is recommended that you stick to a few of the more popular exchanges such as Binance, Kraken, Coinbase, etc. Different platforms come with different fees, security measures, and may include other features, so it's a good idea to do your research before signing up.
2. Create an account and verify it
Get started with account registration, which is completely free on the aforementioned platforms. For additional security, 2FA - two-factor authentication - is also activated. That way, you and your device are the only ones who can give access to the account.
It then goes through a KYC process, which involves providing personal information – ID card / passport / driving license details, proof of address (eg bank statement or utility bill).
After completing these steps, you are ready to buy, sell and trade Ethereum (ETH) as well as take advantage of various services such as staking.
3. Fund your account
Once your account is registered and verified, you need to deposit funds into the account in order to start using the platform's buying and trading services.
The main deposit options are:
- Credit/debit card
- Bank deposit
- Peer-to-peer (P2P)
Where to buy Ethereum?
On Binance, the world's largest cryptocurrency exchange, deposits are absolutely free.
Withdrawal fees from the platform are as follows:
If you have opted for direct account funding, depending on which fiat currency you use, the deposit fees are:
You can also buy Ethereum from our sponsors – cryptomat.io!
