ALL ABOUT ETHEREUM
What is Ethereum:
Ethereum is a decentralized, open-source blockchain platform that was created in 2015. It is designed to enable the creation of decentralized applications (dApps) and the management of digital assets through the use of smart contracts.
Ethereum is often referred to as a “world computer” because it provides a global network of nodes that can execute code in a decentralized and trustless manner. This allows developers to build applications that are resistant to censorship, fraud, and third-party interference.
In addition to its role as a platform for dApps, Ethereum is also used as a cryptocurrency. ETH is the native cryptocurrency of Ethereum network. The native cryptocurrency of the Ethereum network is Ether (ETH), which is used to pay for transactions and computational services on the network.
Ethereum has been a major player in the cryptocurrency space since its launch, and it has inspired the creation of many other blockchain platforms and projects. Its decentralized design and support for smart contracts have made it a popular platform for decentralized finance (DeFi) applications and NFTs (non-fungible tokens).
Overall, Ethereum is a revolutionary technology that has the potential to change the way we think about and use the internet. Its decentralized design, support for smart contracts, and ability to host a wide range of applications make it a key player in the emerging decentralized web.
How Ethereum operates on Blockchain:
Ethereum is a blockchain-based platform that enables the creation and execution of decentralized applications (dApps) through the use of smart contracts. Ethereum uses a decentralized network of nodes to process and validate transactions, which are recorded in a public ledger called the blockchain.
Smart contracts are self-executing programs that automatically enforce the terms of an agreement between parties. They are written in a programming language called Solidity and run on the Ethereum Virtual Machine (EVM), a decentralized runtime environment that executes smart contracts.
Ethereum uses a cryptocurrency called Ether (ETH) as a means of payment for transaction fees and as a reward for validating transactions through a process called mining. Miners use their computing power to solve complex mathematical problems, which allows them to add new blocks to the blockchain and earn Ether as a reward.
What are the different versions of Ethereum:
There are different versions of the Ethereum software that are designed for different purposes. Here are a few types or versions of Ethereum:
Ethereum Mainnet: This is the main and original version of the Ethereum network that allows the creation and execution of smart contracts, as well as the transfer of Ether and other tokens.
Ethereum 2.0: This is an upgraded version of the Ethereum network that is being developed to improve scalability, security, and sustainability. Ethereum 2.0 uses a new consensus mechanism called Proof of Stake (PoS) instead of the current Proof of Work (PoW) consensus mechanism.
Ethereum Classic: This is a version of Ethereum that split from the main Ethereum network after a controversial hard fork in 2016. Ethereum Classic retains the original blockchain and does not include the updates made to the main Ethereum network since the split.
Private or Permissioned Ethereum: These are versions of Ethereum that are designed for private or enterprise use cases. They allow organizations to create their own private blockchain networks with their own rules and permissions, while still using the Ethereum software and programming language.
What is Gas:
Gas is a unit of measurement for the amount of computational effort required to execute a transaction or contract on the Ethereum network. Each transaction or contract execution requires a certain amount of Gas, which is paid for in Ether.
In Ethereum, every operation that is executed on the network has a specific Gas cost associated with it. The more complex the operation, the more Gas is required to execute it. This Gas cost is intended to prevent spam and denial-of-service attacks on the network, by requiring users to pay for the computational resources they consume.
The Gas cost of a transaction is determined by the size and complexity of the transaction, as well as the current demand for processing power on the network. The Gas price is set by the user who initiates the transaction, and is the amount of Ether they are willing to pay for each unit of Gas. Miners prioritize transactions with higher Gas prices, as they stand to earn more Ether by processing them.
If a transaction runs out of Gas before it can be completed, it will fail and any changes made to the blockchain will be reverted. The Gas used for the failed transaction is still consumed and paid for by the user who initiated the transaction. Therefore, it’s important to set the Gas price and limit appropriately to ensure that transactions are executed successfully.
What is ETH:
ETH is the native cryptocurrency of the Ethereum network. It is used to pay for transaction fees and to incentivize miners to validate transactions and add new blocks to the blockchain.
ETH is a digital asset that can be bought, sold, and traded on cryptocurrency exchanges. It is also used as a medium of exchange for dApps and smart contracts that are built on the Ethereum network.
ETH has a maximum supply limit of 120 million, which is designed to prevent inflation and maintain its value. Unlike Bitcoin, which has a hard cap of 21 million coins, Ethereum has no fixed supply limit and new coins are created through a process called mining.
ETH is also used as collateral in various decentralized finance (DeFi) applications, where users can borrow or lend cryptocurrency without the need for a centralized intermediary. Overall, ETH is a key component of the Ethereum ecosystem and plays a vital role in facilitating the creation and execution of decentralized applications.
Ethereum features and application:
Ethereum has several unique features that enable the creation and execution of decentralized applications (dApps) and smart contracts on its platform. Some of its key features include:
Smart Contracts: Ethereum’s smart contract technology allows for the creation of self-executing programs that enforce the terms of an agreement between parties. This allows for the creation of decentralized applications and systems that can operate autonomously, without the need for intermediaries.
Decentralized Applications (dApps): dApps are applications that run on a decentralized network, such as Ethereum, rather than on a centralized server. This allows for greater transparency, security, and resistance to censorship.
Ethereum Virtual Machine (EVM): The EVM is a runtime environment that executes smart contracts on the Ethereum network. It provides a secure and isolated environment for executing code and ensures that smart contracts behave predictably and consistently.
Gas: Gas is a unit of measurement for the amount of computational effort required to execute a transaction or contract on the Ethereum network. It helps to prevent spam and denial-of-service attacks on the network.
Cryptocurrency: Ethereum’s native cryptocurrency, Ether (ETH), is used to pay for transaction fees and incentivize miners to validate transactions and add new blocks to the blockchain. It can also be used as a medium of exchange for dApps and smart contracts.
Some of the applications of Ethereum and its ecosystem include:
Decentralized Finance (DeFi): DeFi refers to a variety of financial applications that operate on a decentralized network, such as Ethereum. These applications include lending and borrowing platforms, decentralized exchanges, and prediction markets.
Gaming: Ethereum-based games are becoming increasingly popular, as they allow for the creation of unique and tradable in-game assets.
Supply Chain Management: Ethereum can be used to create secure and transparent supply chain management systems that track the movement of goods and ensure their authenticity.
Identity Verification: Ethereum can be used to create decentralized identity verification systems that allow individuals to prove their identity without the need for a centralized intermediary.
Overall, Ethereum’s features and applications enable the creation of a wide range of decentralized and autonomous systems that have the potential to transform various industries and sectors.
Issues with Ethereum blockchain:
Some of the key issues related to Ethereum include:
Scalability: The current version of Ethereum has limited scalability, leading to slow transaction processing times and high fees during times of network congestion.
Energy consumption: Ethereum currently relies on a proof-of-work consensus algorithm, which requires significant energy consumption to maintain the network.
Security: While Ethereum is generally considered to be secure, there have been instances of smart contract vulnerabilities and hacks, resulting in the loss of funds.
Adoption: Despite its popularity and potential, Ethereum still faces challenges in achieving widespread adoption and use cases beyond speculative investment.
Governance: Ethereum’s decentralized nature makes governance and decision-making difficult, as there are often competing interests and factions within the community.
Gwei (or “gigawei”) is a unit of measurement for the amount of gas used in an Ethereum transaction. Gas is a unit used to represent the computational effort required to execute a transaction or smart contract on the Ethereum blockchain.
One Gwei is equal to one billion (1,000,000,000) wei, which is the smallest denomination of ether (ETH), the native cryptocurrency of the Ethereum network. So, for example, if a transaction requires 100,000 units of gas and the current gas price is 20 Gwei, the total cost of that transaction in ETH would be 0.002 ETH (100,000 gas units x 20 Gwei/gas / 1 billion Gwei/ETH = 0.002 ETH).
Gwei is often used to express gas prices and transaction fees on the Ethereum network, as it allows for more manageable and precise units of measurement than using full units of ETH.
What is an EVM & Purpose of EVM:
The Ethereum Virtual Machine (EVM) is a software environment that runs on the Ethereum network and is responsible for executing smart contracts and processing transactions. The EVM is a crucial component of the Ethereum network, as it allows for the creation of decentralized applications (dapps) and the execution of smart contracts.
The EVM is a complete, Turing-complete virtual machine, which means it can execute any kind of program or algorithm that can be expressed in code. It is a sandboxed environment, meaning that it operates in a secure and isolated manner, with no access to the underlying hardware or operating system.
When a transaction is sent to the Ethereum network, it is processed by nodes running the Ethereum software, which includes the EVM. The EVM executes the code contained within the smart contract and updates the state of the Ethereum blockchain accordingly. This allows for the creation of decentralized applications that can execute complex logic and interact with other applications on the network, without the need for a centralized authority or intermediary.
Overall, the Ethereum Virtual Machine is a critical component of the Ethereum network, providing a secure and efficient platform for the execution of smart contracts and the development of decentralized applications.
The purpose of the EVM is to provide a secure and efficient platform for the execution of smart contracts. The EVM ensures that each smart contract executes correctly and consistently on all nodes on the Ethereum network, regardless of the language used to write the code.
The EVM is a complete, Turing-complete virtual machine, meaning it can execute any kind of program or algorithm that can be expressed in code. It is also a sandboxed environment, which means it operates in a secure and isolated manner, with no access to the underlying hardware or operating system.
The EVM provides a standardized set of instructions, known as the Ethereum Instruction Set, which allows smart contracts to interact with the Ethereum blockchain and with other smart contracts. This enables developers to create complex decentralized applications that can execute a wide range of functions, including financial transactions, data storage, and governance mechanisms.
Hello, this is Zohaib.
I'm a certified cryptocurrency expert and professional banker with over 17 years of experience in trade finance and corporate banking. With a passion for technology evangelism and a drive to help people understand complex digital products, I have dedicated myself to providing clear and concise explanations of emerging financial technologies such as cryptocurrencies, blockchain, and other innovative financial products. Through this platform, I seek to share my knowledge and insights with others, helping them to navigate the rapidly evolving landscape of digital finance.