Ethereum is a decentralized blockchain platform with great computational power. If we put it simply, that is a huge computer system that functions not within one PC (like it does with the majority of people) but within millions of devices all over the world simultaneously.
Thanks to the fact the project doesn’t have a single center, it is secured both from the hackers’ attacks and unexpected ‘crashes’ due to breakage that are common for systems with a single center.
Like in the case with the main cryptocurrency in the world, Bitcoin, the Ethereum system primarily functions for secure and protected transfers of cryptocurrency. But that is only one, the most evident function. The key and the most useful features of the project are hidden deeper and are used by computer technology specialists.
With the help of the Ethereum blockchain, it is possible to use a personal program code to:
Thanks to its versatility and universality, Ethereum is in highest demand among specialists of the DeFi field. Many projects create their own cryptocurrencies on its basis and release tokens of the ERC-20 standard.
In simple words, developers using Ethereum blockchain create and launch their code within the distributed blockchain of the cryptocurrency. As a result, programs get the same features as the platform they are working on has. DApps become decentralized and secured from any attempts of hacking and censorship.
It may seem illogical, but Ethereum and Ether are not the same thing; and the second name is not a shortening of the first one. But actually, everything is pretty simple:
Nevertheless, many equate them, and it’s unlikely you will be understood if you name the token by word Ethereum.
As we have said before, the main advantage of using Ethereum is the possibility of launching your code to the distributed system of this project.
Thus, you can create a program that lacks vulnerabilities of security. The developer does the following:
The bonus is also the complete openness of the blockchain. Those people who will want to use a developing of a programmer who has created DApps based on a smart contract will be able to study the code before they start working with it.
It’s obvious that this project, which has not only speculative value but also huge functional use, couldn’t but win users. And that is the reason why Ethereum takes second place after Bitcoin in the world top of cryptocurrencies by general cap parameter.
The basis of functioning of any cryptocurrency (and Ethereum as well) is a blockchain. The blockchain is called a huge database that is stored in a decentralized network of devices of users engaged in mining of cryptocurrency.
Metaphorically speaking, blockchain is a very large register regularly updated with new records about such elements as:
All data is united and added to the blocks, which are then checked and approved by miners. Thanks to the process of hashing, each new block is an element of a structured system, which contains information about the previous block. There is no randomness in their structure. Having found one block, one can easily find out which block it follows.
A unique code that never coincides with the code of other blocks is created in the process of hashing. An identifier in the form of hash is a parameter on the basis of information that has been added to the block. On the other hand, it’s impossible to receive information from it using a reverse decryption process.
Thanks to this mechanism of blockchain components bonding, a system with an inviolable and non-editable register is created. Any potentially successful attempt to amend this register (deletion of a block or its relocation) will lead to a full collapse of the whole system. It will not hold a status of original construction any more: all blocks will be considered potentially forged.
Bitcoin is the first generation blockchain, as many specialists call it. This project was created to bring to the world a maximally simple alternative to classical financial systems with their unwieldiness and expensiveness.
That is the main advantage of this blockchain and cryptocurrency specifically. With the help of miners and their equipment, Bitcoin has become the currency without a single center and without the chance to print money in addition or come up with other manipulations.
This cryptocurrency and its blockchain are an extremely inflexible formation. They are created in such a way that it is not possible to create apps and smart contracts on their basis, or it turns out they are not cost-effective even after a possible modernization during the update.
At the same time, Ethereum is a bright representative of the new generation blockchains. The project is not limited to the convenience of digital money use only. Its capabilities are enough to fulfill a range of some extra goals:
Ethereum was the first among effective blockchains of the second generation. Today it rightly gained rating leadership in this segment. Although it has a lot in common with Bitcoin, many distinctive features (from the economy of currency POV, not the blockchain) make it a comfy alternative to ‘digital gold’.
A smart contract is an ordinary program code without any complex formulations. Despite its name, it is neither smart nor a contract in classical understanding of these words. And the reason why it was called so is that execution of program code is done automatically when specific external conditions are met. The name ‘contract’ is the characteristic based on what function this code executes regularly: provides agreements between users.
The logic of smart contracts is usually really simple. As a rule, everything goes in such a schematic way (we came up with it for illustrative purposes):
The code is created so that it can be easily read by an electronic computer. Its publication means sending data to a special address, which registers the contract. Right after that, any network participant may affect the execution of conditions embedded into the code. And a smart contract itself can be neither deleted nor changed. Even if its creator will try doing that.
The type of contract described by us is only one simple scenario of the technology implementation. There are way more complex options when the link is set between the network of smart contracts, each of them having a condition that is somehow connected to the conditions of the rest.
A historical event happened in 2008 — an anonymous developer under the alias Satoshi Nakamoto published the first version of the Bitcoin Whitepaper. This event turned the game around, and a revolution in the field of finances happened. Several years later, a young programmer from Canada, Vitalik Buterin, created a project that developed the initial idea of cryptocurrencies and blockchain, allowing to use it for any type of apps. That is how he became a developer of the project, which is known as Ethereum these days.
In 2013, in his blog, he described the concept that was supposed to allow a decentralized computer to launch any apps if it had excessive resources and time. Thus, Buterin directed the thoughts of hundreds and thousands of developers to understand if there was a chance and potential to use blockchain beyond the initial limitations laid down in Bitcoin structure.
Ethereum was launched in an already distant 2015. Its original capital included 72 million units of cryptocurrency, 50 million of which were distributed between the participants of the initial coin offering — ICO. Everyone could purchase cryptocurrency at a pretty democratic price, which has already risen a hundred times.
The appearance of Ethereum had become an event that led to the creation of principally new types of cooperation in the global Internet network. One of the most successful options of such cooperation became DAO — decentralized autonomous organizations. Such projects were operated by a code, which was pretty similar to ordinary computer programs but was protected by blockchain and wasn’t located in one center.
The DAO crowdfunding platform had become a leader in the field at that time. It created an autonomous venture fund working on top of Ethereum due to a complex network of smart contracts. Users received a chance to invest in DAO tokens with a view to receiving income, the share of ownership, and the right of voice in the system.
However, it happened so that vulnerabilities were found in the code of this decentralized blockchain platform. Attackers took advantage of them, and one third of the whole project budget was instantly withdrawn by them. And considering the fact The DAO contained almost 14% of the whole number of Ethereum tokens at that time, this event was destructive both from a financial and reputational point of view.
Against this background, a discussion was held, and it was decided to launch a hardfork — a division of the network that would roll back all those changes in the blockchain code that had happened as a result of hackers’ actions. Eventually, these were created:
The successful attack on The Dao is a historical example showing that even blockchain technology can be vulnerable. An autonomous code is a great tool; however, it is created by people who are not free from mistakes.
On the other hand, the DAO specifically allowed us to understand how huge the potential of smart contracts is and that it should be actively developed with regard to potential problems that may occur when the ratio of risks and profitability and convenience is chosen wrong.
If you approximately get the principle of how any cryptocurrency works, you already understand that mining and generation of new cryptocurrency units are two main and interdependent processes. In addition to that, both of them serve for the protection and update of blockchain.
The same logic is within the Ethereum ecosystem as well:
As of the moment of article writing, the open market of ETH cryptocurrency contains 117 million 530 thousand coins of cryptocurrency.
In contrast to ‘digital gold’ in the form of Bitcoin, the emission schedule within the Ethereum ecosystem was not set up. If the first cryptocurrency is betting on a constant increase of the price due to scarcity and a gradual decrease in the mining speed, then the Ethereum project acts another way.
Vitalik Buterin and his team put their hopes in that the relevance of DApps in everyday life will also make cryptocurrency popular, in which fees on operations are paid out.
Mining is the basis of correct functioning and effective update in the network of any cryptocurrency, including Ethereum. In the process of the work of the mining system, nodes (devices of miners) provide their computational power for the needs of a single network.
Miners deal with hashing of transactions and information by creating blocks with specific numerical data of this hash.
A clear reward for the creation of a unit of block encourages competition by the capabilities of mining equipment. The number of miners is only rising, and the reward for them is single for everyone and is limited. That is why specialists try to launch as much powerful farms as possible in order to receive a bigger percentage of the reward.
A standard time to add a new block to the Ethereum network varies between 12 and 19 minutes. There is a probability that after the upcoming transfer from the Proof of Work algorithm to the Proof of Stake one, the time required for the procedure will reduce significantly.
This is exactly to quicken the creation of blocks and increase the parameter of the network scalability, a team of Vitalik Buterin wants to hold an update that will fully rework the protocol of reaching consensus and reward for supporters of this cryptocurrency.
Today, there are several options available to purchase ETH for familiar to everyone classical money. The most convenient to do that is via:
We recommend using legal exchanges that ensure maximum safety and activity based on legislation. Besides, they often support direct deals on ETH purchase not only for dollars but also for other fiat currencies.
Today cryptocurrency status is unresolved in most countries of the world, and the operations themselves are conducted outside of the banking sector and open economy. It means that cryptocurrency users do not receive any legal protection.
All mistakes, which include issues with fraudsters, wrong transfers, thefts, and others, will need to be solved independently or be taken for granted. That is the main disadvantage of any cryptocurrency, including ETH.
On the other hand, regulation is a gradual process that is the future. Even today, there is a range of countries where Ethereum, Bitcoin, and some other cryptocurrencies, if not equated to regular money, then approached pretty close to this status. And with such governmental recognition comes the possibility to seek help from the public bodies.