Ethereum refers to an open-source, blockchain-based, decentralized software platform with its cryptocurrency, ether, launched in 2015. It allows smart contracts and Distributed Applications (Apps) to be designed and run without the risk of downtime, fraud, control, or third-party intervention.
Ethereum is both a framework and a Turing-complete programming language that runs on a blockchain, allowing developers to create and publish distributed applications.
Getting to Know Ethereum
Ethereum applications are driven by ether, a platform-specific cryptographic token. In 2014, Ethereum held a pre-sale for ether, attracting immense interest. Ether also acts as a transportation mode on the Ethereum network and is primarily pursued by developers seeking to create and run applications on the platform. Ether serves two purposes: it is exchanged on cryptocurrency exchanges like other cryptocurrencies and is used within Ethereum to run applications and even monetize work.
Ethereum can be used to “codify, decentralize, protect, and exchange just about anything,” according to the company.
After a malicious actor robbing more than 50 million USD worth of funds raised on the DAO, a series of intelligent contracts derived from Ethereum’s software network, Ethereum was split into two blockchains, Ethereum and Ethereum Classic 2016. The new Ethereum was created as a hard fork from the original program, intending to prevent future malware attacks. 2 Ethereum was the second-largest virtual currency on the market in May 2021, behind only Bitcoin. 3 Ether currency is much easier to obtain than bitcoin (approximately 14 or 15 seconds versus bitcoin’s near-uniform 10 minutes), and there are more ether units in circulation than bitcoin.
Launching and achieving milestones
The Ethereum Foundation created many codenamed prototypes of Ethereum as part of their proof-of-concept series. The final version and public beta pre-release was called “Olympic.” The Olympic network offered a bug bounty of 25,000 Ether to users who stress-tested the Ethereum blockchain’s boundaries. “Frontier” was the tentative experimental release of the Ethereum platform in July 2015.
After its inception, Ethereum has undergone several expected protocol updates, significant improvements to its underlying features, and reward mechanisms. A hard fork is used to implement protocol upgrades. The most recent Ethereum update was “Berlin,” which went live on April 14, 2021. The next update, dubbed “London,” is set to debut in July. London will have Ethereum Improvement Proposal (“EIP”) 1559, which will kill Ether used for transaction fees rather than distributing it to miners, potentially reducing the total supply.
Ethereum 2.0, or Eth2, is a significant update to Ethereum that is currently being developed open-source. The critical plan of the upgrade is to boost the network’s transaction throughput from about 15 transactions in a second to tens of thousands of transactions in a second.
The stated goal is to increase the overall throughput by dividing the workload into several parallel blockchains (referred to as sharding) and then having them all share a standard consensus proof-of-stake blockchain, such that maliciously tampering with any single chain will require tampering with the common consensus, which would cost the attacker much more than they could ever gain from an attack.
The introduction of Ethereum 2.0 (also known as Serenity) will take place in three stages:
- On December 1, 2020, “Phase 0” was published, resulting in the Beacon Chain, a proof-of-stake (PoS) blockchain that will serve as Ethereum 2.0’s central communication and consensus center.
- In “Phase 1,” shard chains will be generated and linked to the Beacon Chain.
- In “Phase 2,” state execution will be implemented in shard chains, with the existing Ethereum 1.0 chain scheduled to become one of Ethereum 2.0’s shards.
Ethereum is a permissionless, non-hierarchical network of computers (nodes) that create and reach consensus on an ever-growing sequence of “blocks,” or batches of transactions referred to as the blockchain. If a block is considered legitimate, it must contain an identifier for the block it must immediately follow in the chain. When a node attaches a block to its chain, it executes the transactions in that block in the order they were added, affecting Ethereum account ETH balances and other storage values. In a Merkle tree, these balances and values, collectively known as the state, are kept separate from the blockchain on the node’s machine.
Each node interacts with a limited number of other nodes in the network, known as peers. When a node wants to add a new transaction to the blockchain, it sends it to its peers, who then pass it on to their peers, and so on. It spreads across the network this way. Miners keep track of all of these new transactions and use them to generate new blocks, which they then send out to the rest of the network. When a node receives a block, it tests the validity of the block and all of the transactions contained within it, and if they are legitimate, it adds the block to its blockchain and executes all of the transactions contained therein. Due to the non-hierarchical nature of the network, a node can obtain competing blocks, which may form competing chains. The network reaches consensus on the blockchain by applying the “longest-chain law,” which states that the canonical chain is the one that has the most blocks at any given time. Since miners do not want to waste their computing resources attempting to add blocks to a chain abandoned by the network, this rule achieves consensus.
Ether (ETH) is a cryptocurrency created by the Ethereum protocol to reward miners who add blocks to the blockchain using a proof-of-work method. It is the only currency that can be used to pay transaction fees, which go to miners. The block reward and transaction fees provide miners with an incentive to keep the blockchain rising (i.e., to keep processing new transactions). As a result, ETH is critical to the network’s service. Each Ethereum account has an ETH balance, and it is possible to submit ETH to any other Ethereum account. A Wei is the smallest subunit of ETH and is equivalent to 10-18 ETH. Ether is sometimes mistakenly referred to as “Ethereum.”
The ticker symbol for Ether is ETH, and it is traded on exchanges. The currency symbol is often the Greek uppercase Xi character (). The transition to Ethereum 2.0 may reduce the rate at which Ether is issued.
Since the EVM’s instruction set is Turing-complete, Ethereum contracts can perform any computer program task. The development of fungible (ERC20) and non-fungible (ERC721) tokens with various properties, crowdfunding (e.g., initial coin offerings), decentralized finance, decentralized exchanges, decentralized autonomous organizations (DAOs), games, prediction markets, and gambling are all examples of typical Ethereum applications.