Ethereum is a decentralized blockchain platform that was launched in 2015 by Vitalik Buterin and Gavin James Wood. The platform allows for the transfer of value through its native cryptocurrency, Ether (ETH). Ether is a scarce digital currency that also serves as a platform for many other cryptocurrencies while executing decentralized smart contracts.
Since its launch, Ether’s popularity has grown significantly, making it the second-largest cryptocurrency by market capitalization, following Bitcoin. Individuals and businesses worldwide use it for investing, trading, and making purchases. Moreover, the Ethereum platform has become the preferred choice for developers looking to create decentralized applications and smart contracts.
Ethereum enables developers to create Decentralized Applications (DApps) and smart contracts without the risk of fraud, downtime, or third-party interference. It uses a blockchain similar to Bitcoin’s and relies on a decentralized network of computers called nodes to maintain a record of transactions.
Currently, Ethereum is facing intense competition from other blockchain networks in the cryptocurrency market, including Solana, Cardano, and Polkadot. While these competitors offer unique features such as lightning-fast transaction speeds, environmentally sustainable alternatives, and interoperability, Ethereum still remains a popular choice for Web3 veterans in terms of smart contract blockchains. As the demand for decentralized finance protocols and decentralized applications continues to rise, the choice of infrastructure to build the future of Web3 will be a crucial factor for widespread adoption.
When using decentralized applications (DApps), users need to pay fees called “Gas,” which is a specific amount of Ether required for activities such as trading Ethereum-based tokens, creating smart contracts, interacting with DApps, or minting Non-Fungible Tokens (NFTs). Gas fees can differ based on the computational power required for each transaction.
How does Ethereum work?
The Ethereum network has its blockchain, which is similar to Bitcoin’s and relies on a decentralized network of computers called Nodes. A validator plays a crucial role in discovering new blocks, which are then verified by the rest of the mining network to ensure that balances are accurate and to prevent double-spending.
Initially, Ethereum used the Ethash hashing algorithm and a Proof of Work (PoW) mining mechanism to verify transactions. However, with the “Serenity” upgrade, also known as Ethereum 2.0, Ethereum switched to a Proof of Stake (PoS) consensus mechanism in September 2022. This upgrade allows the network to scale while addressing several issues. Following the launch of the Ethereum 2.0 Beacon Chain, staking became possible on the network. The rewards for Ethereum staking are determined by the distribution curve, and a minimum of 32 ETH is required to participate.
Ethereum is gearing up for its next major upgrade, referred to as the Ethereum Shanghai upgrade. The upcoming Ethereum Shanghai upgrade, also known as the Ethereum Shanghai fork, aims to provide a solution for ETH stakers to retrieve their staked funds as validators by adding withdrawal functionality.
Anyone can validate the Ethereum network by running a Full Node, Light Node, or Full Archive Node.
A Light Node can validate transactions by downloading only block headers, which saves storage and bandwidth resources. However, they may need additional data from Full Nodes, which can slow down transaction validation.
A Full Node has everything it needs to verify blocks and interact with any smart contract. However, it requires significant computing and bandwidth resources and takes weeks to sync and maintain as the blockchain grows.
An Archive Node keeps a complete record of the blockchain, including all previous states. This is useful for some applications but generally excessive. Full Nodes and Archive Nodes offer more comprehensive information but require a greater investment of time and resources to set up and maintain.
The use of smart contracts has led to the emergence of Decentralized Autonomous Organizations (DAOs) and a thriving Decentralized Finance (DeFi) ecosystem. These innovative financial applications enable the creation of new financial instruments, lending protocols, and trading platforms that are open, transparent, and accessible to anyone with an internet connection.
Ethereum Token Standards
In addition to supporting smart contracts, Ethereum’s blockchain can also store other cryptocurrencies known as “tokens” by implementing the ERC-20 compatibility standard. ERC-20 is used to create fungible tokens, including mainstream cryptocurrencies, while ERC-721 is used for creating non-fungible unique tokens, such as NFTs. ERC-1155 is a multi-token standard used for creating fungible, non-fungible, and semi-fungible tokens.
With its committed global community, Ethereum boasts the largest ecosystem in the world of cryptocurrency and blockchain. It has a wide range of applications, from processing various types of financial transactions and executing smart contracts to storing data for third-party applications. Ethereum’s developers are constantly exploring new ways to enhance the network and develop new applications. The decentralized nature of the Ethereum network removes the need for third-party intermediaries, such as banks in financial transactions or third-party web hosting services, making it a reliable and secure platform for decentralized transactions.
Ethereum’s ultimate goal is to become a global platform for decentralized applications, enabling users to create and run software that is resistant to downtime, censorship, and fraud. With its wide range of functionalities and growing ecosystem of DApps and decentralized finance protocols, Ethereum is well on its way to achieving this goal.