Introduction
Most people think Ethereum is a name for cryptocurrency but the name is actually for a blockchain network. Ethereum is an open-source, globally decentralized computing infrastructure that executes programs called smart contracts. It uses a blockchain to synchronize and store the system's state changes and a cryptocurrency called ether to meter and constrain execution resource costs. This means that Ethereum is like a giant computer that is being shared by people all over the world that runs or performs specific tasks automatically when the conditions are being met using blockchain technology to keep track and organize everything securely. Ether, Ethereum native currency is paid before this computer can be used and also to run these programs and control how much people can use this computer.
The significance of Ethereum lies in its role as the foundation for a new generation of decentralized applications and protocols. It introduced the concept of a programmable blockchain, allowing developers to create complex applications that can run without interference from third parties, censorship, or downtime.
The purpose and construction of Ethereum are strikingly different from other open blockchains that preceded it, including Bitcoin. In contrast to Bitcoin, which has a restricted scripting language, Ethereum is designed to be a general-purpose programmable blockchain that runs a virtual machine capable of running code that is arbitrary and of unbounded complexity. Ethereum's language is Turing Complete, which means that Ethereum is used as a general-purpose computer, in contrast to Bitcoin, whose Script language is limited to simple true/false evaluation of spending conditions.
In this article, the birth of Ethereum, the Ethereum blockchain, smart contracts, ETH, DApps, wallet and storage will be explained in detail.
The Birth of Ethereum
The potency of the Bitcoin model, which was recognised by those seeking to develop advanced applications outside of cryptocurrency use, led to the birth of Ethereum. However, developers faced challenges which were either building on top bitcoin or starting a new blockchain. Building on Bitcoin requires adapting to the purposeful limitations of the network and looking for workarounds which means that limited projects with less data storage, limited transaction types etc can work on Bitcoin. For projects that require more capacity before they can run freely and easily, a new blockchain is the only option.
In late 2013, Vitalik Burtein, a young programmer and Bitcoin enthusiast proposed a more comprehensive strategy to the Mastercoin team, allowing scriptable, flexible, but not Turing-complete contracts to take the place of Mastercoin's specialised contract language. The Mastercoin team was impressed, but this suggestion represented a shift that was too radical to be accommodated in their development roadmap. In December 2013, Vitalik started sharing a whitepaper that outlined the idea behind Ethereum: a Turing-complete, general-purpose blockchain. This early draught was seen by a small group of people, who provided feedback that Vitalik used to improve the idea.
In early 2014, the Ethereum project was formally announced, and the Ethereum Foundation was established to support its development. The foundation conducted a public crowd sale of Ether (ETH), Ethereum's native cryptocurrency, to raise funds for expansion. The Ethereum network went live with its first release, known as "Frontier," on July 30, 2015. This marked the beginning of the Ethereum blockchain's public existence, and developers started building decentralized applications (dApps) on the platform.
The primary purpose behind the creation of Ethereum is to serve as a decentralized platform for building and executing smart contracts and decentralized applications (dApps). Ethereum is also a distributed state machine that can track both the state of currency ownership, i.e. making sure everyone knows who has how much money, and no one can cheat. The state transitions of general-purpose data stores e.g. if you have a list of high scores in a game, this would track when someone gets a higher score and updates the list.
Understanding the Ethereum Blockchain
Blockchain is a distributed and decentralized digital ledger technology that records transactions across a network of computers securely and transparently. This is the underlying technology behind Web3. Each computer in the blockchain is connected and shares a copy of the ledger, meaning this ledger is not prone to manipulation.
Blockchain functions in this manner:
- Distributed Ledger: Blockchain operates on a network of computers in which each computer has a copy of entire details on the blockchain.
Transaction:
when a user initiates a transaction e.g. sending a message to another user, the transaction consists of the sender's address, the receiver's address, the encryption of the message sent and the digital signature, this information is sent across all nodes.Consensus:
Before a transaction is added to the block, validation has to be carried through the consensus mechanism. This consensus mechanism varies from one network to another e.g Proof of Stake(PoS), Proof of Work(PoW), Proof of Burn(PoB) etcImmutability:
When a block is added to the blockchain, it is very difficult to change or manipulate any of the details inside it.Transparency:
Blockchain is public which allows everyone to see the entire activities.
Ethereum's Blockchain
It is a decentralized and open-source platform that enables developers to build and deploy smart contracts and decentralized applications (dApps).
Ethereum Blockchain differs from traditional databases in terms of:
- Decentralization:
Ethereum's blockchain is decentralized in that a single entity doesn't control it while the traditional database is controlled by a single entity i.e. the security of those data is entrusted by such an organisation.
Transparency: Ethereum's blockchain is public and transparent while traditional databases are private and restricted.
Immutability: Once data is added to Ethereum's blockchain, it becomes impossible to alter any of the details while in a traditional database, details on it can be changed, manipulated or deleted by anyone who has access to them.
Security: Ethereum uses cryptographic techniques to secure transactions and data while traditional databases rely on minimal security techniques to ensure data which is prone to hacking or failure.
Smart Contracts - The Game Changer
Cryptographer Nick Szabo coined the term Smart Contract in the 1990s and defined it as “a set of promises, specified in digital form, including protocols within which the parties perform on the other promises".
Smart Contracts are sets of programs written in high-level language such as Solidity etc which are executed when certain conditions are met but to run, they must be compiled to the low-level bytecode that runs in the Ethereum Virtual Machine(EVM). Smart contracts are an effective and transparent means of automating and securing different kinds of contracts in a transparent and trustless way. They are an essential component of blockchain technology and play a crucial role in the creation of decentralised apps (dApps).
Smart contracts are essential to Ethereum because they allow developers to build decentralized applications (dApps) on the Ethereum network. DApps are applications that are not controlled by any single entity, and they can be used to automate a wide variety of transactions, such as the sale of a house or the payment of insurance premiums.
Examples of real-world applications for smart contracts are :
- Decentralized Exchanges(DEXes)
- Decentralized Finance (DeFi) applications
- Non-Fungible Tokens(NFTs)
Ether (ETH) - Ethereum's Native Cryptocurrency
Ether _is the native currency for Ethereum which is also known as "ETH". Ether is subdivided into smaller units the same way normal coins are subdivided into smaller units e.g. 1 Naira is equivalent to 100kb in Nigeria currency. The smallest unit of Ether is _wei. One ether is equivalent to a quintillion wei (1, 000 000 000 000 000 000). The role of ether in the ecosystem is used as a payment for transaction and gas fees, Incentivizing Miners/Validators and stored as values.
Ether is used In:
Transaction
Ether can be sent and received from one person and another through participants' Ethereum addresses. Ether is also used for interacting with smart contracts.Transaction Fees (Gas)
When you initiate a transaction or interact with a smart contract, you pay a transaction fee known as "gas." Gas is paid in Ether and covers the computational work required to process and validate the transaction on the Ethereum network.Store of Value
Ether can be stored as a value just like traditional currencies to preserve wealth or as a hedge against inflation.Collateral for DeFi and Financial Activities:
In decentralized finance (DeFi) applications, Ether can be used as collateral to borrow other cryptocurrencies or stablecoins. This allows users to leverage their Ether holdings for various financial activities, such as lending, borrowing, and trading.
Decentralized Applications (DApps)
Decentralized Applications (DApps) are software applications that run on blockchain and they are designed to be decentralized. They made use of Ethereum's blockchain by interacting with smart contracts to guarantee security and transparency, as well as to issue and manage tokens that were available worldwide.
Examples of Popular successful DApps on the Ethereum platform include:
Chainlink
- Uniswap
- Brave Browser
- Rarible
- Gaming DApps
- Aave
Wallets
Wallet is a software application that serves as the primary user interface to Ethereum. The wallet controls access to a user’s money, managing keys and addresses, tracking the balance, and creating and signing transactions. Ethereum wallet is one with a single private key and address that you reuse for everything.
The misconception about Ethereum wallets is that wallets hold your coin or tokens but the truth is Ethereum wallets only hold your keys while your coins and tokens are recorded on the Ethereum blockchain using the keys to approve transactions carried out by wallets by the user. Ethereum wallet can be seen as a keychain containing private keys and public keys.
There two types of wallets which are:
- Non-deterministic Wallet All the keys here are independently generated from different random numbers. The keys here are not related to each and it is also known as the JBOK wallet(Just a Bunch Of Keys). This type of wallet is old style and it has been replaced with the deterministic wallets. e.g Bitaddress.org
A non-deterministic wallet will need to regularly increase the list of keys, meaning the user will need to do a regular backup or else the user may lose their token or coin in case of an accident.
- Deterministic Wallet in this type of wallet, all the keys are generated from a single random number known as a Seed. The keys are related to each other and can be generated again if one has the seed. e.g MetaMask
Conclusion
In this article, we've covered fundamental aspects of Ethereum that are essential for beginners to grasp. These include the historical background of Ethereum, an overview of the Ethereum blockchain, the concept of smart contracts, Ethereum's native cryptocurrency known as ether, insights into decentralized applications (DApps), and an introduction to wallets. For a deeper understanding of Ethereum, consider exploring this resource.
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