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Before we learn about Ethereum, we first need to get a recap of Bitcoin since it all was made possible through the invention of Bitcoin. Learn Bitcoin A to Z here. Simply put, Bitcoin is decentralised money. Before Bitcoin was invented, the only way to transfer money digitally was through a third party. It was simply impossible to transfer money directly without a central authority keeping an eye on your finances. Bitcoin put an end to it by creating a decentralised form of money. This currency, BTC, can be traded without a medium or third party. Each Bitcoin transaction is validated by the entire Bitcoin network, which consists of thousands of computers worldwide. Because of this, theoretically, the system is immune to shutdowns, manipulations and attacks. Learn all about Bitcoin Hash Rate.
Decentralised Finance or DeFi is all made possible thanks to blockchain technology. Blockchain technology comprises three components: cryptography, proof of work and decentralised network. These technologies already existed before blockchain became a thing. However, blockchain technology didn’t exist before the invention of Bitcoin. Once people started understanding Bitcoin and why and how this system works, they named the system blockchain technology. Read Must-know facts of blockchain technology. Blockchain to Bitcoin is what land is to builders. It is a system where one can build apps and programs on top of it. As people learned more about blockchain technology and its endless possibilities, they began to wonder “what else we can decentralise”.
Ethereum was first proposed in 2013 and launched in 2014 by Vitalik Buterin, a Russian-Canadian programmer and writer. Vitalik is the Co-Founder of Bitcoin magazine, and he was only 21 when he proposed Ethereum. Ethereum is like a DIY (Do It Yourself) platform for decentralised programs and apps, aka dApps. Check out these dApps’ secrets. Ethereum is not a currency; it is a platform, and Ether is its currency. Ethereum’s goal is to truly decentralise not just currencies but the Internet itself.
The Ethereum platform has thousands of independent computers (AKA nodes) running it, making it fully decentralised. Once a program is deployed to the Ethereum network, these computers will ensure it is executed as written. Ethereum is the infrastructure for running dApps worldwide. If you want to create decentralised apps that no one, not even you, can control, you can simply learn the Ethereum programming language named Solidity. Ethereum’s programming language is used for coding “ smart contracts “, which are the logic that runs dApps.
Here’s an all-in-one article on smart contracts. In layman’s terms, a smart contract is a set of conditions, a series of “if”s and “then”s like a real-life contract. It consists of a series of conditions and actions. Ethereum developers write the conditions for their dApps, and the Ethereum network executes them. These are called smart contracts because they deal with all the aspects of a real contract: enforcement, performance, management, payment, etc. The contract can detect whether the money is sent or not and trigger certain actions accordingly.
Ethereum’s initial idea was “code is law”. A contract on Ethereum has the ultimate authority, and nobody can overrule the contract. Once a smart contract is deployed on Ethereum, it cannot be edited or corrected even by the original author, meaning they are immutable. The only way to change the contract is to convince the entire Ethereum network that a change should be made, which is technically impossible. Unlike Bitcoin, Ethereum was created to handle very complex smart contracts. The more complex a smart contract is, the more difficult it is to secure it because more room is left for interpretations and loopholes.
Back when Bitcoin was created, the only decentralised system out there was Bitcoin. Its technology was pretty limited. Bitcoin is written in “turing incomplete” language, making it understand only a few sets of order, like who sent who, how much, and such. To create a more complex system, you can't use Bitcoin’s programming language, and you’ll need a different one. This is where Ethereum’s programming language Solidity came into play to fill the gap.
When people refer to the price of Ethereum, they are actually referring to Ether. Ether is the currency that incentivises people to run Ethereum on their computers. It works similar to how Bitcoin miners get paid for maintaining the Bitcoin blockchain. For deploying a smart contract on Ethereum, the coder must be paid in Ether to proceed. This is done so that people put in the effort and make optimised and efficient codes and won't waste the Ethereum network’s computing power on unnecessary tasks.
Ethereum’s native token Ether is used as the fuel of the system. This “fuel” is also known as Ethereum gas. Ether is the second-largest cryptocurrency by market cap, having a market cap of more than $315 billion! Ether is held in more than 180 million wallets and has a 97% liquidity score. Ether’s popularity has increased steadily on different social media platforms over the past year and is expected to surge even more after the launch of Ethereum 2.0! It grew by 47% on Twitter and 14% on Reddit in the past three months.
According to Ethereum’s whitepaper, the intent of Ethereum is to create an alternative protocol for building decentralised applications with particular emphasis on situations where rapid development time, security for small and rarely used applications, and the ability of different applications to interact very efficiently, are important. “Ethereum does this by building what is essentially the ultimate abstract foundational layer: a blockchain with a built-in Turing-complete programming language, allowing anyone to write smart contracts and decentralised applications where they can create their own arbitrary rules for ownership, transaction formats and state transition functions.”
We’ve discussed what Ethereum is good at, now let’s take a look at what Ethereum is not good at scalability. Ethereum’s network has limited scalability, meaning it can’t process large amounts of transactions fast enough. Therefore, the network can get overloaded, resulting in a surge in the price of Ethereum gas. Ethereum 2.0 aims to solve scalability issues by using shard chains. Ethereum will also switch from the Proof of Work consensus mechanism to Proof of Stake, which is a much more energy-efficient mechanism. Learn all about consensus mechanisms.
The greatest thing that Ethereum adds to our lives is what it removes! The need to trust. Using the decentralised platform of Ethereum, we won’t need to trust a third party. Although it is too soon to measure its success, the future is bright, and the way Ethereum opened is inspiring lots of projects globally. If you are interested in investing in Ethereum and being a part of its inspiring project, you can find the full report here. Also, Cryptologi.st has come into the business to facilitate the process of searching and learning. All you need crypto-wise is just a click away.