Everybody’s Guide to Ethereum

Everybody’s Guide to Ethereum

What is Ethereum? 

Suspense for a starter

In a nutshell, Ethereum is the second aspiring to become the first and the best. Developed in 2013 and launched by a crazy genius Vitalik Buterin in 2015, Ethereum technology adds some sophisticated tweaks to what is already seen as mind-boggling by outsiders: the blockchain. The native cryptocurrency of the Ethereum network is actually called Ether, but the conventional usage merged the network’s name and that of the coin into a single notion, and we have to cater to the majority. So, for the purpose of this article there will be nothing but Ethereum and ETH cryptocurrency. We do want you to find this piece on the world wide web at the end of the day and help you to find an answer to the eternal question: what is Ethereum?

So what is it?

Ethereum network is not a spin-off from Bitcoin or just an attempt to follow the leader, but a completely different blockchain platform. It follows the same underlying principles of immutability of the database (ledger) itself, transparency, traceability and maximum decentralization of transactions. Yet, it brings in the concept of Decentralized Finance (DeFi) that goes way beyond buying ETH or any other coin. The underlying Ethereum technologies are tricky, and we will have to touch on them briefly below, but the essential idea is to use the obvious benefits of blockchain to create a self-governed financial ecosystem for application developers, service providers, investors, traders and other types of users. In other words, Ethereum is more than just its native coin, it is many coins, gambling applications, voting tools, fundraising options (ICOs), tokenization and, overall, the first step towards the genuine Web 3.0 for all.

You can go to the exchange pages (USD-ETH, EUR-ETH and others) and buy ETH

How it works

So what is Ethereum blockchain, what are the platform particularities, how does its cryptocurrency work and how is it generated? If you are thrilled to get the answers, go on reading. 

A peer-to-peer flat-structured network, Ethereum manipulates multiple types of entities and flows; you can always go to the official documentation to learn about all of them, but we decided to make things a bit easier for you and covered the most important in plain English.

Smart Contracts

Smart contracts are the ticket to the DeFi ecosystem. Basically, these are programming scripts, pieces of code, that allow defining rules for automated execution of a specific scenario or procedure. And yes, Ethereum even has its own programming language used to implement smart contracts: Solidity.

There can be multiple smart contracts for coins transfer, each providing for various conditions. There are smart contracts for gambling that create a new game, invoke a ruleset and make sure settlements are carried out fairly. More and more different smart contracts appear in the network, proving that blockchain can provide a flexible environment for an ecosystem of decentralized applications, or DApps

The term “contract” is used because there is a similarity to real world-legal contracts: a hardcoded agreement is established between the application, the network and a user on how a transaction is processed. 

GAS

From the user perspective, gas is the Ethereum transaction fee payable to miners. And, if you are not keen on learning much more you probably should skip this paragraph altogether. If you are curious, though, let’s dig a little bit deeper. Gas cost of each operation initiated within the network is specified in the network rules (hardcoded) taking into account the resources (storage and computation) required to perform this operation. 

When a transaction is initiated, the sender specifies how much resources they are ready to spend to have it processed (gas limit) and how much they are ready to pay per unit of these resources to get it processed faster (gas price). We can actually see a certain similarity to the per mile gas consumption depending on an engine and fuel types. You define how fast and how cheap you will get from point A to point B. 

Mining: PoW and PoS

To understand Ethereum technologies and Ethereum use, we will have to get at least a bird eye view of the consensus algorithms (yes, it’s plural now). Of course we are not going to discuss how the EVM (Ethereum virtual machine) processes bytecode, but we have to give you an idea of how ETH is mined and how Ethereum transactions are validated in this network to generate blocks.

Originally, Ethereum only relied on the same consensus mechanism as Bitcoin uses: the Proof of Work (PoW) where, to generate a new block, nodes have to resolve a computational puzzle by forcing a random number as fast as possible. Node owners in the Ethereum network are rewarded by a fraction of newly mined coins and gas

In 2020 the network started also implementing the Proof of Stake (PoS) consensus. In an environment governed by PoS, nodes having a higher stake of the total issued native blockchain coins (ETH) have higher chances of generating the next block. This algorithm requires less power and computational capacity than the Proof of Work used in Bitcoin. Going green, aren’t we? Also PoS is supposed to provide more decentralization and ensure additional network scalability. 

ICOs and Forks

It is Ethereum that gave rise to Initial Coin Offerings: a fundraising method that involves offering coins for investment into a project, a startup. Unlike Bitcoin, Ethereum supports multiple coins added to the network via standard smart contracts (ERC20). It is yet to be decided whether ICOs are a blessing or a plague, many appeared to be scams, frauds, but many took off paying back good returns. The main thing though is that Ethereum made it possible. Actually, the network itself started as an ICO-based project that proved quite successful. 

The Ethereum network develops in leaps and bounds and there are points when some participants of the network want to follow a separate path technically and/or ideologically. Then nodes vote to decide whether the separation is possible. Sometimes it takes multiple voting rounds to allow a division (i.e. a hard fork). When it eventually happens, the original network (for example, Ethereum Classic or ETC) keeps operating according to the original rulesset and whitepapers, while the fork becomes a separate network with its own native coin , configuration and principles.

Bitcoin vs Ethereum

Vitalik or Satoshi, Adam or Eve, Chicken or egg, shares or bonds? In fact, it is a matter of personal preferences, trading strategy or investment goals. Actually, let’s go beyond the hackneyed “Bitcoin vs Ethereum” buzz phrase. There is no exact opposition like there is no gas vs oil opposition: both are energy resources having their place in the market and industries, and a different use. Bitcoin use and Ethereum use are also unlike, as Bitcoin offers less investment options and relies on a single validation and mining algorithm (PoW). 

If you just want to start with crypto, either Bitcoin or Ethereum will do for a try. Both have proved to be reputable initiatives by now with serious science and technology behind. Both have certain inherent risks, as any asset does. The actual price doesn’t matter, as in both cases you can buy a fraction of a coin (satoshi or gwei are the smallest units). If you are a trader, you will probably want both BTC and ETH in your portfolio to hedge your position at any given moment in time. 

If you are miner, Ethereum can be a good starter option, as with the advent of the Proof of Stake starting miner costs became lower, while miners are both rewarded by newly generated coins and gas.

Ethereum is your go to platform, if you are serious about DeFi and want to invest in it or to create your own projects. Ethereum and ETH future is largely related to the nascent DeFi ecosystem and Web 3.0 concepts. 

To ETH or not to ETH

Let’s get a bit Shakespearn here. Classics never get old. As we mentioned before, Ethereum is a trustworthy initiative based on a solid technology that constantly evolves, thanks to the open source community. It offers an unlimited supply of native coins, the ETH listed in all top crypto exchanges. 

Key advantages of ETH are:

  • the overall platform potential 
  • an unlimited coin supply
  • flexible investment options beyond the native coin and mining
  • two mining options and gas rewards
  • reduced ETH issuance rate, as the platform evolves

Potential risks:

  • lack of scarcity as ETH is not capped (though issue rates will decline, as we mentioned above) 
  • scalability of the network (being resolved via PoS implementation)
  • general insecurity about how decentralized the network is

If you ask us, pros do outweigh the cons, but the final decision is up to you.  

How to Buy Ethereum 

Native Wallet

To buy Ethereum, you need a wallet where you are going to store it. Basically, a wallet is an application (or a DApp) that allows you to manage your ETH balance in the Ethereum network by manipulating entities like accounts and smart contracts (that can be geeky and tricky). 

You can receive and send ETH, maybe perform other functions, depending on your wallet app functionality. Many popular wallets (e.g. Plark) support ETH, but it also has its native wallet as well: Metamask. It is available for all popular platforms and as a browser extension. 

Exchanges

By now all top cryptocurrency exchanges allow you to buy Ethereum with a card or using another payment method. Choosing an exchange is a no-brainer: just flick though a couple of recent reviews and check trading statistics of a platform before rushing into it. When buying Ethereum, selling or transferring it, remember about gas we mentioned before. But in case you skipped the boring part: it is a fraction of the coin price and of the overall deal amount payable as a fee, but you have to be mindful of it to avoid processing issues at the bank side and to choose best deals on different exchanges. 

It's easy to buy ethereum

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