The Ultimate Guide To Ethereum
What is Ethereum?
During the last couple of years, apart from Bitcoin, numerous other digital currencies have sprouted up, some more successful than others. One such example is Ethereum, a public blockchain platform that offers programmable transaction functionality, and that works via its digital currency- Ether, also known as ETH. To put things better into perspective, the Ethereum system can be called a single shared computer, which is run by a network of users where resources are parcelled out, but also paid for by using a crypto asset named Ether.
The platform was first proposed by Vitalik Buterin, close to the end of 2013, with the genesis block being mined on the 30th of July 2015. Currently, the software project is run by a Swiss company known by the name of Ethereum Switzerland GmbH, alongside with the non-profit Ethereum Foundation, currently based over in Toronto, Canada.
The main feature of Ethereum consists of its smart contracts, which are basically programs and protocols which are used by the network in order to facilitate the automated performance of actual contracts. These can be implemented in a couple of languages that are then compiled into bytecode, used on the Ethereum Virtual Machine. Following this, the contracts are deployed on the public ledger, known as the blockchain.
Just like Bitcoin and a couple of other digital currencies, trust represents an important aspect. All Ethereum contacts and Ether are kept in the blockchain, which can be read out by anyone. Based on this, once a transaction occurs, anyone can take a look at it.
So far, there are numerous applications which have decided to use the Ethereum code to create their apps. By doing so, users are given more possibilities, thus improving the number of services that certain companies offer.
Based on everything that has been outlined so far, Ethereum looks like a solid and promising project, which can definitely turn out to be successful given the right circumstances, as the world slowly adopts more fintech ideas, and turns them into reality.
How to purchase Ethereum?
In case you’ve heard about Ethereum and are willing to be a part of the project’s development, you might want to get your hands on some Ether coins. Well, the buying process is mostly identical to what it takes in order to buy bitcoin.
To put things better into perspective, you’ll first have to set up an Ether wallet, where you can store your funds. A simple Google search will yield some trusted providers that you can share your Ether with, once you get a hold of the coins. Some of the most popular wallets include the MyEtherWallet, which is an open source, client-side tool that can be used to generate Ether Wallets and send the afferent transactions.
Another option is the Official Ethereum Wallet, which is unfortunately still under heavy development, which means that bugs can soon be encountered while using the platform. Perhaps one of the best options is to actually get a dedicated wallet, which means that you’ll be able to send the funds from the centralized server, directly onto your personal wallet, on which you can count at all times.
Once you have your wallet set up, you may want to visit and register on an Ether exchange. Some of the most popular ones include Kraken and Poloniex. On both exchanges, you’ll have to either add fiat balance, which can then be used to buy Ether at the exchange’s rate, or simply use another digital currency such as bitcoin to purchase ETH. The verification and withdrawal terms of service vary from exchange to exchange, so to be safe, it’s important to give these a read prior to choosing an exchange for all of your Ether needs.
When it comes down to buying Ether, it is also important to keep the coin’s volatility in mind. As it is still at its beginning, it can fail at any time, while it can also turn out to be incredibly successful, thus provoking a considerable value gain.
3 Of the Most Interesting Ethereum Uses
While Ethereum is quickly gaining ground, there are still numerous questions that people have regarding what the project is all about, how its digital assets work, and what uses the network network can actually have.
- To put things into perspective, here are three interesting uses of the Ethereum:
The possibility to design and issue your own digital currency
Those involved with Ethereum have the possibility to create tradeable digital tokens which can be used as currencies, and representations of assets, virtual shares, proof of membership and more. Thanks to the standard coin API, these coins and the contract are automatically compatible with all wallets, thus making trading a breeze.
- Kick-starting projects with trustless crowdsales
Those who already have ideas of projects that can be developed on the Ethereum network can easily initiate crowdsales and crowdfunding rounds. By creating a smart contract that can hold contributors’ money until the goal date is reached, the funds can either be released for the project, or returned to the contributors. Based on this, smart contracts emphasize on security, and make the need of trust obsolete.
- Creating an autonomous, democratic organization
In case you have an idea, and the funds needed to make it a reality, founders usually need to hire managing employees, keep track of everything that happens within the project, while also running board meetings, and voting for various ideas. This can turn out to take up lots of time. Using an Ethereum contact to automate these processes is a much better alternative. Once created, the contract will proceed to collect proposals from the backers, and submit them through transparent voting systems, to facilitate faster and more efficient decisions.
Based on everything that has been outlined so far, the examples above showcase just a few of the various uses that Ethereum can have, thanks to its smart contracts feature.
How To Mine Ethereum
Similar to Bitcoin, there are a couple of ways people can get hold of Ether. Currently, one of the most popular ways to do so is simply mining the smart contract-based digital currency.
With this in mind, Ethereum, just like most blockchain technologies uses an incentive-driven model for mining. With this in mind, miners are responsible for checking blocks for validity, and then forwarding them onto the blockchain. The proof of work algorithm that is used by the Ethereum network is known by the name of Ethash, and involves using computing power in order to find a nonce input in the algorithm, to get the result below a pre-set threshold, depending on the difficulty of the block. The difficulty has been programmed in such a way to dynamically adjust, in order to allow the network to produce one block once every 12 seconds.
Similarly to other digital currencies, any node participating on the network can become a miner. The expected revenue depends on the mining power or hashrate, which is calculated in the number of nonces tried per second. To put things better into perspective, miners who get their hands on winning blocks can expect to earn a total of 5.0 Ether for each block mined. Additionally, something known as gascost will also be rewarded to the miner in question.
When it comes down to whether it is worth beginning to mine Ethereum, it’s important to point out the fact that the project has lots of potential, considering the various issues going on in the bitcoin world, alongside with the additional smart contract features that Ethereum offers. To begin mining, users will require powerful computers both in terms of the CPU and GPU, alongside with the Geth platform.
Based on everything that has been outlined so far, while a little is more complex than mining other coins, Ethereum mining can turn out to be a profitable experience, especially if Ether will see more value gains, as expected.
Is Ethereum based on Bitcoin?
At this moment in time, Ethereum represents one of the most popular digital currencies in addition to Bitcoin, which holds the first spot.
However, when it comes down to learning more about it, most people ask whether Ethereum is based on Bitcoin.
Well, sort of.
To put things better into perspective, Ethereum uses its own blockchain, which is a concept that Bitcoin first pioneered.
However, it is important to keep in mind the fact that there are several technical differences between the two currencies, and most importantly, that Ethereum, its blockchain and the digital currency known as Ether all run separately from Bitcoin, and are in no way influenced by its evolution.
In comparison to Bitcoin, Ethereum is more of an application platform. As blockchain technology has more uses than simply keeping track of a digital currency’s balances, Ethereum aims to leverage these uses, and allow developers to build applications based on the blockchain, but without creating their own ones.
Thanks to the nature of Ethereum, these applications can then interact with one another. Ethereum also has shorter block times, which is a concept that makes certain applications a lot more feasible.
In the foreseeable future, as more developers create their apps via the Ethereum platform, a well-made library of apps based on its blockchain will appear.
Additionally, the Ethereum blockchain will also soon transition from a proof-of-work terminal like Bitcoin’s, to something known as a proof-of-stake, thus having important effects over the security of the blockchain and the value of Ether, its digital currency.
Based on everything that has been outlined so far, while Ethereum is based on a concept that Bitcoin first pioneered, these are two separate platforms, independent from one another, with a couple of similarities, but strong technical differences.
What are Ethereum Smart Contracts?
To fully grasp the complexity of Ethereum and the possibilities that the project offers, it is important to first understand what smart contacts are.
To put things better into perspective, these are computer protocols that work by facilitating, enforcing and verifying the performance of a certain contract. They often have a user interface, and tend to emulate the logic of basic contractual clauses. Based on this, once a smart contract is enforced, quite a large number of processes can be fully automated. In return, this helps reduce the transaction costs that are associated with contracting, but also provides better security, which is often superior to the traditional contact law that people have been using until now.
Usually, smart contract infrastructure is implemented by replicated asset registries, alongside with secure contract execution protocols that work via cryptographic hash chains.
Once Ethereum contacts are implemented, they are then compiled into bytecode, needed for the Ethereum Virtual machine (EVM). Once this happens, the contracts will be deployed on the blockchain, where they’ll be fully visible to anyone willing to check on the transactions.
At this moment in time, Ethereum is suitable for implementing a good number of contracts. Some of these include financial derivatives, security protocol logic, digital rights management schemes, but also a variety of other service mechanisms and schemes. Together with this, the platform also offers decentralized autonomous organizations the possibility to offer their customers a couple of business models that would’ve otherwise been impossible to set up.
Based on everything that has been outlined so far, the self-executing and self-checking manners of Ethereum-based smart contracts have the potential of greatly improving the financial system, by making more types of transactions possible, securing them and encouraging financial and technological innovation in areas from all around the world.
How does Ethereum combat the ongoing centralisation of mining pools?
Due to Ethereum’s quick growth, several companies have decided to heavily invest into the platform, thus coming close to centralising mining pools. As Ethereum is a platform that wishes to be decentralized, it has come up with a couple of ways of combating the ongoing centralisation process.
To put things better into perspective, there are two primary strategies that Ethereum uses in order to combat the centralisation of mining pools.
The initial strategy consists of reducing the losses that appear after blocks are orphaned. Independent miners are more likely to experience orphaned blocks, and in the long run, these can produce massive losses in currency. To counter this, the Ethereum mining algorithm offers a reduced reward to the block producer and the includer of the block coming from suspicious miners.
The second strategy that Ethereum employs is by using something known as a proof-of-work function that is ASIC resistant. This helps prevent mining from becoming dominated by specially produced and designed hardware, that independent miners would not be able to get their hands on. In return, this puts them at a competitive stance, and are even being offered certain advantages, as profits tend to be bigger for independent mining operators, regardless of lower investments in available commodity hardware, such as consumer graphic cards and so on. It’s important to keep in mind that soon enough, Ethereum will switch to a proof-of-stake concept, meant to enhance the security, and centralisation combat strategies even further.
Based on everything that has been outlined so far, thanks to the strategies employed by the Ethereum PoW consensus algorithm, independent miners can rest assured as they won’t be dominated by mass-investors trying to mine as much Ether as possible. In return, the chances of centralisation of mining pools are significantly lowered.