Ethereum in a nutshell

  • When was Ethereum invented
  • What is Ethereum
  • How dose Ethereum Work
  • What is Ether
  • What is Gas in the Ethereum blockchain
  • Conclusion

When was Ethereum invented (2013–2014) #

In 2013 a jung programmer and co-founder of Bitcoin Magazine named Vitalik Buterin described in a white paper Ethereum as a blockchain technology with the goal of building decentralized applications.

Buterin argued that Bitcoin and blockchain technology could benefit from other applications besides money.

He made his point that blockchain technology needed a more robust language for application development that could lead to attaching real-world assets, such as stocks and property, to the blockchain.

Ethereum’s official announcement was in in January 2014 at the North American Bitcoin Conference in Miami. But Ethereum has odli not just one founder or even 2 but a unusualy long list of confounders. Starting with Vitalik Buterin, Gavin Wood, Charles Hoskinson, Anthony Di Iorio, Joseph Lubin, Jeffrey Wilcke, Mihai Alisie & Amir Chetrit… and I hope I dident leave anyone out.

What is Ethereum #

First of all Ethereum is not a cryptocurrencies,Ethereum is a decentralized, open-source blockchain tehnologye with smart contract functionality.

Ether on the other hand a.k.a. (ETH or Ξ) is actually the native cryptocurrency of the platform. Amongst other cryptocurrencies, Ether is,at the momment, second to Bitcoin, the most popular and priceses cryptocurrencies in market capitalization.

The Ethereum platform allows anyone to deploy permanent and immutable decentralized applications onto it, with which other users can interact.

(DeFi) witch sands short for Decentralized financial applications, provide a broad array of financial services without the need for typical financial intermediaries like brokerages, exchanges, or banks.

DeFi are allowing cryptocurrency users to borrow against their holdings or lend them out for interest.

Ethereum also allows for the creation and exchange of NFTs, which are non-interchangeable tokens connected to digital works of art or other real-world items and sold as unique digital property. Additionally, many other cryptocurrencies operate as ERC-20 tokens on top of the Ethereum blockchain and have utilized the platform for initial coin offerings.

Ethereum has started implementing a series of upgrades called Ethereum 2.0, witch are not fully intagrated yet and are taking them over 10 yares for now.

This includes a transition to proof of stake, instade of there current state that is proof of work, just like Bitcoin has it, and aims to increase transaction throughput using sharding.

How dose Ethereum Work #

By design, Ethereum is a permissionless, non-hierarchical network of computers a.k.a.(nodes) which build and come to consensus on an ever-growing series of “blocks”, or batches of transactions, known as the blockchain.

Each block contains an identifier of the chain that must precede it if the block is to be considered valid.

Whenever a node adds a block to its chain, it executes the transactions therein in their order, thereby altering the ETH balances and other storage values of Ethereum accounts. These balances and values, collectively known as the state, are maintained on the node’s computer separately from the blockchain, in a Merkle tree.

Each node communicates with a relatively small subset of the network, known as its peers. Whenever a node wishes to include a new transaction in the blockchain, it sends the transaction to its peers, who then send it to their peers, and so on.

In this way, it propagates throughout the network.

Certain nodes, called miners, maintain a list of all of these new transactions and use them to create new blocks, which they then send to the rest of the network. Whenever a node receives a block, it checks the validity of the block and of all of the transactions therein and, if valid, adds it to its blockchain and executes all of said transactions.

As the network is non-hierarchical, a node may receive competing blocks, which may form competing chains. The network comes to consensus on the blockchain by following the “longest-chain rule”, which states that the chain with the most blocks at any given time is the canonical chain. This rule achieves consensus because miners do not want to expend their computational work trying to add blocks to a chain that will be abandoned by the network.

What is Ether #

Ether (ETH) is the cryptocurrency generated by the Ethereum protocol as a reward to miners in a proof-of-work system for adding blocks to the blockchain.

It is the only currency accepted in the payment of transaction fees, which also go to miners. The block reward together with the transaction fees provide the incentive to miners to keep the blockchain growing and to keep processing new transactions.

Therefore, ETH is fundamental to the operation of the network. Each Ethereum account has an ETH balance and may send ETH to any other account. Ether is often falsely referred to as “Ethereum”, witch is the tehnology not the cryptocurrency.

Ether is listed on exchanges under the currency code ETH. The Greek uppercase Xi character (Ξ) is sometimes used for its currency symbol.

The shift to Ethereum 2.0 may reduce the issuance rate of Ether. There is currently no implemented hard cap on the total supply of Ether as it is on Bitcoin .

What is Gas in the Ethereum blockchain #

Gas is a unit of account within the EVM used in the calculation of a transaction fee. This is the amount of ETH a transaction’s sender must pay to the miner who includes the transaction in the blockchain.

Each type of operation which may be performed by the EVM is hardcoded with a certain gas cost, which is intended to be roughly proportional to the amount of resources (computation and storage) a node must expend to perform that operation.

When you the transactor wish to creating a transaction, then you must specify a gas limit and gas price.

The gas limit is the maximum amount of gas the sender is willing to use in the transaction.

The gas price is the amount of ETH the sender wishes to pay to the miner per unit of gas used. The higher the gas price, the more incentive a miner has to include the transaction in their block, and thus the quicker the transaction will be included in the blockchain.

The sender buys the full amount of gas (i.e. the gas limit) up-front, at the start of the execution of the transaction, and is refunded at the end for any gas not used. If at any point the transaction does not have enough gas (because gas fluctuates) to perform the next operation, the transaction is reverted but the sender still pays for the gas used.

This fee mechanism is designed to do a couple of things:

  • mitigate transaction spam
  • prevent infinite loops during contract execution
  • provide for a market-based allocation of network resources.

Conclusion #

In a nutshell Ethereum is a decentralized non-mutable blockchain Technology that provides his users with the posibility to create smart contracts and buy and sell NFT’s with his native currency ETH witch cost GAS to process.

If you want to learn more about cryptocurrencies then check out my previous episode on Bitcoin

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