Have you ever wondered what Ethereum is? Or maybe you’ve heard something but want to check if it’s true? Whatever your reason for being here, all your questions will be answered with this our brief introduction to Ethereum. Enjoy!
After discovering Bitcoin in 2011, teenage programmer Vitalik Buterin began experimenting with the Bitcoin blockchain, but he found that its functionality was extremely limited, designed for a singular use case. While this was what Satoshi, Bitcoin’s inventor, had probably intended, Buterin imagined a platform that would use Bitcoin’s underlying technology, blockchain, to create a more general-use decentralized network. As a result, Ethereum was born.
Following a highly successful funding round in which 7 million Ether was sold in the first twelve hours, Ethereum was officially launched in July 2015. It’s now considered one of the foremost public blockchains, with a market cap second only to Bitcoin, as of July 2018.
Ethereum is an open-source platform, which works as a foundation blockchain for running decentralized applications. The Ethereum platform runs on Ether tokens, otherwise known as ETH. These are used to develop, deploy, and run apps on top of the Ethereum blockchain. While ETH is traded on exchanges, it is not intended to be used either as an asset or a currency.
Like Bitcoin, Ethereum is built on underlying blockchain technology, and as such, it offers transparency and trust. Like its predecessor, the Ethereum network is a public, permissionless network (although private networks are possible). In other words, anyone can download or write code to connect to the network.
But Ethereum does differ from Bitcoin in a number of ways. For a start, in its current iteration, Ethereum’s interval between blocks is significantly shorter than Bitcoin’s; with Bitcoin, the expected block time is 10 minutes, while in Ethereum, it’s between 10 to 20 seconds. Block size also differs. For Bitcoin, the maximum block size is 1 MB, whereas Ethereum’s block size depends on the contracts being run. The maximum vacillates slightly from block to block, and is measured in ‘gas’.
Ethereum and Bitcoin also have differentiated purposes. While the former is an enabling technology that allows developers to build and deploy decentralized applications, Bitcoin was built with transactions and exchange of funds in mind.
Transactions on the Ethereum blockchain are grouped to form ‘blocks’, with each block being chained together with its previous blocks – hence the term ‘blockchain’. Before a transaction can be added to the public ledger, it needs to be validated, which is carried out by a process called mining.
Mining is when a group of computers (or Nodes) attempt to complete a complex mathematical equation – this is known as a ‘proof of work’ challenge. Computers with more powerful hardware – of GPUs – can solve these equations much faster. Finding an answer to this equation is ‘proof of work’ – and so the block will be validated.
People all over the world are in competition with one other, attempting to create and validate a block. Why? Because each time a miner solves one of these equations and validates a block, they are instantly rewarded with new Ether tokens – which have a real-world value. In this regard, Miners are super-important to the Ethereum network – they both validate all operations in the network and generate new ETH tokens.
Smart Contracts are blockchain-based contracts that are executed once certain conditions are met. Since there is no centralized authority, these contracts can run without interference.
The Ethereum platform enables these contracts to be developed and run, and while smart contracts can be encoded on any blockchain, Ethereum is currently the most popular, since it provides unlimited processing capability.
As described in Buterin’s whitepaper, Bitcoin’s blockchain can perform a simpl29e payment transaction in which a sender transfers a set amount of money to a recipient. Ethereum allows for a much higher level of complexity. Using smart contracts, a countless number of rules can be implemented, such as putting a cap on how much money can be withdrawn in a certain timeframe or specifying how much money must be in the sender’s account before money is transferred.
A DAO is a certain kind of smart contract, or decentralized autonomous organization, which can fully function without hierarchical management. The majority of the voters dictate the transactions of the DAO.
We told you it was brief! But hopefully, you know a little bit more about Ethereum now. Definitely enough to impress your mates, anyway!
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Until next time!
The Coin Metro Team