What is Ethereum (ETH)?
Ethereum is an open platform that enables developers to create decentralized legal and financial applications. You can think of Ethereum as a programmable Bitcoin where developers can use the underlying blockchain to create markets, shared ledgers, digital organizations, and other endless possibilities that need immutable data and agreements. Released in 2015, Ethereum is the product created by Vitalik Buterin, who saw the potential uses of Bitcoin’s underlying blockchain technology as the next steps for development. It is now the cryptocurrency with the second highest coin market cap and is expected to remain a valued investment opportunity and the most popular cryptocurrency.
How does Ethereum work?
Ethereum is designed to provide developers and users with an improved level of functionality and flexibility. Buterin and his team have designed an ecosystem that allows developers to do anything that can be done on a normal computer.
When Vitalik Buterin expanded on Bitcoin’s secure transaction technology, he found on an abstract level that a transaction in itself is secured with a contract. Simply put, a contract is an agreement between two parties securing the promise of a one- or two-way exchange. Buterin therefore designed the Ethereum Virtual Machine with this in mind; that any transaction over the blockchain network should be self-executed once agreed upon by both parties and should be recorded on a public blockchain ledger. This self-execution is what makes these contracts “smart,” and thereby opened up an entirely new universe for business accountability and in turn a new economy.
Ethereum Virtual Machine running on the Ethereum blockchain is a Turing-complete system, meaning that any program that can be written for a normal computer could also be written in Solidity (Ethereum’s programming language) for the Ethereum Virtual Machine. This makes programs or “smart contracts” on the Ethereum platform extremely powerful.
To understand the Ethereum platform power, we should realize that it is much more powerful than a simple cryptocurrency. Usual cryptocurrency needs to be able to do only 3 things: allow people to send value to and from one another, perform checks of transactions validity and store all of this information on the blockchain.
Any code that can accomplish all of these three tasks is worthy of being called a functional cryptocurrency while Ethereum smart contracts are capable of doing much more that implementing simple cryptocurrencies.
Ether (ETH) mining
Ethereum mining is in many ways similar to Bitcoin mining. Just like the Bitcoin blockchain and all the blockchains that come before, Ethereum requires miners to maintain and secure the network, stimulated by the reward of an Ethereum token, known as an Ether. While Ether can be used just like Bitcoin to send tokens from one address to another, they can also be used to pay for Ethereum gas.
In simple words, Ether (ETH) is the fuel for Ethereum network. When you send tokens, interact with a contract, send ETH, or do anything else on the blockchain, you must pay for that computation. That payment is calculated in Gas and gas is paid in ETH.
When you hear gas, the person is either talking about: gas limit and gas price. The total cost of a transaction (the “TX fee”) is usually calculated using the formula: gas limit*gas price.
When performing the transactions, you should always keep in mind that:
• Different types of transactions will require different amounts of gas to complete;
• Gas Limit is the maximum amount of gas allotted to the transaction, 21000 being sufficient for simple transfers and much higher amounts for transfers to smart contracts like those in ICOs;
• Providing too little gas will result in a failed transaction, the fees are kept by the miner. Your transaction will start to be executed, but will eventually run out of gas and be stopped. When this happens, you will not get back ether spend on the gas used, but since the transaction did not complete, the blockchain does not reflect a transfer, so the main funds essentially never left the wallet;
• Gas Price is the price of each gas unit measured in a fractional amount of ether, typically gwei. Gas price varies, but 20-30 gwei is average as of writing this;
• Current Gas Price can be checked online ( Etherscan or EthGasStation ), and the Gas Limit for things other than simple transfers can only be known by looking at the smart contract code.
• Extra, unspent gas is refunded automatically.
Advantages of Ethereum
The benefits of Ethereum as a blockchain-based platform and in comparison with the other platforms includes:
• Permanence – A third party cannot make any changes to data.
• Security – The combination of the Proof of Work consensus, cryptographic techniques used in the transaction model, and lack of a central point of failure protects the network against hacking.
• No Downtime – Applications, smart contracts and organizations based on Ethereum blockchain are always running and cannot be turned off.
Disadvantages of Ethereum
Of course, there are particular disadvantages associated with Ethereum:
• Lack of documentation – The worst thing about this Ethereum code is the lack of documentation. Documentation helps people become developers, but ethereum is not a master in the documentation. Most of the online content is not updated and out of date, also it does not even cover the basics.
• Regular updates – There will be upgrades all the time and this sometimes moves from a proof of work platform to a more efficient platform. This is a tricky and risky upgrade which will make the developers always busy.
• Vulnerability – Ethereum is sensitive to vulnerabilities that can be run through the complexity of the primary programming language Solidity that used in smart contracts. Smart contract security has become a major concern.
Ethereum today and in the future
Ethereum is one of the most important and popular platforms in the blockchain and cryptocurrency industry today. As tech talent continues to migrate to the space, adoption becomes more mainstream, and scaling solutions are implemented, Ethereum looks to remain the distributed world computer for the decentralized applications of tomorrow.
Ethereum is the first smart contract platform and has inspired several competitors but it remains the dominant platform in the market, ranking number two among all cryptocurrencies behind Bitcoin. Ethereum currently hosts tens of thousands of smart contracts that range from simple games letting people bet on rounds of rock-paper-scissors, to cryptocurrencies hosted entirely on the Ethereum platform, to contracts that bridge Ethereum to other blockchains that provide specialized services to the users.