Ethereum Blockchain: Everything to Know
By Beluga Research September 20, 2023
- The Ethereum blockchain is a decentralized platform powering the ether (ETH) cryptocurrency, enabling smart contracts and decentralized apps (dapps)
- Ethereum is an open-source blockchain platform launched in 2015 by co-founder Vitalik Buterin
- It supports smart contracts, which automate complex agreements without intermediaries
- Ethereum's decentralized applications (dapps) run on its blockchain and offer increased security, privacy, and censorship resistance
The Ethereum blockchain is a decentralized platform powering the ether (ETH) cryptocurrency, enabling smart contracts and decentralized apps (dapps). Ethereum introduced decentralized applications (dapps) that run on its blockchain and utilize smart contracts. Dapps include decentralized finance (DeFi) platforms, decentralized exchanges, gaming applications and more.
A Brief History
Vitalik Buterin recognized Bitcoin's limitations as a network and aimed to create a more versatile blockchain platform. In 2013, he published the Ethereum whitepaper, outlining his vision for a decentralized platform with a Turing-complete programming language.
The Ethereum Foundation, established in 2014, oversees the development and promotion of the Ethereum platform. The foundation conducted a successful crowdsale, raising funds to support the project's development. Ethereum's native cryptocurrency, ether (ETH), fuels the platform and incentivizes developers.
Ethereum Blockchain: Everything to Know
The Ethereum blockchain uses proof-of-stake (PoS) consensus, different from Bitcoin's proof-of -work (PoW). PoS relies on validators who hold ether and create new blocks based on their staked amount. This mechanism improves scalability and energy efficiency.
Ethereum's key feature is executing smart contracts written in Solidity, its programming language. Smart contracts automate complex agreements, such as financial transactions, without intermediaries. They are immutable and execute as programmed, providing transparency and reducing fraud risk.
To facilitate dapp development, Ethereum introduced the Ethereum Virtual Machine (EVM). The EVM executes smart contracts, ensuring consistency across all network nodes. It allows developers to write and deploy code in a sandboxed environment without affecting the underlying blockchain.
Ethereum's success led to the creation of ERC standards, defining rules for tokens on the Ethereum blockchain. The notable ERC-20 standard specifies rules for creating fungible tokens, playing a crucial role in initial coin offerings (ICOs) and asset tokenization.
To start with Ethereum, you need to understand the basics of blockchain technology. A blockchain is a distributed ledger that records transactions across multiple computers, ensuring transparency, security, and immutability. Ethereum goes a step further by allowing developers to build and deploy smart contracts on its blockchain.
To interact with the Ethereum network, you need an Ethereum wallet. Wallets can be software-based, like MetaMask, or hardware devices like Ledger or Trezor. These wallets provide users with a unique address for sending, receiving and storing ether (ETH), the native cryptocurrency of the Ethereum network.
One unique aspect of Ethereum is its support for smart contracts. Smart contracts are self-executing contracts with terms written in code. They automatically execute when predefined conditions are met, eliminating intermediaries and increasing efficiency.
Ethereum's smart contracts run on the Ethereum Virtual Machine (EVM), a decentralized runtime environment. The EVM executes code written in Solidity, a programming language designed specifically for Ethereum smart contracts. Solidity allows developers to create complex logic and automate processes, opening up possibilities for decentralized applications.
Another unique aspect of Ethereum is its support for decentralized applications or dApps. These applications run on the Ethereum blockchain, leveraging its decentralized and tamper-proof nature. Dapps can be decentralized finance (DeFi) platforms, social networks, gaming applications, and more. They are built using smart contracts and interact with the Ethereum network through various interfaces.
Ethereum also introduced ERC-20 tokens, which are fungible tokens created and exchanged on the Ethereum blockchain. These tokens form the foundation for Initial Coin Offerings (ICOs) and token sales, enabling projects to raise funds and create their own digital assets.
- Smart Contract Functionality - Ethereum's main advantage is its support for smart contracts, which are self-executing agreements that automatically facilitate asset or information exchange based on predefined rules. This feature enables various applications like decentralized finance (DeFi), supply chain management and decentralized exchanges.
- Decentralization - Ethereum operates on a decentralized network of computers called nodes, ensuring that no single entity controls the network. This decentralization enhances security, removes the need for intermediaries, and gives individuals direct control over their assets and data.
- Developer-Friendly Environment - Ethereum provides a developer-friendly environment with extensive documentation, tools, and programming languages like Solidity. Developers can easily create and deploy smart contracts and dapps on the Ethereum blockchain, thanks to the large developer community that fosters innovation and collaboration.
- Interoperability - Ethereum's blockchain is compatible with other blockchains, allowing for the exchange of assets and information across different decentralized networks. This interoperability expands the possibilities for dapps and facilitates integration with other blockchain projects.
- Established Network and Community - Ethereum has become one of the most prominent blockchain networks, attracting a large and active community of developers, entrepreneurs, and enthusiasts. This community contributes to Ethereum's growth and adoption by building applications, conducting research and providing support.
- Scalability Challenges - Ethereum has faced scalability issues as its popularity grew. The current design of the Ethereum blockchain limits its transaction processing capacity, leading to congestion during high network activity. This congestion results in increased transaction fees and slower confirmation times.
- Energy Consumption - Although Ethereum is transitioning to a more energy-efficient mechanism called Proof-of-Stake (PoS) it will still consume a considerable amount of energy.
- Potential Security Vulnerabilities - Ethereum's smart contracts' flexibility and programmability can lead to security vulnerabilities if not audited properly or if developers make coding mistakes. Exploitation of these vulnerabilities can result in the loss of funds. The decentralized nature of Ethereum makes it difficult to reverse or modify transactions, emphasizing the importance of caution and thorough auditing when deploying smart contracts.
- Regulatory Uncertainty - The decentralized nature of Ethereum and its potential to disrupt traditional financial systems have raised regulatory concerns in different jurisdictions. Varying approaches to cryptocurrency regulation create uncertainty for Ethereum and its users. Regulatory changes and restrictions can impact adoption, development, and the overall Ethereum ecosystem.
- Learning Curve - Developing on the Ethereum blockchain requires learning new concepts, programming languages and tools. Solidity, the primary language for writing smart contracts on Ethereum, has its own unique features and quirks. This learning curve can be a barrier for developers new to blockchain technology or accustomed to traditional software development.