What is Ethereum (ETH)?
Described as “a global, decentralized platform for money and new kinds of applications,” Ethereum hosts thousands of games and financial apps atop its blockchain. Its widespread popularity is such that even other cryptocurrencies operate on its network.
At the heart of Ethereum lies its blockchain network, a decentralized, distributed public ledger where transactions are authenticated and documented. Distributed in nature, all participants within the Ethereum network possess identical copies of this ledger, enabling transparency by granting visibility into all historical transactions. Decentralization ensures that the network isn’t governed or overseen by any centralized authority; instead, it’s collectively managed by all holders of the distributed ledger.
Blockchain transactions rely on cryptography to maintain network security and validate transactions.
Ether, ETH’s native token, serves a similar function to Bitcoin, allowing users to buy and sell goods and services. However, Ethereum distinguishes itself by enabling users to develop applications that operate on the blockchain, akin to software functioning on a computer. These applications have the capacity to store and transfer personal data or execute intricate financial transactions.
How does Ethereum work?
Ethereum (ETH) operates on a technology called blockchain. The Ethereum blockchain serves as a digital ledger for securely storing and exchanging Ether, as well as for creating and developing decentralized applications (DApps) using a computer protocol known as smart contracts.
Smart contracts
While Bitcoin primarily serves as a digital currency, Ethereum (ETH) aims to establish itself as a comprehensive and open platform for application development, and this ambition is realized through the utilization of smart contracts.
The concept of smart contracts was initially articulated by computer scientist and cryptographer Nick Szabo in 1996. His objective was to devise a secure and reliable method for facilitating agreements between strangers on the internet, with the aim of rendering traditional contracts both more cost-effective and secure. Building upon Szabo’s vision of secure and decentralized agreements, cryptocurrency systems are founded upon multilateral agreements in which all wallet holders are considered participants.
In its original context, a smart contract refers to a computer protocol designed to digitally verify, enforce, or facilitate the negotiation and execution of a contract without the involvement of third parties. This framework allows various stakeholders to collaborate and develop applications and services on a decentralized platform, eliminating the need for a formal authority to oversee the process. It represents an efficient and secure mechanism for collaboration.
In the decentralized Ethereum network, computers undertake two primary functions: recording transactions and generating smart contracts. For the implementation of tokens on the Ethereum blockchain, the technical standard employed for smart contracts is ERC-20.
Mining and Proof-of-Work (PoW)
Before September 2022, Ethereum (ETH) transactions and the generation of new Ether coins relied on a process known as mining. This involved the opening of blocks, data entry, block closure, and the creation of a hash number. Each subsequent block retained information from the preceding one, forming an immutable chain resistant to manipulation or alteration.
In a Proof-of-Work (PoW) system, computers are required to demonstrate the energy expended during the mining process to ensure the validity and accuracy of transactions. With the implementation of Ethereum 2.0 updates, Ethereum transitioned to a Proof-of-Stake (PoS) validation mechanism.
Proof-of-Stake (PoS)
Proof of Stake (PoS) stands as the second-most utilized consensus mechanism in blockchain technology. Unlike PoW, PoS does not involve mining, resulting in significantly lower energy consumption. To validate transactions and generate new Ether, participants within the Ethereum network interested in engagement must stake a certain amount of cryptocurrency in the network, typically by depositing a specific quantity of ETH into a wallet linked to the Ethereum blockchain. Subsequently, a staker is selected to produce the subsequent block in the chain, receiving rewards in the form of transaction fees for their contribution
