So what is Ethereum?
Ethereum is a blockchain platform that was first proposed in 2013 by a programmer named Vitalik Buterin. He saw the potential for a blockchain that could do more than just handle digital currency transactions, like the original blockchain (Bitcoin). He wanted to create a blockchain that could run smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code.
In 2014, a crowdsale was held to fund the development of Ethereum, and the network went live in July 2015. Unlike Bitcoin, which is limited in its capabilities, Ethereum allows for the creation of decentralized applications (dApps) and the use of smart contracts. This has led to a wide range of use cases, including decentralized finance (DeFi) and non-fungible tokens (NFTs).
Over time, Ethereum has undergone several upgrades to its network, including the introduction of new features such as sharding and proof-of-stake consensus. These upgrades have aimed to improve the scalability, security and sustainability of the network, so it can handle more transactions and support more use cases.
As the first major blockchain platform for creating decentralized applications, Ethereum has played a major role in the development of the blockchain industry and continues to be one of the most widely used blockchain networks today.
What makes Ethereum so special?
Ethereum is special because it is a type of blockchain technology that is different from Bitcoin. While Bitcoin was created primarily as a digital currency, Ethereum was created to be a platform for building decentralized applications. This means that developers can use Ethereum’s blockchain to create their own unique applications, such as digital contracts and online marketplaces. This makes Ethereum a powerful tool for creating new and innovative online services, and it has the potential to change the way we use the internet in many different ways.
One of the key features that makes Ethereum special is its use of smart contracts. Smart contracts are self-executing contracts with the terms of the agreement written directly into lines of code. They are automatically executed when certain conditions are met, allowing for trustless, transparent, and efficient transactions.
Ethereum also has its own cryptocurrency, called Ether (ETH), which is used to pay for transactions and computational services on the network. Ether can also be bought and sold on cryptocurrency exchanges like any other digital currency.
Another thing that makes Ethereum special is its ability to create and manage digital assets, like digital collectibles, through the use of Non-Fungible Tokens (NFTs). NFTs are unique digital assets that can represent things like art, music, videos, and virtual real estate. They can be bought, sold, and traded like traditional assets, but they are stored on the blockchain, making them more secure and transparent.
The significance of Ethereum lies in its ability to support decentralized applications and its use of smart contracts. Smart contracts are self-executing agreements with the terms of the agreement directly written into code. This allows for the creation of decentralized applications that can operate without the need for intermediaries. As a result, Ethereum has become the platform of choice for a wide range of decentralized applications, from decentralized finance (DeFi) to gaming and beyond.
Ethereum has two layers: layer one and layer two.
Ethereum has two layers: layer one and layer two. Layer one refers to the underlying blockchain infrastructure and is responsible for maintaining the security and integrity of the network. Layer two refers to additional protocols and solutions that are built on top of the layer one infrastructure to improve scalability and performance.
Layer one, or the base layer of Ethereum, is responsible for maintaining the security and integrity of the network through its consensus mechanism, Proof of Work (PoW). This mechanism requires participants, called miners, to compete to solve complex mathematical problems in order to validate transactions and add them to the blockchain. While PoW provides a high level of security, it can be resource-intensive and slow, leading to issues with scalability.
Layer two solutions are designed to address the scalability limitations of the base layer and allow for more transactions to occur without adding additional load to the main blockchain. Some of the most common layer two solutions for Ethereum include:
- State Channels: State channels allow for transactions to occur off-chain, between two or more participants, without the need for validation by the main blockchain. This allows for faster and more cost-efficient transactions, while still maintaining the security of the underlying blockchain.
- Plasma: Plasma is a layer two scaling solution that enables the creation of child chains that can process transactions off-chain while still being anchored to the main Ethereum blockchain. This allows for the processing of large amounts of transactions while still maintaining the security and integrity of the underlying network.
- Optimistic Rollups: Optimistic rollups are a layer two solution that allows for the bundling of multiple transactions into a single, compressed transaction, reducing the load on the main blockchain.
These layer two solutions are crucial for enabling the growth and adoption of the Ethereum ecosystem by allowing dApps to scale and reach a larger audience. Additionally, layer two solutions can help mitigate the challenges associated with the resource-intensive nature of PoW and allow for the development of new and innovative decentralized applications.
Popular dApps built on the Ethereum platform
There are many decentralized applications (dapps) built on the Ethereum platform. Some examples include:
- CryptoKitties: a game where players can buy, sell, and breed virtual cats.
- Uniswap: a decentralized exchange (DEX) for trading cryptocurrencies.
- MakerDAO: a decentralized platform for creating and managing stablecoins, which are cryptocurrencies that are pegged to the value of a fiat currency like the US dollar.
- Compound: a decentralized lending platform where users can lend and borrow cryptocurrencies.
- Augur: a decentralized prediction market platform.
- Aragon: a dapp that allows users to create and manage decentralized autonomous organizations (DAOs)
- IDEX: a decentralized exchange for trading ERC-20 tokens.
These are just a few examples of the many dapps that have been built on the Ethereum platform. The Ethereum ecosystem is constantly evolving, so new and exciting dapps are being developed all the time.
Ethereum Gas Fees. Why are they so high?
Ethereum fees, also known as “gas fees,” can be high because the demand for using the Ethereum network exceeds the current capacity of the network. This can happen when there are a lot of transactions happening on the network at the same time, and there is not enough space to process all of them quickly. In order to have your transaction processed more quickly, you can choose to pay a higher fee, which will make your transaction more attractive to the “miners” who process transactions on the network. Additionally, Ethereum is moving to a new version called Ethereum 2.0 which aims to solve scalability issues and reduce the high fees.
Ethereum 2.0, also known as Serenity, is a major upgrade to the Ethereum blockchain that aims to improve its scalability, security, and sustainability. One of the main goals of Ethereum 2.0 is to move the network from a proof-of-work (PoW) consensus algorithm, which is used in the current version of Ethereum, to a proof-of-stake (PoS) algorithm. This change is intended to make the network more energy-efficient and secure, as well as reduce the high fees that have been a problem for Ethereum in the past.
Other features of Ethereum 2.0 include the introduction of shard chains, which will allow for greater scalability and faster transaction processing, as well as new virtual machine (EVM) and smart contract capabilities. Ethereum 2.0 also aims to improve security by introducing new cryptographic techniques and other security enhancements.
Ethereum 2.0 is still in the process of being developed and rolled out, (currently in Phase 1), but it is expected to bring significant improvements to the Ethereum network once it is fully implemented.
What is the biggest difference between Bitcoin and Ethereum?
The biggest difference between Bitcoin and Ethereum is their intended purpose. Bitcoin was created as a digital alternative to traditional fiat currency and is primarily used as a means of payment. Ethereum, on the other hand, is a platform for building decentralized applications (dapps) and smart contracts. Ethereum also has its own cryptocurrency called Ether, which is used to pay for transactions and computational services on the Ethereum network.