Ethereum is the second most valuable blockchain network after Bitcoin. The cryptocurrency used with Ethereum is known as ether (ETH). The Ethereum ledger which was launched in 2015, along with ether which is fuel to power the platform’s smart contracts and decentralised applications.
Ethereum also has the largest development community out of any blockchain network, given that it is more experimental and has a wider range of applications than Bitcoin. Ethereum is one part of the Web3 suite of decentralised technologies, along with Swarm and Whisper.
Ether (ETH) the Cryptocurrency
Ether (ETH) is the cryptocurrency is used to pay transaction fees as well as fuel to power the execution of smart contracts. A certain amount of gas is required to be paid to execute a smart contract and the more complicated these contracts are, the higher the gas fees are. The costs for gas discourages spam but also encourages developers to write high-quality applications.
Similar to bitcoin, ETH is open source, censorship resistant, impossible to counterfeit, digital and secured by cryptography. Ethereum can process 15 transactions per second and any amount of money in ETH can be stored on a USB stick or remembered as a 24 word seed.
However, the supply of ETH has no upper limit. Demand for ether is driven by the adoption of decentralised applications and demand for digital assets. As the second largest cryptocurrency, ether has the best chances of developing into a store of value after bitcoin.
Like other cryptocurrencies, ether is highly portable and divisible. Ether can be divided into one billion Gwei, which is the lowest denomination of ETH. Other notable denominations include the Finney (1,000 Finney = 1 ETH) and the Szabo (1,000,000 Szabo = 1 ETH).
The Ethereum Network
The structure of Ethereum’s blockchain is very similar to Bitcoin’s, where nodes each store a copy of the shared record of the entire transaction history and the valid chain is the one with the most computation done on it. The fees for Ethereum transactions are paid to miners, who ensure the validity of each block. Proof of Work is used in Ethereum to secure the network from any attacks, but is due to complete its move to Proof of Stake in 2021.
However, the difference is that each node on the Ethereum network stores the most recent state of each smart contract. Since there are many applications built on top of Ethereum, each node will have to keep track of not just the ETH transactions, but also the current information for each application.
Instead of focusing solely on sending monetary value globally, Ethereum is also used to send information between programs and build a decentralised world computer with a Turing complete programming language (which means that in principle Ethereum can solve any computation problem). Another difference between Bitcoin and Ethereum is that block times are much faster on Ethereum (around 14 seconds) meaning transactions using ETH are confirmed faster.
Because of the faster block time, miners also earn rewards for uncle blocks, which are valid blocks found in parallel to another valid block at the same time. Uncle block rewards ensure that miner’s resources are not wasted and improves security as miners will not be discouraged by from mining on the network.
The Ethereum Protocol
The Ethereum protocol is maintained by the core development team and determines how the blockchain works. It is a later of code that lays out the rules of the blockchain, but all of the code and discussion on protocol changes is done publicly. Anyone can contribute suggestions or improvements to the Ethereum code base using Ethereum Improvement Proposals (EIPs).
There are different implementations of the Ethereum protocol, with nodes mostly running either Geth or Parity. The Ethereum Foundation provides funding grants to for developers to encourage diversity in the clients and software used on the Ethereum network.
The part of Ethereum that handles the smart contracts is the Ethereum Virtual Machine (EVM), which is similar to a globally shared computer that can be used by more than one person at a time.
Smart contracts are conditional transactions that involve “IF” and “THEN” statements which can be used to create complicated conditions and these smart contracts are executed in a decentralised way on Ethereum. Smart contracts are written in the Solidity and Vyper programming languages.