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Understanding Ethereum

Ethereum, conceptualized by programmer Vitalik Buterin in 2013, stands as a decentralized blockchain with smart contract capabilities [3]. It introduced a revolutionary vision, outlined in the Ethereum white paper [1], for a decentralized ecosystem enabling the creation of decentralized applications (DApps) and smart contracts. In 2015, the Ethereum project materialized with the launch of the Frontier network, primarily for developer experimentation [3]. Simultaneously, the debut of the Ethereum Virtual Machine (EVM) [4] established the foundation for executing smart contracts on the Ethereum network. Ethereum’s distinctiveness lies in its built-in Turing-complete programming language, which encodes diverse state transition functions, unlocking the potential for unimagined systems and applications [1]. The platform’s transition from Proof of Work (PoW) to Proof of Stake (PoS), known as “The Merge,” further emphasizes its evolution [2].

History of Ethereum

Vitalik Buterin, co-founder of Bitcoin Magazine, introduced Ethereum in 2013. His Ethereum white paper [1] described a decentralized platform for creating decentralized applications (DApps) and executing smart contracts. In 2015, Ethereum’s Frontier network was launched [5], primarily serving as a testbed for developers. This also marked the debut of the Ethereum Virtual Machine (EVM) [6], the core of Ethereum’s smart contract execution.

2016 saw the release of the Homestead network [5], Ethereum’s first stable iteration, with enhanced EVM security and efficiency. That year, Ethereum also pioneered its first decentralized autonomous organization (DAO) [7], a concept that led to the rise of the decentralized finance (DeFi) ecosystem [7]. By 2017, Ethereum’s growing popularity and market value [8] surged its transaction rates. However, this growth led to network bottlenecks and elevated transaction costs. For example, after the launch of Cryptokitties, Ethereum’s pending transactions surged sixfold [9], raising awareness of the big scalability challenge.

In 2018, the Constantinople hard fork unveiled network enhancements, including EVM modifications and the Ethereum Improvement Proposal (EIP) 1234. This EIP moderated mining rewards to curb inflation [5].

2020 brought forward Ethereum 2.0 or Serenity, designed to address scalability. The upgrade proposed transitioning from Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus and included EVM modifications and shard chain introductions [12].

Ethereum 2.0’s phased deployment is underway. A pivotal achievement, “the Merge,” occurred on September 14th, 2022. For the preceding 18 months, the Beacon Chain, employing PoS for transaction validation, operated alongside the PoW-driven blockchain. “The Merge” transitioned Ethereum from its PoW backbone to the Beacon Chain’s PoS system [13]. Upcoming Ethereum goals encompass Ethereum 2.0’s further evolution, with anticipated advancements in scalability and security.

How Ethereum works

Ethereum is a decentralized platform based on blockchain ,that enables the creation of smart contracts and decentralized applications (dapps). Ethereum uses a virtual machine, called the Ethereum Virtual Machine (EVM).

The EVM executes code via a global network of nodes.

The platform uses its own cryptocurrency, which is called Ether (ETH), as a form of payment for the transaction fees and for computational services of the network. Users can send and receive ETH and interact with the smart contracts and dapps through Ethereum wallets. Transactions on the network are recorded in blocks and added to the Ethereum blockchain [2].

The EVM executes code via a global network of nodes and uses its own cryptocurrency, which is called Ether (ETH), as a form of payment for the transaction fees and for computational services of the network. Users can send and receive ETH and interact with the smart contracts and dapps through Ethereum wallets. Transactions on the network are recorded in blocks and added to the Ethereum blockchain [2].

What is Ethereum Gas?

Ethereum Gas is a unit that measures the computational effort required to execute operations, like making a transaction or running a smart contract, on the Ethereum network. Gas prices are denoted in Gwei, which is a denomination of the cryptocurrency Ether (ETH). Users set the Gas price when initiating a transaction, determining its priority on the network. The total transaction fee is calculated as Gas used multiplied by the Gas price. This system ensures that users pay for the computing power they consume on the Ethereum blockchain.

What is a smart contract?

A smart contract is a digital agreement with its conditions embedded in code, ensuring automatic execution between parties (like buyer and seller). This means it performs actions automatically, eliminating the need for human intervention, such as lawyers or judges. These digital contracts reside on the Ethereum blockchain network. They streamline several operations and diminish the role of middlemen across sectors. Smart contracts are versatile, aiding in digital asset management, enabling direct transactions, overseeing supply chains, and showing promise in voting, property, and finance [14].

Smart contract properties

  1. Self-Executing: Once the pre-defined conditions are met, smart contracts automatically enforce and execute the agreement without external intervention.
  2. Immutable: Once deployed, the terms of a smart contract cannot be altered, ensuring that the agreement remains tamper-proof.
  3. Transparent: All parties involved can view the terms and conditions of the contract, promoting trustworthiness and transparency.
  4. Decentralized: Smart contracts operate on blockchain platforms, ensuring that they aren’t controlled by a single entity, which increases security and reduces risks of centralized failures.
  5. Trustless Execution: Parties don’t need to trust each other; they just need to trust the code and the underlying blockchain that it will run as programmed.
  6. Secure: Smart contracts inherit the security features of the underlying blockchain, which uses cryptographic techniques to secure data.
  7. Cost-Efficient: By automating processes and potentially reducing the need for intermediaries, such as notaries or agents, smart contracts can lead to cost savings.
  8. Global and Interoperable: Smart contracts on public blockchains can be accessed and executed from anywhere in the world and can be designed to work with other contracts and systems.
  9. Tamper-Evident: While the content of a smart contract is immutable, any attempt to alter the contract or its execution is recorded on the blockchain.
  10. Conditional: Smart contracts operate based on “if-this-then-that” logic, allowing for complex conditions and outcomes.

Ethereum Virtual Machine (EVM)

The Ethereum Virtual Machine The Ethereum Virtual Machine (EVM) is the runtime environment for smart contracts on the Ethereum blockchain. It is responsible for executing the code of a smart contract. Furthermore, it ensures that the contract’s rules and conditions are followed. The EVM is also responsible for managing the state of the contract, including the storage of data and the transfer of Ether [6]

Ethereum Applications

A Dapp (Decentralized Application) is software (open source) that runs on a decentralized blockchain network like Ethereum. A Dapp is built using smart contracts, and is designed to operate autonomously. Dapps can be used many purposes, for example for decentralized games, decentralized finance, decentralized content, etc. The use of smart contracts and the fact that dapps can run autonomously means they are more resistant to outside human interference, such as censorship. They can also be more cost-efficient than “centralized” applications [15].

Sources

[1] Buterin, V. (2014). Ethereum Whitepaper. Ethereum Foundation. Retrieved August 26, 2023 https://ethereum.org/en/whitepaper/

[2] Rosic, A. (2022, October 18). What is Ethereum? Blockgeeks. Retrieved August 28, 2023 https://blockgeeks.com/guides/ethereum/

[3] Wikipedia contributors. (2023, August 11). Ethereum. Wikipedia. https://en.wikipedia.org/wiki/Ethereum

[4] Metcalfe, W. (2020). Ethereum, Smart Contracts, DApps. In: Yano, M., Dai, C., Masuda, K., Kishimoto, Y. (eds) Blockchain and Crypto Currency. Economics, Law, and Institutions in Asia Pacific. Springer, Singapore. https://doi.org/10.1007/978-981-15-3376-1_5  

[5] Ethereum. (2023, January 20). The History of Ethereum. Retrieved August 25, 2023 from https://ethereum.org/en/history

[6] Ethereum. (2023, January 19). Ethereum Virtual Machine (EVM). Retrieved August, 25, 2023 from https://ethereum.org/en/developers/docs/evm

[7] Ethereum. Decentralized autonomous organizations (DAOs) . Retrieved August 25, 2023 from https://ethereum.org/en/dao/

[8] Cointelegraph. History of ETH: The rise of the Ethereum Blockchain. Retrieved January 23, 2023 https://cointelegraph.com/ethereum-for-beginners/history-of-eth-the-rise-of-the-ethereum-blockchain

[9] Ethereum. (2016). Decentralized Finance (DeFi). Retrieved January 23, 2023 from https://ethereum.org/en/defi

[10] Coinmarketcap. Ethereum Market Capitalization. Retrieved on August 22 2023 from https://coinmarketcap.com/currencies/ethereum/

[11] BBC (2017, December 5). CryptoKitties craze slows down the Ethereum network. Retrieved January 23, 2023 https://www.bbc.com/news/technology-42237162

[12] Ethereum (n.d.). Upgrading Ethereum to radical new heights. Retrieved January 23, 2023 https://ethereum.org/en/upgrades/ [13] Jenkinson, G, (2022, September 15). The Ethereum Merge is completed: Here’s what’s next. Cointelegraph. Retrieved January 23, 2023 https://cointelegraph.com/news/the-ethereum-merge-is-completed-here-s-what-s-next

[14] Ethereum (2022, September). Introduction to smart contracts. Retrieved January 23, 2023  https://ethereum.org/en/developers/docs/smart-contracts/#top

[15] Ethereum (2022, September 26). Introduction to dapps. Retrieved January 23, 2023 https://ethereum.org/en/developers/docs/dapps

[16] Ethereum (2022, August 15). Erc-20 token standard. Retrieved January 23, 2023 https://ethereum.org/en/developers/docs/standards/tokens/erc-20/

[17] Ethereum (n.d.). Digital money for everyday use. Retrieved January 23, 2023 https://ethereum.org/en/stablecoins

[18] Ethereum (n.d.). Non-fungible tokens (NFTs). Retrieved January 23, 2023  https://ethereum.org/en/nft

[19] Ethereum (2022, August 15). ERC-721 Non Fungible Token Stanard. Retrieved January 23, 2023   https://ethereum.org/en/developers/docs/standards/tokens/erc-721/

[20] Radomski, W. (2018, June 25). ERC-1155: The Crypto Item Standard. Retrieved January 23, 2023 https://blog.enjincoin.io/erc-1155-the-crypto-item-standard-ac9cf1c5a226   [21] Papanikolas, S. (2019, October 8). EIP-2309: ERC-721 Consecutive Transfer Extension. Retrieved January 23, 2023 https://eips.ethereum.org/EIPS/eip-2309

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