Everything You Need to Know About Ethereum

Ethereum is a platform that enables the creation and execution of smart contracts. These smart contracts are programmable agreements that run on the Ethereum blockchain. They allow for the digitization of the conditions governing the relationship, and interactions between the parties involved in a transaction. Once these conditions are programmed and launched on the blockchain as a smart contract, they automatically execute when the predefined conditions are met.

For instance, imagine Rhonda wants to borrow 1000 USDT from Bob, but only if Bob deposits Ether worth $2,000 as collateral. With a smart contract, Rhonda can independently set the conditions that must be met for the loan to be granted, instead of relying on a middleman to facilitate the deal. In this scenario, once Bob deposits the collateral, the smart contract would automatically release 1000 USDT to Bob without the need for intermediaries. Moreover, when Rhonda repays the loan, the smart contract would release the collateral back to Bob.

The use of smart contracts offers a trustless system where parties involved in a transaction don’t have to worry about counterparty risks. Additionally, they eliminate the need for intermediaries, such as escrow services, thus reducing costs and increasing the efficiency of the transaction process.

The Ethereum network utilizes a blockchain to secure store and record transactions. Similar to other cryptocurrencies, a blockchain is a sequence of blocks that contain the data of confirmed transactions. It functions as a public ledger where all activities executed on the network are recorded and can be easily tracked by network participants and outsiders. Additionally, copies of this ledger are distributed across a global network of computers known as “nodes.” These nodes carry out various tasks on the network, including verifying and recording transactions, and smart contract data.

This decentralized architecture allows participants to possess a copy of the blockchain and jointly verify the authenticity of the content added to it. The benefits of this include:

This decentralized and transparent nature of the blockchain allows for a more secure and transparent system for conducting transactions, providing a tamper-proof record of all transactions conducted on the Ethereum network.

Ethereum uses a consensus mechanism to validate transactions and add them to the blockchain. Consensus refers to the process by which nodes on the network agree on the current state of the blockchain. The initial consensus mechanism used by Ethereum was Proof of Work (PoW). PoW requires miners to solve complex mathematical problems to validate transactions and add them to the blockchain. This process is resource-intensive and requires significant amounts of energy.

To address concerns about scalability and energy consumption, Ethereum transitioned to a new consensus mechanism called Proof of Stake (PoS), in September 2022. PoS allows users to validate transactions and earn rewards by staking their ether. This shift to PoS improves the security and decentralization of the Ethereum network and makes it more environmentally friendly. It also allows more people to participate in the network and earn rewards for validating transactions.

The EVM is Ethereum’s built-in processing system that enables developers to create smart contracts and allows nodes to smoothly interact with them. Smart contracts on Ethereum are written in Solidity, a programming language similar to Javascript and C++. However, since these smart contracts are written in a language that can be read by humans, but not by computers, they must be translated into low-level machine instructions — opcodes.

It’s important to note that each Ethereum node has its EVM, which runs the smart contract and transactions. Each node can then see the outcome of the transaction, allowing for a consensus to be reached on the validity of the transaction, which is then recorded on the blockchain. This allows for a decentralized system where no single entity controls the network and decisions are made through consensus.

Ether, also known as ETH, is the cryptocurrency of the Ethereum network and is essential for conducting any type of activity on Ethereum. It is often referred to as “gas” when used to execute smart contracts on the network. Gas fees are necessary to incentivize the network’s nodes (miners) to validate and include the transaction in a block. The fee is calculated based on the amount of computational effort required to execute a transaction or smart contract and is measured in gas units. The gas price, which is the amount of Ether required to pay for each unit of gas, is set by the market and can fluctuate based on network demand. The total cost of a transaction is calculated as the gas used multiplied by the gas price. Thus, for complex transactions, the fee is higher.

Gas Fee = Gas Used x Gas Price

Ethereum utilizes accounts, similar to bank accounts, to store Ether. There are two types of accounts:

Users can interact with Ethereum in various ways. Some users connect their computers to Ethereum by downloading the blockchain software, known as a “client.” Alternatively, users can generate a private key for their wallet. Each of the Ethereum wallets has a unique identifier called a wallet address, which is a random string of alphanumeric characters.

It’s important to note that while most assume crypto holders store their digital assets on wallets, these applications and devices only function as storage systems for private keys, without which, users cannot access their digital assets. Thus, it is crucial to keep keys secure and away from prying eyes. If anyone manages to steal your private key, they have successfully stolen the digital assets associated with that key.

Crypto gambling is the use of cryptocurrencies, such as Ether (ETH), to place bets and wagers on various online platforms such as FunFair, Edgeless, vDice, Etheroll, Ethbet, Crypto-Games.net etc. These platforms offer traditional casino games such as slots, blackjack, and poker, as well as sports betting and lottery-style games. The use of Ether (ETH) allows for fast, secure, and transparent transactions without the need for intermediaries such as banks or payment processors. Moreover, nothing beats the experience of withdrawing money within seconds of winning a game, thus leading to the popularity of cryptocurrencies, especially, ETH, on betting and gambling platforms.

The emergence of smart contracts on the Ethereum network has had a profound impact on the decentralized finance (DeFi) space. DeFi, also known as open finance, is a movement that aims to create a financial system that is accessible to anyone, anywhere, and at any time. Many DeFi applications are built on the Ethereum network, and leverage smart contracts to automate financial transactions.

One of the most prevalent use cases of DeFi is lending and borrowing. Decentralized lending platforms like Aave, Compound, and MakerDAO allow users to lend and borrow cryptocurrencies without the need for a central intermediary. These platforms utilize smart contracts to automate the lending process and provide a trustless system where borrowers and lenders can interact directly.

Another popular DeFi use case is yield farming, where users can lend their assets to liquidity pools in return for earning interest on their assets in the form of governance tokens. These pools are used to provide liquidity for decentralized exchanges (DEXs).

Fungible tokens are digital assets that are interchangeable with other tokens of the same type. They are often used as a means of exchange, and the value of one token is the same as the value of any other token of the same type. ERC-20 is a technical standard for creating fungible tokens on the Ethereum blockchain. Many projects have issued ERC-20 tokens as a way to raise funds, and these tokens can be traded on various cryptocurrency exchanges.

Ethereum also supports Non-Fungible Tokens (NFTs). NFTs are unique digital assets that are verified on the blockchain. They can represent anything from digital art and collectibles to virtual real estate and in-game items.

Artists can create unique digital artworks and mint them as NFTs on the Ethereum blockchain. These NFTs can then be bought and sold on decentralized marketplaces such as Rarible and SuperRare, using smart contracts on Ethereum to ensure a transparent and trustless system for buying and selling digital art, as well as ensuring the authenticity and ownership of the artwork.

NFTs can also be of immense value in the gaming industry. NFTs can be used to represent in-game items such as weapons, armor, and collectibles, which can be bought and sold on the open market, allowing players to earn real-world value for their in-game assets.

Initial Coin Offerings (ICOs) is a method of raising funds for a new project or business by issuing digital tokens, which are usually based on the Ethereum blockchain and can be traded on the open market.

ICOs have become a popular method of fundraising for blockchain projects, as they allow anyone to invest in a project at an early stage. The use of smart contracts on Ethereum allows for a transparent and trustless system for issuing and selling tokens, as well as ensuring compliance with regulations.