What is Ethereum?
Ethereum is a decentralized, open-source blockchain platform that enables developers to build and deploy smart contracts and decentralized applications (dApps). Unlike Bitcoin, which is primarily a digital currency, Ethereum was designed as a platform to facilitate the creation of a wide range of applications that go beyond financial transactions.
1. Origin and Vision
Launched: Proposed in late 2013 by Vitalik Buterin and developed through Ethereum Switzerland GmbH, the network went live on July 30, 2015.
Vision: To create a platform for developers to build decentralized applications (dApps) without reliance on centralized entities, making it a "world computer" for dApps.
2. Smart Contracts
Definition: Self-executing contracts where the terms are directly written into code, enforcing themselves automatically once conditions are met.
How They Work: Coded in Solidity, smart contracts are immutable once deployed, running without downtime, censorship, or third-party interference.
3. Ethereum Virtual Machine (EVM)
What It Is: The runtime environment for executing smart contracts, capable of performing any computation described in code, given enough resources.
Role in Ethereum: Enables developers to create dApps that can execute a variety of functions using a consistent set of rules.
4. Ether (ETH)
What It Is: The native cryptocurrency of Ethereum, used to pay for transactions and computational services on the network.
Gas Fees: Fees paid in Ether for executing transactions or smart contracts, measured in "gas," to prevent network overload.
5. Decentralized Applications (dApps)
What They Are: Applications that run on a blockchain, leveraging Ethereum's decentralized, secure, and transparent nature.
Examples:
- Decentralized finance (DeFi) platforms like Uniswap and Compound.
- Non-fungible token (NFT) marketplaces like OpenSea.
6. Consensus Mechanism
Proof of Work (PoW): Initially used by Ethereum, requiring miners to solve cryptographic puzzles to validate transactions.
Transition to Proof of Stake (PoS): Through Ethereum 2.0, moving to PoS where validators create blocks based on the amount of Ether they stake, enhancing energy efficiency.
7. Ethereum 2.0 (Eth2)
What It Is: An upgrade aimed at improving Ethereum's scalability, security, and sustainability.
Key Features:
- Sharding: Splitting the network into smaller chains to improve scalability.
- Proof of Stake (PoS): Replacing PoW with a more energy-efficient consensus method.
8. Decentralized Finance (DeFi)
What It Is: A suite of financial services—such as lending, borrowing, trading, and earning interest—built on blockchain technology.
Ethereum’s Role: Ethereum serves as the backbone of the DeFi ecosystem, with most protocols built on its blockchain due to its robust smart contract capabilities.