What is Ethereum and how does it work?
Introduction
Ethereum is used for software development. The only difference between Ethereum and other software platforms like Android and iOS is its decentralised features. The ETH is the token that is used for payment for using the platform to develop decentralised applications and any digital technological construction. What makes the Ethereum blockchain stands out is its scalability. The enormous features of the Ethereum blockchain make it the choice for businesses and developers to build technologies that transform their industries. A couple of decentralised finance (DeFi) and decentralised applications (dApps) use smart contracts and blockchain technology as their bases. All of these are provided by the Ethereum blockchain; thanks to the Ethereum programme called SOLIDITY.
Ethereum uses a more complex program, unlike Bitcoin. The Ethereum platform is a DIY ( do it yourself) platform because it allows you to build your own decentralised programme. The Ethereum blockchain was designed with a programming language called SOLIDITY. It allows programmers to create their own applications called dApps ( decentralised applications).
What is the history of Ethereum?
Ethereum was proposed in late 2013 by Vitalik Buterin but it came to the limelight in 2014. The white paper that contained the modalities for the creation of Ethereum was presented by the two founders, Vitalik Buterin and Joe Lubin, and the Ethereum platform was launched in 2015. They were the ones that thought beyond just using cryptocurrency for virtual payment; they were able to explore blockchain technology in different walks of life. Ethereum is the second most capitalised cryptocurrency.
Ethereum is not a digital currency; it is a platform upon which you could build your own decentralised programme. The SOLIDITY allows you to create your own decentralised contract known as the Smart Contract. The contract created depends on the developer. For instance, I may decide to create a contract on rent. All I need to do is write a programme on the amount I would collect for rent on a yearly basis. The Ethereum platform will execute the contract perfectly. It will receive rent from the tenant when the rent expires without having to involve the landlord. If the tenant defaults, it will automatically lock him out. This type of contract cannot be edited because it is immutable. The money the programmer would pay for using the Ethereum platform is Ether. The Ether is Ethereum’s currency. In 2014, the Ether was priced at $0.40.
What is Consensus Algorithm?
The consensus mechanism that is used by Ethereum is called the Proof-of-Work (POW). A new block is formed when a complex mathematical equation is solved. Anyone in the blockchain who solves the equation correctly is given the opportunity to add a block to the blockchain network. A reward will be given in the form of a token for solving the equation correctly. This token is the ETH. In other words, work is being done to form a new block.
Ethereum is a chain of blocks serving as the database. If a new block is created by consensus, it will be validated with fresh data and it will add the exact data contained in other blocks to itself. The data on the new block will also be replicated in other blocks on the network. This makes it difficult for alteration to be done on the network. It also makes it very secure.
What is Ethereum Mining?
This is the formation of a new Ethereum token. The miner that displays accuracy will be rewarded with an ether price which is the ETH. In other words, the miner that correctly solves the puzzle will receive the ether reward. The mining process will restart after a new block is added.
What is a mining farm?
A mining farm, which comprises a large number of miners, is formed in order to receive more rewards on the Ethereum network. Mining farms are often established by big companies or wealthy individuals with the aim of earning more ether rewards.
What happens when Ethereum moves to Proof-of-Stake?
Initially, Ethereum used the Proof-of-Work consensus (PoW). But it has migrated to the long-awaited Proof-of-Stake consensus (PoS), thanks to the successful completion of the anticipated “Merge upgrade”. In the Proof-of-Stake consensus, the Ethereum network is managed and secured by the ETH and the validators. The Proof-of-Stake cuts the Ethereum energy consumption by more than 99% and changes how mining operates in the Ethereum network. The participants in the network no longer compete to earn rewards, the protocol selects from the people that have staked ether at random to validate the transactions and earn the reward. Ether is received as a reward for the effort of the validators. In the Proof-of-Work algorithm, a lot of work has to be done by the nodes (computers) in the Ethereum network to validate a transaction which results in the consumption of a lot of energy.
What does Ethereum Merge mean?
Ethereum Merge is the migration of the Ethereum blockchain from the Proof-of-Work consensus to the Proof-of-Stake consensus. The Proof-of-Stake algorithm has been in the works since December 1, 2020. The first phase of the Ethereum merge, called the Bellatrix upgrade, was completed on September 6, 2022, and “The Merge” procedure was initiated. The Ethereum community agreed to migrate from the Proof-of-Work consensus to the Proof-of-Stake consensus when the Total Terminal Difficulty (TTD) value of the Ethereum blockchain was high.
Paris Upgrade, the second phase of the changeover, was completed on September 15, 2022, thereby completing “The Merge” procedure. It was, indeed, a milestone for the Ethereum ecosystem.
What is an Ethereum wallet?
Ethereum users save their ether in wallets. You will gain access to your ether stored in the blockchain by using the wallet. There is an address (a long string of keys) in the wallet where users can transfer the ether. The wallet also contains private keys which serve as the password to access the ether. The private keys must be stored securely because they are the key to the ether in the wallet.
Why was Ethereum Classic created?
The creation of the Ethereum Classic is significant in the history of Ethereum. In 2016, hackers attacked the Ethereum blockchain and made an attempt to steal $50 million in ether that was raised for DAO (decentralized autonomous organisation) project. The hackers gained entry into the Ethereum blockchain because there were third-party developers involved in the project. The Ethereum community quickly reacted to the attack invalidating the Ethereum blockchain and validating a new blockchain in order to stop the theft. The new blockchain that was formed was known as the Ethereum Classic ( ETC). However, a minority of the Ethereum community decided to stick to the initial Ethereum’s blockchain configuration.
What is Decentralized Autonomous Organisation in cryptocurrency?
DAO ( Decentralized Autonomous Organisation) is an organisation that was built on the Ethereum network to allow decentralised decisions. For instance, the decision made by big companies would need to pass through the board members for approval. The board members may decide to exercise their powers by disapproving of the policy presented. In DAO, you do not need the board members to make your decision count. Decisions are taken based on votes by the participating members. The votes are made by contributing tokens (the ether). The reward will be distributed automatically to members based on the number of votes. The DAO is an open-source organisation operating on the Smart Contract.
What is a Non-Fungible Token?
A Non-Fungible Token (NFT), a digital certificate that proves the authenticity of the ownership of digital goods, is supported on the Ethereum blockchain. The first Non-Fungible Token was traded on the Ethereum blockchain in 2017. Ever since NFT has gained tremendous popularity in the cryptocurrency space. Anything that needs proof of ownership could be minted into NFTs.