Deep Dive into Ethereum: Everything You Need to Know

Bitcoin transformed the financial world as we knew it. It brought a solution for the double spending problem and removed the need for third parties.

Bitcoin also gave rise to monumental technology: blockchain technology, a decentralized, distributed ledger. Thanks Satoshi Nakamoto, whoever you are.

Vitalik Buterin, however, showed us that blockchain goes beyond bitcoin and the peer-to-peer payment network. He knew that blockchain could be used for building various decentralized applications.

To make that possible, Vitalik created Ethereum. So, let’s take a short look back.

Ethereum – more than just a cryptocurrency

ethereum team
Ethereum Team

In November 2013, Vitalik Buterin, who was a teenager at the time, published a white paper called Ethereum: A Next Generation Smart Contract & Decentralized Application Platform. In the white paper, Vitalik explained that bitcoin or other peer-to-peer payment networks shouldn’t be the only application of blockchain technology.

Blockchain has so much more to offer. It can decentralize centralized services and disrupt many industries. For example:

  • Edgeless is the first-ever decentralized, Ethereum-based casino that tends to disrupt the gambling industry.
  • ShelterZoom plans to disrupt the real estate industry. The platform uses Ethereum blockchain to reduce the amount of paperwork users face when dealing with real estate.
  • MetLife is using Ethereum blockchain to disrupt the life insurance industry.

In August 2014, the team organized the first-ever ICO in the crypto world. Through the ICO, Ethereum managed to raise more than $18 million, and the official launch happened in 2015. The game could begin.

So, what exactly is Ethereum? I’m so glad you asked.

What is Ethereum and how does it work?

ethereum vs bitcoin

In simple terms, Ethereum is an open platform that helps developers to build decentralized applications. You see, before Ethereum, other blockchains could also process code, but they were limited.

Ethereum, on the other hand, solves this problem and allows developers to build any operations they want. The platform is decentralized and it can’t go offline.

Compared with bitcoin, we can say that Ethereum’s role is much broader than being a peer-to-peer system, plus, the potential supply of Ethereum’s native currency, Ether, is endless.

Smart contracts: Ethereum’s fuel

The true power of Ethereum lies in smart contracts. These are programs that execute exactly as they are set up. You can think of it as a relationship enforced with a cryptographic code. For example, if one user on the platform sends a message with enough transaction fees to another user, Ethereum will run a smart contract code.

Then, the Ethereum Virtual Machine steps onto the scene. The EVM will execute the smart contract in byte code, for example, 0x6001600101, which the network then can interpret.

The platform itself is based on the use of tokens that can be traded. And one of the most important tokens is called ERC20.

ERC20: Empowering developers

ERC20 tokens became a standard for all smart contracts on the Ethereum blockchain for token implementation. The ERC20 protocol has a defined list of rules that all Ethereum tokens must comply with.

The tokens are called utility tokens, which means that they simply provide users with a product and/or service.

ERC20 tokens are behind billion-dollar ICO industries and most airdrops distribute exactly these types of tokens. Not to mention that Ethereum is the biggest platform for airdrop distribution.

Ethereum Casper Protocol

According to Ethereum developers, the plan was always to move from Proof of Work to Proof of Stake. They decided to go with a POS protocol called Casper. In contrast with other Proof of Stake protocols, Casper can avoid and punish all malicious hacks and phishing attempts.

How to earn Ethereum?

There are different ways you can earn Ethereum coins. Here are some of them:

  • Airdrops and bounties. As we already mentioned, most of the tokens distributed through airdrops and bounties are ERC20 tokens.
  • Mining. Not as simple but still an effective way to earn Ethereum coins. If you don’t have a budget to invest in expensive hardware equipment, consider cloud mining.
  • Staking. This means you’ll need to run a validator node and lock up your ETH tokens in a deposit. Luckily, you don’t need a powerful computer or special hardware.

Not all is perfect

ethereum hard fork

Ethereum, unfortunately, isn’t perfect and it has certain flaws. The thing is that smart contracts are developed by people, who are humans and who make mistakes all the time. And they can make mistakes that turn into code bugs in smart contracts.

Let’s take a look at a notorious example. The DAO is the name of one of the Decentralized Autonomous Organizations that was created by the startup team Slock.it. The DAO’s token sale started in May 2016, and it became the largest crowdfunding campaign in history, raising over $150 million.

Unfortunately, in June 2016, an unknown attacker used the vulnerability in the DAO smart contract code to steal more than 3.6 millions dollars worth of Ether. The price of Ether dropped from $20 to under $13, and the DAO was soon delisted from trading on large crypto exchanges such as Poloniex and Kraken.

Members of the community tried to come up with a solution, and in July 2016, they decided to implement a hard fork in Ethereum code. Ethereum Classic was born. The hard fork, however, led to disagreement in the crypto community.

One side rejected the hard fork, stating that blockchain shouldn’t be changed since one of its main principles is immutability. The other side claimed that the hard fork was necessary for returning stolen funds.

Final words

Today, Ethereum is the second largest cryptocurrency, right after bitcoin. Despite competing blockchain platforms such as NEO or EOS, Ethereum is a standard in the crypto industry. Moreover, it’s probably the most popular platform for launching other cryptocurrencies.

So far, the platform has helped countless ICOs to raise funds, such as EOS blockchain, which managed to raise more than one billion in funds.

Now, we can only wait to see other exciting applications that will be developed on the platform and transform centralized industries.

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