What is Ethereum (ETH)?

Ethereum is a decentralized platform that allows smart contracts and decentralized applications (dApps) to be created and executed using its native cryptocurrency, Ether (ETH). Unlike Bitcoin, Ethereum not only serves as a currency, but also provides an environment for programming applications without intermediaries.

What is Ethereum?

Ethereum is one of the largest projects in the cryptocurrency industry. It is a digital platform that is based on blockchain technology. blockchain or blockchain whose goal is to become a blockchain capable of running decentralized applications.

To achieve this, it has a blockchain and a cryptocurrency with unique characteristics, such as the ability to use and create smart contracts and new tokens, powerful functionalities that allow it to stand as one of the most complete blockchains in the crypto world.

The network currency is called Ether (ETH), and like Bitcoin (BTC), Ether is characterized by being a cryptocurrency that can be used as a method of payment between peers. Another similarity with Bitcoin and other cryptocurrencies is that it is not controlled by any government or regulatory body. Its development is marked by Ethereum Foundation, its Core Team and the community that supports and supports. Another important point is that it uses the consensus protocol Proof-of-Stake (PoS), using the Ethash algorithm.

The development of this blockchain began thanks to the work of Vitalik Buterin 2013 the year.

Ethereum technical characteristics

What is Proof of Stake?

La Participation test Validators are the mechanism that activates validators once they have received a sufficient stake. In the case of Ethereum, a stake of 32 ETH is required to become a validator. Validators are randomly chosen to create blocks, and they have the responsibility of reviewing and confirming blocks that they have not created themselves. In addition, stakes placed by users are used as a way to incentivize good behavior by validators. That is, if a user disconnects their validation, they lose part of their stake. In the case of deliberate collusion, the user will lose their entire stake.

Cryptocurrency issuance

Unlike the Proof of work, validators do not need to use significant amounts of computing power, as they are selected randomly and are not competing. They do not need to mine blocks, but only need to create blocks when they are selected and validate proposed blocks when they are not. This validation is known as attesting. Attesting could be understood as an expression like “I think this block looks good.” Validators get rewards for proposing new blocks and for certifying those who have found them.

The initial issuance of Ether on the blockchain was related to the pre-sale that was carried out to promote the project. At that time, a total of 60 million Ethers were created. Of these, 12 million were used to create a development fund, this is the beginning of the well-known Ethereum Foundation.

What are gas fees or commissions in Ethereum?

This concept is used to measure the work done within the blockchain. Each action on the blockchain, such as an operation or a set of operations, has a specific cost that is given in Gas units.

Among the functions of Gas within the blockchain we can mention:

1. Assign a cost to the execution of tasks. Gas is used as a unit to measure the cost of performing a certain action within the blockchain. Each action has a cost in Gas and a set of actions carried out adds the total cost of said operation. In this way, we can see Gas as the price to pay for performing actions within the blockchain.
2. It helps improve system security. As each action has a price, this helps prevent the blockchain from stopping its operation and undermining its security. This is possible because Gas helps protect the network from spam attacks. For this, gas involves an expense that prevents them from being DDoS attacks easily over the network, attacks that can leave millions of users without service.
3. Reward validators.

Block generation time and size

Ethereum is characterized by calculating the size of its blocks in a somewhat particular way. Unlike Bitcoin, where its size is limited to 1MB, on Ethereum its size is limited to a specific amount of Gas. To be more precise, each block has a target size of 15 million gas, but the block size will increase or decrease based on the demands of the network, up to the limit of 30 million gas. gas per block (double the target size for March 2023). This means that each block can contain a total of transactions as long as it does not exceed the specified Gas limit.

Generally, a block can contain about 500 payment operations between accounts, the simplest of possible operations. In the case of a smart contract, the operations of one of them can easily reach the Gas limit of each block.

Another difference from Bitcoin is the block generation time. In Bitcoin, each block is generated every 10 minutes, while in Ethereum this value is variable. In principle, each block was generated approximately every 16 seconds. This value increased to 30 seconds in 2017, and currently stands at 12 seconds on average. This means that it is generally faster in providing confirmations than Bitcoin, which has a positive impact on its possibilities as a payment system.

What are Smart Contracts?

Un Smart contract or smart contract is a computer program that executes certain pre-established actions in its code under certain conditions. Actions that have been reviewed and accepted by the different parties that have "signed" said contract. In this way, the smart contract asserts its programmed conditions by presenting a response in accordance with its clauses in a completely autonomous way.

Smart contract technology is one of the fundamental foundations of Ethereum and the operation of many of its features. A situation that can be seen especially in the tokens and DApps of this blockchain.

What is the Ethereum Virtual Machine

La Ethereum Virtual Machine (EVM) It is a software whose objective is to serve as abstraction layer in the execution of code that is stored in the blockchain. With this, it seeks to prevent a malicious DApp or smart contract programmer from threatening the security of the nodes. from the network and with the network itself.

To achieve this, EVM performs a complete abstraction of the system, managing access to computer resources and limiting its actions in a controlled environment or virtual machine. But in addition to this, EVM also seeks to simplify the development and update of applications and features available to the DApps. That is to say, EVM was created both to protect and to allow to extend the functions of Ethereum in a simple way.

EVM allows the operation of smart contracts and DApps thanks to the use of the programming language Solidity. This language allows you to program all the logic behind DApps and smart contracts while allowing decentralized execution of your code using EVM.

What is Ethereum 2.0

Ethereum, like most blockchains, had a huge problem: it could not scale correctly to serve the millions of users that its network has. This network architecture problem is something that its developers are aware of and seek to solve. That is why, from September 2022, Ethereum received a major update.

Ethereum 2.0 is a project that began its development in 2017 with the arrival of Ethereum Metropolis and its two updates Byzantium and Constantinople. At that time, the transformation of Ethereum began to seek to provide it with a better capacity to scale, reduce commission costs and control the mining of the cryptocurrency that was already accused of problems such as "Ice Ages", those dangerous moments in which the Ethereum mining would be so complex that it would be impossible for the network to carry it out.

Early efforts (in 2017) led developers to play with options like Proof of Authority (PoA) and Proof of Stake (PoS) on the Ethereum code. Projects such as PoA Newtork and the PoC that gave birth to Casper, the protocol that would be chosen to replace PoW on Ethereum, and turn Ethereum into a PoS network, as happened in September 2022 with The Merge.

The beginning of the shift to Ethereum 2.0

In 2020 the Ethereum devs finally take the first step by activating the Beacon Chain, the first step to Ethereum 2.0, laterally activating this network and creating the basic structure for its operation. However, the official launch of Phase 1 of Ethereum 2.0 came in September 2022. This is due to serious problems detected in The Merge mechanism, which will unite the Ethereum PoW and PoS networks, to start Ethereum 2.0.

In any case, only when the basic functions of the network were considered stable did The Merge start and among those functions were:

1. Casper protocol tested together with the entire economic and staking system that will provide security to the network. This will lead to the abandonment of PoW and mining, to exchange it for PoS and its betting system in the network.
2. The arrival of the basic structures of Sharding to the network, to significantly speed up network capacity to 1000 transactions per second. This is the most anticipated enhancement of Ethereum 2.0.
3. The construction of the bases for the parallelization of the EVM, a capacity that will not be ready until the launch of Phase 2 of Ethereum 2.0, still with an unknown date.
4. The union of ETH1 and ETH2 in the same blockchain, and not as two separate networks as it happens now.

Why does Ethereum 2.0 switch to Proof of Stake (PoS)?

The main reason for Ethereum 2.0's shift from Proof of Work to Proof of Stake It is related to energy consumptionProof of Work in Ethereum consumes large amounts of energy because this activity depends on thousands of GPUs and ASICs running in parallel to perform all the calculations necessary to complete the cryptographic puzzles proposed by the Ethereum mining system and its Ethash algorithm.

This is a situation that has been attacked by many people in the community, stating that it is not environmentally friendly and a waste of valuable resources. With that in mind, Vitalik Buterin and his team decided that the best solution to the problem is to transform Ethereum into a blockchain supported by the Proof of Stake protocol, where thousands of computationally low-power nodes could be created, but which would only participate by having a small stake within them that would give them the power to vote and validate blocks within the network. In this way, Ethereum would become a network hundreds of times more energy-efficient.

The measure has been applauded by a large part of the community, while others have attacked it. The attack on this change is not irrational, because PoS is a more insecure protocol than PoW and it also tends to lead networks to enormous centralization, which is already beginning to be seen in the Ethereum 2.0 Beacon Chain, where only 13 addresses control more than 50% of the network's validators currently.

Why wasn't PoS used early on in Ethereum?

One of the main reasons why Ethereum did not use the PoS algorithm from the beginning was security. At the time of Ethereum's creation in 2015, the reigning consensus protocol was Proof of Work. The algorithm was not only heavily tested, but had been debugged and improved over years, making it extremely reliable. But with the advent of more and more PoS networks, the algorithm has been put to the test and as a result the trust in the algorithm has increased.

Ethereum Use Cases

Ethereum is one of the cryptocurrencies and blockchain with the greatest variety of uses that exist today, among them we can highlight:

Accept and receive payments quickly and safely

One of the great features since its inception has been its ability to handle payment much faster than Bitcoin. This is due to the short block production period ranging from 10 to 30 seconds and the scalability of the blockchain.

ICO realization

While creating tokens and ICOs was not started by Ethereum, but by calls colored coinsThe truth is that this project offered tools to greatly facilitate this work. With the creation of ERC-20 token, Ethereum went on to become the "Father of ICOs" and with reasons for it. With the creation of ERC-20, creating a token was no longer a highly complex task.

Nowadays, it is enough to carry out a smart contract following the model of the ERC-20 token and you had the job done. This gave a significant boost to the blockchain and allowed the diversification of the cryptocurrency market opening up new possibilities.

In fact, there are currently at least 191.000 ERC-20 tokens created, each with unique characteristics running on its blockchain.

Smarts contracts and DApps

Smart contracts and DApps They are one of the biggest uses Ethereum has. The capabilities of these two tools are practically endless. Since the creation of a smart contract to buy or sell or negotiate goods or services, its usefulness is only limited by the imagination. On the other hand, DApps are a revolution. They are capable of creating completely decentralized, uncensored, secure and economically self-sustaining applications. We can also mention the platforms of oracles that are built on this network, as in the case of Augur.

Companies using Ethereum

Ethereum's capabilities to use smart contracts, easily build tokens and deploy DApps has captured the attention of many companies worldwide. This has meant that the development of Ethereum has had the direct or indirect support of a large business group interested in developing its technology. All this set of companies have created the call Ethereum Enterprise Alliance (EEA) which has more than 100 members. They stand out among them

• Accenture, a company dedicated to technology services and consulting.
• AMD, a leading company in the development of chipset, CPU and graphics cards.
• BBVA, a Spanish bank with a worldwide presence.
• Banco Santander, another Spanish bank with a worldwide presence.
• BP Ventures, the investment arm of oil company BP.
• Cisco, the world's largest networking company.
• Delloite, one of the largest audit, financial consulting and legal services companies in the world.
• GoChain, one of the most important companies in the development of DApps.
• Hyperledger, the world's largest enterprise and open source blockchain development project.
• JP Morgan, one of the largest financial firms in the world.
• Microsoft, the world's largest software development and technology company and responsible for Windows development.
• VMWare, the most important company in the development of virtual machines and integration solutions for virtual environments.

Ethereum Advantages

1. It is a multipurpose blockchain thanks to its ability to integrate and use smart contacts.
2. The use and development of EVM confers a high level of security to execute smart contracts and DApps in a completely decentralized and secure way.
3. It has a fast production of blocks, which allows it to have a much faster transaction confirmation speed than Bitcoin and other cryptocurrencies.
4. Development is not controlled by any central authority, its Development Core is completely decentralized and decisions are made by consensus. In addition, the community has a high impact on decisions about the development of the blockchain.

Links of interest