Blockchains 101: Ethereum

5 min readDec 16, 2020

Master of Smart Contracts

Introduction

Ethereum is a blockchain network which, unlike Bitcoin, is not built with the exclusive purpose of transferring value via its native cryptocurrency, but to operate as an Operating System (Virtual Machine) enabling developers to build decentralized applications (DApps) and store code, programs and data in its blockchain’s database through the use of smart contracts.

Ether (Ticker: ETH) is the native digital currency of the Ethereum platform.

The Ethereum network went live on July 30, 2015, with 73 million Ether pre-mined (distributed to initial ICO participants, founders and core developers) which is still today a source of controversy. Ethereum was the first cryptocurrency to perform an ICO.

Description

Vitalik Buterin is the founder of Ethereum and started to develop the idea in 2013 as an open-source blockchain platform different from Bitcoin (BTC) and supporting third parties interactions via a protocol later called smart contracts. Smart contracts on Ethereum behave like self-operating computer programs that automatically execute when specific conditions are met. It allows smart contracts’ code to run without any possibility of downtime, censorship, fraud or third-party interference.

Ethereum is supported in part by the Ethereum Foundation, a non-profit organization that is part of the larger Ethereum ecosystem including enterprise Ethereum consortiums like the Ethereum Enterprise Alliance.

GPU (Graphic cards) mining rig for Ethereum

ETH1.0: Mining (Proof of Work)

As for Bitcoin, the Ethereum consensus still today mostly revolves around the process of mining (PoW), but is planned to progressively migrate for the less energy-intensive Proof of Stake (PoS) model (see after). As for Bitcoin, Ethereum miners compete to verify transactions and solve a cryptographic problem leading to find the correct hash value for the block with the ultimate goal to validate it and obtain the block reward.

On Ethereum, the mining process and transaction fees revolve around a conceptual token called gas. Miners set the price of gas and can decline to process a transaction if it does not meet their price threshold. Gas prices are denoted in gwei, which are worth 0.000000001 ETH.

Transactions on ETH takes about 10 seconds to complete (blocktime), compared to the 10 minutes of Bitcoin.

ETH2.0: Migration to Proof of Stake (PoS)

Since 2017, discussions were ongoing within the Ethereum community for migrating the network to a PoS model. Unlike PoW, the PoS consensus mechanism for finding new blocks relies on a process called Staking (Locking a minimum amount of ETH in a wallet), which is less computational-intensive than mining (PoW), therefore energy-efficient.

By allocating a “Stake” of their ETH to a Masternode (min 32 ETH), any participant can become a validator and pretend to earn a share of the block rewards and transaction fees.

In July 2020, a testnet (Beta) of a PoS side chain for ETH called Beacon went live and after a couple months of testing. It opened to stakers in middle November. By December 1, the minimum staking requirement allocated to Beacon was met, automatically triggering the launch of ETH2.0 network.

Ethereum price action since 2015 (TradingBull mobile app)

Distribution and supply model:

73 Millions Ethereum was initially pre-mined and distributed at launch. The initial block reward was of 5 ETH per block but has been reduced to 3 ETH in the end 2017 and to 2 ETH early 2019.

There is no hard cap (max) on the total supply of Ethereum and the future supply will depends on future decisions of stakeholders through the consensus, involving the Ethereum Foundation, the Ethereum community and ETH holders.

Tokens

One popular application of the Ethereum blockchain and its smart contracts has been for the creation of tokens.

ERC20 tokens are used as cryptocurrencies by projects in order to raise funds or to tokenize real assets (stocks, properties…). Nowadays, due to the open source structure of smart contracts, the costs and technical difficulty to create a token on the Ethereum blockchain are relatively low.

ERC20 tokens on Ethereum are non-natives, which means they are not required for the Ethereum blockchain to operate (which is not the case for the native ETH token). Consequently, tokens do not have their own blockchain infrastructure but use Ethereum or other major blockchains instead, making it cost effective solution for different projects to deploy.

Another popular form of token is the ERC721 non-fungible token standard which allows to make every single token unique and often representing the ownership over something collectible such as artworks, game characters and items, and more recently, celebrities. ERC721 is a more advanced token type than ERC20 (In that it requires higher coding skills to deploy).

https://wixlib.com/2020/04/16/build-a-dapp-using-ethereum-and-angular-6/ — Build Dapps on ETH with Angular 6 (Wixlib.com)

dApps

Smart contracts on Ethereum can also be used to build decentralized applications (dApps) that are mini programs running on the Ethereum network and triggering actions when some conditions are met.

Other applications

There are more diverse and complex applications to the Ethereum Blockchain, such as Decentralized Finance (DeFi) solutions: Decentralized Exchanges (DEX), Lending/Borrowing contracts, yield farming, on-chain custody…

Creating a new Ethereum wallet on the popular MyEtherWallet platform

Storage and wallets

As for Bitcoin, there a plenty of way to store Ethereum. The safest being to store it in a cold wallet (offline wallets such as paper wallet or hardware wallets) or hot wallet (such as mobile or desktop wallets) or by using a custody service that will store it on their own cold wallet/vault (thus limits the benefit of decentralization by involving a third party).

Keeping cryptocurrencies on centralized crypto exchanges and other selling platforms being considered the riskiest since the large volumes of bitcoin stored may attract hackers’ interest.

Technical specificities:

Type: Native Coin
Total Supply: No hard Cap (not limited)
Subunit: 10–9 (gwei)/ 10–18 (wei)
Consensus: Proof of Work (PoW)/Proof of Stake (PoS)
Algorithm: EtHash
Encryption: Keckack
Blocktime: 13 seconds
Coding languages: Go, Rust, Solidity, C#, C++, Java, Python
Open source: Yes
Privacy: Pseudonymous (low)
Current version: Muir Glacier (#9,2M)
Previous versions: Olympic (pre-release) — Frontier (#0) — Ice Age (#200K) — Homestad (#1,15M) — DAO Fork (#1,92M) — Tangerine Whistle (#2,463M) — Spurious Dragon (#2,675M) — Byzantium (#4,37M) — Constantinople (#7,28M) — Istanbul (#9,069M)
Next Version: Serenity (ETH2.0)