If you’ve been following banking, investing, or cryptocurrencies for the last decade; You’ve probably heard the phrase “blockchain,” which refers to the record-keeping technology that powers the cryptocurrency network. Blockchain is a data storage mechanism that makes modifying, hacking, or cheating the system difficult, if not impossible. Ethereum, like Bitcoin, is a blockchain platform with its own token, Ether (ETH), and programming language, Solidity (primarily utilized).
What is Ethereum (ETH)?
Ethereum is a decentralized blockchain platform that creates a peer-to-peer network for the secure execution and verification of smart contracts, which are pieces of application code. The world’s most popular blockchain-based platform for developing decentralized apps (DApps) powered by smart contracts. Smart contracts are computer programs that take the necessary activity to complete a multiparty agreement on the internet automatically.
The goal of Ethereum is to create an alternative protocol for building decentralized applications; with a different set of trade-offs that we believe will be very useful for a wide range of decentralized applications; given a special emphasis on situations where rapid development time, security for small and infrequently used applications; and the ability of different applications to work together are important.
Ethereum’s Philosophy
Ethereum is design is to adhere to the following principles:
Simplicity: The Ethereum protocol should be as simple as feasible; even if this means storing more data or taking a long time. In order to fully realize the unprecedented democratizing potential of cryptocurrency and further the vision of Ethereum as an open protocol; an average programmer should be able to follow and implement the entire specification, he/she should be able to follow and implement the entire specification.
Universality: One of Ethereum’s core design principles is that it does not have “features.” Instead, Ethereum provides an underlying Turing-complete scripting language that a programmer can utilize to create any mathematically specified smart contract or transaction type. Would you like to create your own financial derivative? You can with Ethereum. Do you want to make your own money? Create an Ethereum contract for it.
Agility: While the Ethereum protocol’s intricacies aren’t set in stone, we’ll be exceedingly cautious about changing its high-level components. For example, there was a lot of debate about the sharding roadmap’s specification and implementation. Additionally, later in the development process, computational tests may reveal that specific changes, such as to the protocol design or the Ethereum Virtual Machine (EVM), will significantly increase scalability or security.
Non-discrimination and non-censorship: The protocol should avoid intentionally restricting or prohibiting specific types of usage. All regulatory mechanisms in the protocol should be designed to directly govern harm rather than to try to prevent certain undesired applications. A programmer can run an infinite loop script on top of Ethereum for as long as they’re willing to pay the per-computational-step transaction fee.
What is Blockchain?
A blockchain is primarily a digital log of transactions that is duplicated and disseminated throughout the blockchain’s whole network of computer systems. Each block in the chain include many transactions, and whenever a new transaction occurs on the blockchain, a record of that transaction is recorded to each participant’s ledger.
Blockchain is a sort of distributed ledger technology in which transactions are recorded with an immutable cryptographic signature known as a hash. The term “distributed ledger technology” refers to a decentralized database that is managed by a group of people (DLT). This means that if one block in a chain was modified, it would be obvious that it had been tampered with. Hackers would have to edit every block in the chain, across all distributed versions of the chain, to disrupt a blockchain system.
Blockchains like Bitcoin and Ethereum are constantly expanding as new blocks are added to the chain, significantly boosting the ledger’s security.
Why is it popular?
Assume that you’re sending money from your bank account to family or friends. To do so you log in to online banking and transfer the funds to the other person’s account using their account number. Once the transaction is complete your bank updates the transaction records. It appears to be straightforward, doesn’t it? There is a potential problem that most of us overlook.
These types of transactions can tamper within a matter of seconds. People who are aware of this truth are often hesitant to use these types of transactions; which has resulted in the evolution of third-party payment applications in recent years. Blockchain technology came into existence to address this vulnerability.
Blockchain, in terms of technology, is a digital ledger that has recently gained a lot of attention and traction. Data and transaction record-keeping is an important aspect of the business. This information is frequently managed internally or through a third party such as brokers, bankers, or lawyers, which adds time, expense, or both to the firm. Fortunately, Blockchain avoids this lengthy process and allows for faster transaction movement, saving both time and money.
Most people believe that Blockchain and Bitcoin can be used interchangeably, but this is not the case. Although Blockchain technology may support a wide range of applications in a variety of industries, including finance, supply chain, manufacturing, and so on. Bitcoin is a currency that relies on Blockchain technology to be secure.
Ethereum Blockchain
Ethereum functions are based on a blockchain network. Like all cryptocurrencies, Ethereum, a public blockchain network, is increasingly being used to enable enterprise transactions requiring automatic, rule-based asset transfer. This blockchain is hosted on numerous computers across the world. Each computer has a blockchain copy and a widespread agreement has to be reached before any changes to the network can be made.
The Ethereum Blockchain is similar to Bitcoin since it has a track record. The Ethereum network, however, also allows developers to create and implement decentralized applications (‘Dapp’). These are recorded with transaction records on the blockchain.
It is distributed in the sense that everyone on the Ethereum network owns a copy of the ledger. It is decentralized in the sense that the network is maintained and administered by all distributed ledger holders; rather than by a single entity.
“Initially, I thought that Ethereum was a thing that would be used for people to write simple financial scripts. As it turns out, people are writing stuff like Augur (No limit, low fee betting platform) on top of it.”
Vitalik Buterin (co-founder of Ethereum)
Uses of Ethereum Blockchain
Currency: Ether (ETH) is the transactional token that facilitates operations on the Ethereum network. It is the digital currency that is accepted as payment; you can use an Ethereum wallet to send and receive ether as well as pay for goods and services.
dApps, or Decentralized apps: Ethereum powers decentralized apps that allow users to play games, invest, send money, track an investment portfolio, follow social media, and do a variety of other things.
Smart contracts: Smart contracts are a type of permission-less app that executes automatically when the contract’s conditions are met.
Decentralized finance (DeFi): Some people may be able to avoid centralized (government) control over the movement of money or other assets by using dApps like Decentralized exchanges built on top of Ethereum.
Non-fungible tokens (NFTs): These tokens, which can be powered by Ethereum, allow artists and others to sell art or other items directly to sellers via smart contracts.
Benefits of Ethereum Blockchain
The Ethereum network provides all of the core benefits of traditional blockchains and more.
Immutable: In the Ethereum blockchain transactions are unchangeable, which means that once the data is written, it cannot be changed. This makes hacking nearly impossible because no one, not even the uploader, can edit the data once it has been uploaded.
Decentralized: The consensus mechanism used to agree on the validity of a transaction eliminates the need for the actions to be performed by a trusted intermediary. Smart contracts run on their own.
Secure: All blockchain transactions are cryptographically secure, and Ethereum has three times the number of nodes verifying transactions as Bitcoin.
Quick Transaction: Instead of time-consuming manual verification and clearances, blockchain transactions ensure a much faster process. It is also less expensive because there are no third-party fees to pay.
Reliable: Ethereum has proven to be a dependable platform, and its blockchain has been operational for more than three years. Applications built on the platform operate exactly as intended, with no downtime, censorship, fraud, or third-party interference.
Turing Completeness: This is the idea that Ethereum, with enough resources, can calculate everything computable; it is effectively a “world computer” that can run any code that a normal computer can run.
Issues Of Ethereum Blockchain
The inherent properties of Ethereum mining limit block generation to 7-15 transactions per second, posing a scalability challenge. In comparison, the Visa network processes approximately 45,000 transactions per second. The requirement for each node to process every transaction that occurs on the network is a major contributor to this restriction. Unless and until this issue is resolved, transaction congestion may result in long wait times for Ethereum users. In order to become an enterprise-class application Ethereum network’s transaction processing speed must be increased on a massive scale.
Possible Solutions
There are three possible solutions to resolve the scalability challenges of the Ethereum Blockchain network; through Sharding, State Channel, and Plasma individually or in combination; there are certain advantages, efficiencies, and complexities in implementing each.
Sharding: Sharding is the process of dividing a chain state into smaller partitions known as shards. All transactions that originate within a shard must be processed by nodes within that shard. As a result, by reducing the number of nodes required to process each transaction, overall network throughput can be increased.
State Channel: The solution prioritizes the operations on which it is working; while the remaining operations are moved off the chain (off-chain). After the transactions are processed off-chain, the only proof is submitted to the main chain. ;
Plasma: Plasma is yet another off-chain scaling technique that relies on off-chain transactions (in the child chains) with few interactions with the main chain.
Conclusion:
Ethereum is a technology that has totally transformed the way transactions are conducted. Ethereum expands beyond Bitcoin’s innovation, with significant changes. Allowing the use of digital money without the need for payment providers or banks. As a result, Ethereum is a decentralized platform that supports smart contracts. Smart Contracts make it feasible to replace all existing standard contracts in order to increase transaction security, reduce costs, and decentralize the world.
The Ethereum blockchain, unlike the Bitcoin network, was not designed to support a cryptocurrency. Ether came into existence to serve as an internal currency for Ethereum blockchain-based apps. In other words, Ethereum has higher aspirations. It aims to be a platform for all types of applications that can securely store data.
Sources:
https://aws.amazon.com/blockchain/what-is-ethereum/
https://ethereum.org/en/whitepaper/
https://www.euromoney.com/learning/blockchain-explained/what-is-blockchain
https://www.coforge.com/blog/scalability-challenge-ethereum-blockchain-platform
