Before 2015 Cryptocurrencies like Bitcoin and other Alt coins were created primarily only to carry out Peer to Peer Transactions (P2P) i.e. say if A wants to send money to B, he could do that easily and anonymously without the requirement of any third party.
The developers of Ethereum thought differently. They were unsatisfied with using blockchain only as a mere source of payment. They explored it and finally built a wonder known as Ethereum which not only is a source of payment but also a Global Decentralised Computer. An open source platform and the world’s first programmable Blockchain, you can use Ethereum to build and use apps and services around the world. Being decentralised, it provides safety to your data as well as avoids any censorship by an third party.
Foundation and the Founders
Ethereum has a group of co-founders. The main mastermind of them all being Vitalik Buterin, a programmer from Russia and the co-founder of the Bitcoin magazine. He first described the Ethereum Whitepaper in 2013 and his goal of making it an open source, programmable, decentralised platform. He always argued with the Bitcoin core team that Blockchain could be beneficial to applications rather than just a source of payment.
The development of Ethereum started in 2014 and a list of co-founders Gavin Wood, Mihai Alisie,Amir Chetrit, Charles Hoskinson, Joseph Lubin, Jeffrey Wilcke and Anthony Di lorio. Vitalik told the team that the project would be a non-profit organisation and subsequently the Ethereum foundation came into place. Charles Hoskinson disagreed to this and left the project.
The native token of Ethereum-Ether was launched and an online public crowdsale took place between July and August in 2014 to fund the project. Interestingly Vitalik googled for science fiction terms where he found the term Ether.It is the invisible medium in the universe which allows light to travel. That’s how he got the name, he wanted his project to be a invisible medium for applications to run on it.
The development of Ethereum was started by incorporating a Swiss company Ethereum Switzerland GmbH (EthSuisse). But before the software was launched, there were trust and security fears which needed to be addressed. Gavin Wood, the Chief Technology Officer at that time put forth the idea of Smart Contracts in the Ethereum Yellow Paper.
A smart contract is a set of self-executing codes which has the terms of agreement between the buyer and seller. The codes are on a Blockchain and help permit trusted transactions between two anonymous people.
Let’s understand this buy a simple example- We all do online shopping right the Amazon’s, the Flipkarts and Myntras, but what if one day you like something from an unknown online portal XYZ and they don’t have any cash on delivery service available. Now you would be in a state of dilemma as you cannot trust the site and you may incur a loss if you do not get your order. There might even be a third party to this that is the delivery service ABC. So suppose XYZ performs their duty of sending the product but what if ABC doesn’t deliver the product at all ? Here is where a Smart Contract could help in where you pay the money, XYZ and ABC send and deliver the goods to you, that’s when the Network would release the respective payments to XYZ and ABC after successful execution of the agreement.
Ethereum Virtual Machine (EVM)
It is like the CPU of Ethereum. Obviously it’s not a hardware CPU as it’s running on so many node PC’s around the world but is a Virtual one. It runs all the smart contracts and helps programmers create decentralised apps. It’s preferred by programmers as it keeps their data safe. The biggest advantage of EVM is that you don’t need high level programing language knowledge or a high level hardware to work. It’s best specially for beginners.
It is the native cryptocurrency of Ethereum Blockchain. It is used for paying transaction fees and also reward the miners for completing a block and successfully validating a transaction. Ethereum currently works on the Proof of Work consensus mechanism and there is no upper cap on the total number of Ether than can be mined. It currently ranks second in terms of Market Cap just behind Bitcoin. You can buy it from CoinDCX. Like Satoshi is the smallest unit of Bitcoin, in the same way Gwei or Gigawei is of Ether. 1ETH is equal to 1Billion Gwei and in turn 1Gwei is equal to 1Billion Wei.
- Circulating Supply – 118,241,242
- All time high – 4664.91
- Market Cap – 539B approx
We have learnt that the miners need to solve complex mathematical puzzles. In Ethereum with time, the difficulty of these puzzles increases and thus decreasing the productivity of block creation. Ultimately the rewards to the miner will decrease and miners will start to lose interest. This phase will be called “Ethereum’s Ice Age”.Ethereum will then move from Proof of Work to Proof of Stake consensus mechanism.
Gas is the unit that is used to calculated the transaction fee, it is paid in ETH by the sender as a compensation for including the transaction. For each operation Inan EVM, there is a gas fee which is calculated on the basis of the computational energy used to complete the transaction.
When a transaction takes place, the sender describes the Gas Limit which is the maximum units of gas he wants to spend in the transaction and the Gas Price which is the amount of Gwei, that he is willing to give per unit of Gas to the Miner. It is quite obvious that here that the miner will give first preference to the transactions with higher gas fees and those transactions will get included in the block faster.
Note- Sender has to have the full gas limit before the start of the transaction. At any point of the transaction, if it falls short of Gas, the transaction is cancelled without any refund of Gas Fees used upto that point.
I will cover more about Ethereum and its applications in the upcoming blogs. Stay Tuned.