Ethereum (ETH)

What is Ethereum?

What is Ethereum and how does it work – Although most people know Ethereum as a digital currency, Ethereum was created for a bigger purpose. Ethereum as a platform aims to eliminate all intermediaries in financial transactions and contracts. In the following, we will review together what Ethereum is in simple language and answer questions such as what is the Ethereum blockchain, what is the Ethereum algorithm, and how is the future of the Ethereum currency predicted; We will answer.
What is Ethereum in simple words; Ethereum, is the open blockchain platform.
If we want to define Ethereum very simply, we must say that Ethereum is a free platform based on blockchain technology. Ethereum allows developers to run their decentralized applications on it. Applications created or developed on Ethereum are not controlled by any organization. The digital currency of the Ethereum network is called Ether. When buying and selling digital currency, Ether is displayed with the abbreviation ETH. One of the positive features of Ethereum is the possibility of creating a new digital currency without building a blockchain. Developers can develop their currencies on the Ethereum platform. Today, the Ethereum platform hosts thousands of dedicated tokens.

What do you know about the history of Ethereum?

After the introduction of Bitcoin in 2008, there was a tremendous change in the perception of value and digital money. In the meantime, a young programmer named Vitalik Buterin developed a way to advance this idea and apply it to any type of program. This idea eventually led to the birth of Ethereum.

Vitalik Buterin introduced the idea of ​​Ethereum to the world in 2013 in a blog post titled Ethereum: The Ultimate Smart Contract and Decentralized Application Platform. In this post, he explained the idea of ​​a Turing-complete blockchain, based on which a decentralized computer can run any program given enough time and resources.

He intended those applications outside of the general design and framework of Bitcoin can also be developed with the help of blockchain technology.

What is Ethereum and how does it work?

To better explain what Ethereum is in simple language and better examine the functionality of this platform; It is not bad to mention one of the most important uses of Ethereum: creating a platform for creating digital currencies.

Ethereum is a global decentralized computing platform. To better understand this issue, it can be visualized as a laptop or personal computer, except that it does not run on a device; Rather, it runs simultaneously on thousands of devices worldwide. Therefore, Ethereum has no owner. Ethereum’s goal is to become the foundation of the new financial system.

Ethereum, like Bitcoin and any other cryptocurrency, allows the transfer of digital money; But the ability of the Ethereum platform goes far beyond money transfer. Anyone can program with the Ethereum platform and develop their application and communicate with other applications built by others on the platform with just a few lines of code. Due to the very high flexibility of this platform, almost any type of application can be developed on Ethereum.

In the design of Ethereum, scalability, programmability, security and decentralization have been observed. The emphasis on these features is for developers and companies who plan to create their applications based on blockchain technology; Their desire and choice is the Ethereum platform.

Of course, the main idea of ​​Ethereum is to help developers run their applications on a decentralized distributed network instead of a central server. This feature makes these programs achieve an important feature that cannot be disabled or censored.

In its structure, Ethereum supports smart contracts, which are essential tools for developing decentralized applications.

In the last few years, the growth and decentralized programs have been such that the power and importance of the Ethereum platform in the field of development of such programs are becoming more visible to computer and information technology activists every day. Many decentralized finances (Defi) and other applications use smart contracts in conjunction with the blockchain technology that Ethereum provides on its platform.

A closer look at how Ethereum works

Ethereum can be defined as a state machine. A state machine can model a large number of problems and has many applications in computer science and data networks. To understand this issue simply, it can be stated that at any time, there is a copy of the state of all account balances and smart contracts in their current form. Some actions trigger a state update, and as soon as this happens all nodes update their version to reflect these changes.

Smart contracts running on Ethereum are activated by transactions (either from users or through other contracts). When a user submits a transaction to a contract, each node in the network executes the contract’s code and records its output. This is made possible by using the Ethereum Virtual Machine (EVM).

To update the status of this mechanism, a mechanism called mining is currently used. Mining in the Ethereum network works with the Proof of Work algorithm, which is very similar to Bitcoin but doesn’t forget that the Ethereum network will be merged soon and the Ethereum algorithm will change to Proof of Stake. In the new structure, stickers or shareholders will take the place of miners. Of course, it should be noted that Ether with Proof of Stake is called Ethereum 2.0 or Ether 2.0.

What is a smart contract?

The reality is that a smart contract is just a few lines of code. A code that is neither smart nor a contract sheet in the traditional form that is imprinted in our minds. But the reason why we call it smart is that this code is executed under certain conditions and it can be considered a contract because it has the possibility of executing the agreements between the parties.

Nick Szabo, a computer scientist, proposed the idea of ​​a smart contract in the late 1990s. He used a simple example of a vending machine to explain the concept of a smart contract and stated that this simple example can be considered the most basic example and guide for a modern smart contract. In the case of the vending machine, a simple contract is running. Users activate a contract section by inserting a coin or banknote, and the device allows them to choose one of the products they want, and finally, the device provides them with the product.

In a smart contract, this type of logic is applied in a digital environment. Items or conditions can be specified and if the conditions are met, a predetermined output will occur.

In Ethereum, the developer codes these terms in Solidity language so that later these codes are read by the Ethereum virtual machine EVM and translated for the computer. Then this code is sent to a specific address where the contract is registered and published. At this point, anyone can use the contract. Also, the contract cannot be deleted, unless a specific condition is programmed by the developer when writing the code for this contract to be deleted.

What is an Ethereum virtual machine?

The Ethereum virtual machine is nothing but a machine that converts smart contracts into understandable instructions for a computer that the computer can eventually read and act on.

What are the benefits of Ethereum?

Ethereum is designed based on blockchain technology. Therefore, it has all the positive features of blockchain, such as decentralization and high security. People can use Ethereum’s native blockchain currency, ETH, as digital money or collateral. Many see Ether as a store of value, similar to Bitcoin. However, unlike Bitcoin, the Ethereum blockchain is programmable, so much more can be done with Ethereum. Ether currency is a vital resource for decentralized financial applications, decentralized markets, exchanges, games, and most asynchronous token markets, Metaverse, and many more. Thousands of tokens live on the Ethereum platform and use the network’s ERC-20 standard.

In the following, we will examine the features of the Ethereum network.

  • Ethereum is immutable

Ethereum is an open-source network and all network information is shared among members. This high transparency makes it impossible to change the data in any way.

  • Ethereum is impenetrable

Another feature of Ethereum is its impermeability. Ethereum operates based on network consensus. This feature has made even mass attacks by hackers unable to create the slightest breach in network security.

  • All transactions and activities are completely safe

Another feature of Ethereum is data encryption. For example, Ether, as the official cryptocurrency of Ethereum, uses advanced encryption algorithms. This encryption keeps the identity of people in the network safe. Of course, the network can still monitor the exchanges.

  • Ethereum is always available and active

One of the characteristics of decentralized programs is their constant activity. As long as the last system continues to operate, the network cannot be stopped. Therefore, it is almost impossible to disable decentralized networks.

  • Ethereum smart contract; Everything is as transparent as possible

Suppose we go to an insurance company and plan to use health insurance services for a year. The most important thing in this process is signing the contract. In this contract, the applicant undertakes to use free medical services in exchange for a monthly payment. The insurance company is also obliged to provide these services to the insured when necessary. This is a very simple contract. We have a similar contract on the Ethereum platform. But the Ethereum platform contract is considered a smart document. The Ethereum contract is executed intelligently and in the form of codes. In other words, these smart codes and algorithms of this contract are what cause trust. In fact, despite this smart contract, there is no need for an intermediary or a lawyer to carry out exchanges on the Ethereum network.

How is Ethereum different from Bitcoin?

Ethereum and Bitcoin have many similarities. Both are based on blockchain and two decentralized platforms. But Bitcoin was created to create a global and peer-to-peer payment system. While Ethereum wants to remove intermediaries not only from financial markets but also from all processes. In other words, digital currency is only one of the uses of Ethereum. Also, Ether, as Ethereum digital currency, is faster to transfer than Bitcoin, and its fees are much lower.

What wallet should we use to store Ether?

Ethereum and Bitcoin have many similarities. Both are based on blockchain and two decentralized platforms. But Bitcoin was created to create a global and peer-to-peer payment system. While Ethereum wants to remove intermediaries not only from financial markets but also from all processes. In other words, digital currency is only one of the uses of Ethereum. Also, Ether, as Ethereum digital currency, is faster to transfer than Bitcoin, and its fees are much lower.

What wallet should we use to store Ether?

To store any digital currency, we need an electronic wallet. These bags can be kept both as an application on the mobile phone and as software on the computer. And hardware wallets can also be used to store cryptocurrencies. The most important difference between these bags is their level of security. Each wallet has a public key and a private key. These keys allow you to access the wallet. Each digital currency has its wallet address. Currently, many wallets support Ether currency. We can refer to Mist, MyEtherWallet, TREZOR, and Coinomi wallets for storing ether.

Final word; How is the future of Ethereum predicted?

Ethereum is a very large platform network that hosts thousands of other digital currencies on its platform. Ethereum has struggled with various problems and achievements throughout its life. Soon, proof of stake is going to replace proof of work in this network. Many people believe that these changes will increase the price of Ethereum in the future, so they have invested a lot of their ethers in this network and want to get a lot of profit from this investment. On the other hand, these changes have been so far-reaching that critics believe that the Ethereum project may soon face much worse challenges than very high fees in the congestion of this network, and security problems and decentralized maintenance will become impossible for this platform.