Ethereum basics for beginners

Have you ever used Ethereum? The best way to learn something is through application and the best way to know everything about Ethereum is by using it. In this article, we are going to discuss everything you need to get started with Ethereum.

The basis of Ethereum, in that case for any other cryptocurrency, has happened, only due to the creation of Bitcoin.

Bitcoin is created as digital cash using a peer-to-peer decentralised network and uses a database which is later termed as Blockchain. The data is stored in what we call Blocks in a blockchain.

In any blockchain, we have nodes(computers that are connected to the blockchain). Every node has a copy of the data of the whole blockchain. Nodes are responsible for verifying the transactions and adding new blocks to the blockchain.

Every blockchain has a consensus algorithm on which nodes agree on what is right or what is wrong. Proof-of-Work and Proof-of-Stake are the most common consensus algorithms.

Bitcoin and Ethereum use the Proof-of-Work consensus algorithm. In proof-of-work consensus, nodes are called Miners. These miners provide their computing power to the network to verify the transactions to secure the network. This will cost miners a lot of money as they have to pay a massive electricity bill, but why will they opt to do that? That is because they are rewarded for verifying the transactions.

On the Bitcoin network, miners verify the bitcoin transactions and also add new blocks to the blockchain. But it is not the same for Ethereum. On the Ethereum network, they not only verify the Ethereum transactions but also lend their computing power to execute the smart contracts. We will learn all about this in detail, let's begin with how Ethereum got started.

History of Ethereum

Vitalik Buterin was a 17-year old kid when he first heard about Bitcoin. He wanted some modification in Bitcoin that we are going to discuss later, which the bitcoin community didn't accept. This is the reason he had to create Ethereum, a new cryptocurrency network. Ethereum development team consisted of Vitalik Buterin, Mihai Alisie, Anthony Di Lorio, and Charles Hoskin.

Ethereum's main net was released in 2015. 'Frontier' is the first version of Ethereum. In 2016, a more stable version of Ethereum, Homestead was released.

What is Ethereum?

Ethereum is a open-sourced, decentralized software platform that leverages blockchain technology on which smart contracts and decentralised applications can be built and deployed.

While Bitcoin is created as digital cash, Ethereum had more ambitions. Ethereum allowed users not just to transfer value but also create new cryptocurrencies and also any kind of application on its decentralised network.

Ethereum is a Network, Ether is the Cryptocurrency

We have discussed the Ethereum network, but the Ethereum network runs on the cryptocurrency 'Ether'.

Ether is the currency of the ethereum ecosystem. Ether is used to pay transaction fees, for interacting with DApps or for acquiring digital art, and many more.

Ether is the second-largest cryptocurrency after Bitcoin. Ether hit an All-Time High price of $4,356 on May 12, 2021, which is just a few days ago. It is currently trading at $2,223 with a market cap of 258 Billion dollars.

There is 115,975,117 Ether in circulation but the total supply is undefined, as everyday miners are rewarded with new Ether for providing their computational power to the Ethereum network.

Ethereum is a superior blockchain than that of Bitcoin but Ether is not a superior currency to Bitcoin. Bitcoin serves as a digital gold, a digital store of value, a peaceful revolution against the governments who debase the currency of the common man, and also Bitcoin represents the whole crypto industry.

Ether is just a fuel that drives the ethereum ecosystem and there are several issues like, if there are too many requests on the network, the miners prioritize the transactions with higher fees, which leads to an increase in the cost of transactions.

However, Ethereum compatible networks like Binance Smart Chain are gaining popularity due to very low fees compared to ethereum. On Binance Smart Chain, developers have the same environment for DApp development and Binance Smart Chain already has higher transaction volumes than Ethereum and could be an Ethereum killer.

What are Smart Contracts?

A smart contract is an agreement between two people in the form of a computer code. Smart contracts execute automatically once the conditions of the agreement are met.

Let me give you an example of a smart contract. Say you have $1200 and you want to buy $100 worth of Ethereum every month on a particular date for 10 months. You can write a smart contract and deploy it on Ethereum and it executes itself without your intervention.

Miners provide the computational power required for executing complex smart contracts.

We need some gas to execute a smart contract on Ethereum. The amount of gas depends on the complexity of the smart contract.

What is Gas?

We have discussed that the miners provide their computational resources to execute smart contracts. Gas is the price you have to pay to incentivize the miners.

Gas is a fuel that is required to run the Ethereum network. Gas is not a cryptocurrency. Gas is paid in Ether. Any ethereum transaction has some gas fees and it is calculated as:

Transaction fees = Gas fees = Gas Limit x Gas Price

Gas Limit is the maximum amount of Gas you are willing to pay for a transaction or a smart contract to execute. Wallets provide you with the estimated Gas Limit and it depends on the status of the network.

Gas price is the price per unit of Gas. It is represented in Gwei or Giga wei. One Ether is equal to 10^18 wei. For most interfaces, Gas price would be 20 Gwei.

With the massive increase in dapps on Ethereum, the network is clogged and now the gas price is greater than 200 Gwei. Paying less than the required gas price, the transaction may take a lot of time or even fail and you also end up losing your transaction fees.

Wallets just provide the product of gas limit and gas price, and you can pay out the fees in Ether. You can customize gas limit, gas price to speed up your transaction.

To know the current transaction fee and gas price, click here.

Why Ethereum?

Smart contracts are used to develop decentralised applications on Ethereum. These decentralised applications are different from the traditional applications because they run on a blockchain now. Any smart contract or application that is deployed on Ethereum has the following features:

  • Once a DApp or a smart contract is deployed, it is immutable. We cannot re-write the program even if something goes wrong.
  • Ethereum miners are responsible for the computational operations required for the DApps. No miner is above another. There is no censorship. Anyone can mine Ethereum.
  • Traditional applications have a single centralized server. If that server crashes, the whole network will be down. But on Ethereum each miner acts as a server that secures the network as there is no central point of failure.
  • There is no downtime. If a node/miner goes down, there will always be other miners to support the network.

How to access Ethereum?

Buying and selling Ether is not how you use Ethereum. It is like saying, I have bought a Microsoft share and know how to operate Windows.

Just like we use a web browser to access the internet, we use an Ethereum wallet to interact with decentralised applications on Ethereum. Metamask is the most popular Ethereum wallet. Metamask is a Chrome extension and there is also a mobile app.

You just require an ethereum wallet address to interact with any of the dapps. Signing up on Metamask gives you as many Ethereum accounts as you want and you are good to go.

Uniswap is a popular dapp on Ethereum. It is a decentralised exchange where you can buy, sell, lend, exchange your cryptocurrencies. Connect your Metamask to Uniswap and you can swap your cryptocurrency. You need to have some Ether and the cryptocurrency you want to swap in your Metamask wallet. Go to Uniswap with and without Metamask extension and find the difference.

Ethereum Block Explorers

Etherscan and Ethplorer are the popular block explorers for the Ethereum blockchain. You can check your balance or any transaction of yours or others on block explorers.

How to Read a Transaction on Etherscan?

Ethereum is a great invention and a beginning of a Decentralised Web. There is a lot of scope for the development of dapps on Ethereum. As you have read the article, you are in the top 5% of the world who have some knowledge in Ethereum.

Share it with your friends and let them know you are here first.

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