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What is Ethereum? The foundation for our digital future


The Ethereum logo on a bright yellow background

What is Ethereum?


Ethereum, like Bitcoin, is a protocol that allows you to send cryptocurrency to anyone for a minimal fee. Unlike Bitcoin, it also powers applications that everyone can use and no one can take down.


Ethereum is more than just a way to send digital money. It is also a global, open-source platform for decentralised applications (DApps). In short, Ethereum is the future internet.


Ethereum's primary objective is to create an open internet. Currently, we can use Internet services for "free", but in doing so we give up personal information. By default, Ethereum services are accessible without requiring any personal information. With Ethereum, users are be able to share/rent/use each other's files directly. However, with the current "free" services you are often dependent on third parties in the internet; for instance, if you want to share your files with someone, you need a service provider such as Dropbox.


Smart Contracts, a key building block of the Ethereum network, make decentralised finance possible (DeFi). DeFi aims to change the current reliance on institutions and banks, which can abuse their market-manipulating power. DeFi, unlike our current financial system, never sleeps and does not discriminate. Sending, receiving, or borrowing funds on the Ethereum blockchain requires only an internet connection and a cryptocurrency wallet.


What are DApps?


You're aware that your smartphone can house numerous applications. Facebook, Instagram, Gmail, and YouTube are all applications that run company-created code, allowing you to interact with the company.


Likewise, a DApp, or decentralised application, functions similarly. Except instead of reporting back to Facebook's or TikTok's servers, it reports back to the blockchain. Through the application, you are simply interacting with the blockchain. Ethereum houses DApps that provide services like exchanges (dexes), market places, money borrowing services and gaming.


What is a Smart Contract


A smart contract is like a set of rules that exists on the blockchain for all to see and is executed exactly in accordance with those rules. Once the rules have been established, nobody, not even those who created the code, can alter them.


Imagine it as a vending machine; if you pay enough, you will receive the desired item, and the machine will hold your payment until it is collected. A smart contract is a vending machine that holds funds until both parties fulfil their respective obligations. This enables the code to facilitate transactions and agreements.


To truly decentralise every aspect of our society, we need a framework that ensures participant trust. Without smart contracts, two parties cannot interact securely without a third-party service ensuring that each party receives their portion of the transaction.


What are Gas Fees?


To prevent users from spamming the network with endless transactions, every cryptocurrency imposes a small fee on blockchain transactions. These fees are usually paid to miners who validate transactions, but they can also serve as an incentive for users to mine cryptocurrencies.


Transferring ETH from one Ethereum wallet to another incurs fees. In addition, the Ethereum network charges fees to run applications on its blockchain, which gives an ETH transaction fee an additional form of utility. Because ETH fees provide the energy or power required to run applications on Ethereum, these fees are also known as "gas."


What exactly is Ethereum 2.0?


Ethereum 2.0, also known as Eth2 or "Serenity", is a blockchain upgrade. The upgrade aims to improve the Ethereum network's speed, efficiency, and scalability so that it can avoid bottlenecks and process more transactions concurrently.


Key features of Ethereum 2.0:

  • Efficiency - The energy efficiency of Ethereum increased by 99.5% once it moved from proof-of-work to proof-of-stake following the 'Merge'

  • Sharding - Ethereum will be divided into 18 concurrently operating "Shards" This will significantly enhance efficiency.

  • Staking – Ethereum will transition to Proof-of-Stake Consensus, allowing everyone to stake and contribute to network security

  • Security – Under Proof-of-Stake, it will be much more expensive to compromise the network. Additionally, 51% of attackers will be easily identifiable with validator addresses and can be forked away from the network in the event of an attack.

 
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