What is Ethereum (ETH): an overview of the cryptocurrency

For the first four years after its launch, Bitcoin was the sole leader in the blockchain industry. Other cryptocurrencies, such as Litecoin, were forks of it. Developers of virtual coins took the bitcoin cryptocurrency’s programming code as the basis, and with some additions, launched a new network. But this state of affairs did not suit all members of the blockchain community.

The peculiarities of the BTC program code limited the vector of application of digital assets by the financial system and prevented the full potential of the innovative technology from being unlocked. The result is Ethereum, a cryptocurrency that has become a major competitor to digital gold.

What is Ethereum (ETH)?

Ethereum is a universal tool for running decentralized applications that run on smart contracts. Ethereum cryptocurrency is the exchange unit of the ecosystem. Ethereum is sometimes referred to as Bitcoin 2.0, but despite some similarities, the projects have fundamentally different purposes.

The main value of the Ethereum network is not the cryptocurrencies, but the capabilities of the virtual platform. All sorts of blockchain projects, from sports betting and online casinos to charities and NFTs, are launched on the basis of Ethereum. Getting access to the system is easy by simply activating the MetaMask browser extension.

Who created Ethereum (ETH)?

In 2013, Vitalik Buterin, a young Canadian programmer and founder of Bitcoin Magazine, and his colleague Gavid Wood introduced the concept of the Ethereum blockchain platform. The cryptocurrency in this network played the role of not only a means of payment, but also allowed for the exchange of resources across multiple peer-to-peer web services. An ICO campaign the following year managed to raise 31,000 BTC ($18,000,000). Vitalik Buterin managed to attract the attention of reputable banks and financial institutions to the new project. The etherium network was launched in test mode in the summer of 2015. But the full set of options became available only 9 months later, when the Homestead protocol was created and implemented.

In June of the same year, a vulnerability was discovered in the software code of The DAO, a system that autonomously manages investment capital. Due to a bug in the software, hackers stole about one-third of all the coins, moving them to an offshoot of the ChildDAO chain that was entirely under their control. Still, these funds were frozen for a month thanks to the features of The DAO project.

Vitalik Buterin, along with part of the Ethereum community, decided to return the money to investors. As a result, on 20.06.2016, the network underwent a hard fork (blockchain bifurcation) that undid the changes made by the hackers. But another part of the community decided to stay in The DAO project, and so the Ethereum Classic crypto network was formed.

Why you need Ethereum (ETH)?

The Ethereum blockchain enables everyone to take advantage of distributed ledger technology for specific tasks. With the advent of the Ethereum system, it is no longer necessary to create a personal crypto-network. For a relatively small fee, an off-the-shelf solution can be used.

Tens of thousands of computer applications written in different programming languages could now run and communicate with each other on a single site, greatly expanding the scope of blockchain technology. According to Vitalik Buterin, Ethereum is the new Internet, with all its possibilities and unlimited prospects. Smart contracts, whose idea was suggested at the end of the last millennium by Professor Nick Szabo, are the “secret ingredient” of Ethereum. They are essentially a PC application that controls the payment of a transaction. The program performs an if-then operation, example: “If a person puts 50 rubles into a coffee machine, the machine will give out a cup of coffee”. Smart contracts effectively support transactions and contract compliance in a completely virtual environment as well.

Thus, any skilled programmer can create his or her own application based on the Etherium ecosystem, which operates according to a strictly established algorithm. The system guarantees protection from crashes and attackers, no censorship, and non-interference from external regulators. If one of the nodes serving this smart contract fails, the application will switch to another node and continue to operate stably. Information received during the execution of the smart contract will remain unchanged, thanks to the distributed storage system on thousands of nodes.

The functionality of the Ethereum network allows:

Run smart contracts of increased complexity for supply chain management.
Create any type of application (NFT games, utility programs, etc.).
Digitise physical assets (oil, gold, precious stones, industrial goods).
Manage customer identification and document authentication services.
Organise decentralised trading platforms.
Purely theoretically, it is possible to run electronic voting in elections on the Ethereum blockchain.

In addition, there are many ICOs based on the Ethereum platform, for which a single standard of issued tokens called ERC 20 has been developed. The acronym stands for “Request for Comments on Etherium”. The ERC 20 standard ensures that all projects meet fixed security standards and guarantees their stability within the network.

It was the launch of the ETH ecosystem that triggered a real boom in the ICO market. A newcomer to the crypto industry will be surprised to learn that there are many other cryptocurrencies running on the Ethereum blockchain besides the ETH token. And each user can issue their own tokens. However, strictly according to predefined parameters. Following the rules of the ERC-20 standard is necessary to ensure that personal virtual assets interact smoothly with the rest of the system.

Launching a personal blockchain project based on Etherium is relatively easy and relatively inexpensive. New startup organizers have been quick to take advantage of this. And now there are thousands of applications running on the system with original tokens, and regular fundraising campaigns are underway. Teams of young crypto projects sell their tokens to investors in the same way that conventional businesses sell their shares, but digital currency is accepted as payment.

The network’s secondary product is ether, a currency that serves as a consumable to secure smart contracts. The developers believe that ETH is a digital fuel that supports the functionality of the virtual machine. The EVM project is designed to prevent a denial-of-service attack. EVM controls the prohibition of unauthorised access to the internal state of a program deployed on the Ethereum platform, preventing potential interference within the network.

When a new program is activated or a transaction is executed, the network processes the data compiled into “byte code,” which the virtual machine decrypts and executes. Thanks to EVM, applications written in different computer languages can communicate effectively.

Where do Ethereum (ETH) coins come from?

All of the crypto network’s coins are in the blockchain at all times. The word ‘blockchain’ translates to ‘blockchain’ and literal translation is the most accurate designation. Blockchain is a clearly structured chain of information blocks, each of which is a set of cryptographically encrypted transactions. Hash signatures are searched by miners. A hash is the result of processing a cryptographic function that works as a data encoder.

Computing equipment is used to create a new block. The generation takes about 15 seconds, after which the block is verified and written to the blockchain. For each block added, miners receive a reward of 3 ETH. Individual mining has long been out of practice, so the reward is usually received by a collective mining server, which then distributes it to everyone involved in the process. This is how the Etherium coins appear in the current period.

Block Explorer Ethereum (ETH)

When developing a new crypto project, a separate Block Explorer is necessarily created, without it the functioning of a distributed payment network is not possible. Such service is very necessary, but if you constantly work with several digital currencies and regularly monitor the status of one or another blockchain, you would prefer a universal search engine. It is much more convenient to go from one network to another with a single click, rather than storing a bunch of links and opening a new window every time. Of course, no engine has yet been created to search any of the 7,884 distributed payment networks.

The official website of this search and analysis service can be found at https://blockchair.com/ethereum.

The interface is translated into seven European languages, including Russian. An API is available for developers, with support for filtering, sorting and aggregating information. The Blockchair Feed option allows you to read texts posted on Bitcoin, Bitcoin Cash and Ethereum blockchains right on the fly. It also displays messages from the decentralised social networks Blockpress.com and Memo.cash. You may not have known until now, but blockchain ecosystems are not at all boring ledgers that store only records of financial transactions between network users. There’s other, more interesting information in there too, including Lloyd Blankenship’s Hacker’s Manifesto, political and economic news, and even declarations of love! In the distributed ledger of etherium they are stored in “input” and “extraData” fields, while in Bitcoin and Bitcoin Cash they are stored in remittance scripts, most famously OP_RETURN often used by visitors to “decentralised tweeters”. As we know, the basic property of a blockchain is immutability, which means that no information can be erased or edited.

What is Ethereum (ETH) secured by?

The question of how Ethereum is secured, just like bitcoin or other decentralised network coins, has been asked for years by opponents of cryptocurrencies.

They should ask the counter-question: “What is the US dollar, which is the only monetary unit in the global financial system, backed by?”

All money must be backed by an appropriate amount of goods. The dollar has no such security. This “money”, cash and non-cash, paper and electronic, is an unsecured world currency. But since virtually all states and the majority of their population keep their assets and savings in US dollars, its use in mutual settlements has become the accepted norm. It is a contract with no guarantees or obligations.

“Heretics” who try to leave the dollar system of mutual settlements will face a trade, economic and, if necessary, military blockade, sanctions, seizure of foreign accounts in all foreign banks, and similar strangling measures. In fact, the U.S. dollar is backed by the nuclear cudgel and the largest military force in terms of personnel. It’s a very robust security, it doesn’t need to be any better.

The Ethereum platform makes it possible to dispense with intermediaries in transactions, protects against outside interference and censorship, ensures immutability and security. New Ethereum coins are created using a strictly defined algorithm embedded in the system’s software code, and all transactions are protected by a cryptographic signature.

Essentially, the security of etherium is all the benefits of blockchain technology and the features of the software code that allows the platform to be used to enter into smart contracts.
The system automatically examines the terms and circumstances of the transaction and analyses its security. Transactions are also executed without human involvement, with smart contracts on the etherium platform being deemed completed once confirmed by the other party and not reversed. The results of the execution are recorded in a public registry.

The capabilities of the Ethereum network are of interest to big business, and a global EEA (Enterprise Ethereum Alliance) community has already been established. It has 19 technical, industry and legal advisory groups. The EEA has 250 companies from 45 countries as members, including:

  • Microsoft;
  • JP Morgan;
  • Intel;
  • Sberbank.

All members are actively exploring the possibilities of building a global blockchain economy.

Even today, many years after its launch, one can find publications that regard the Bitcoin cryptocurrency as a financial bubble. The main argument of bitcoin sceptics is that digital gold is not backed by anything. It’s debatable, but that’s not the point, it’s the near absence of similar articles about Ethereum.

Why is this the case? Perhaps the reason is the composition of the project’s support group. Not only ordinary users of the network, but also business sharks are interested in the development of the Ethereum platform. The increased attention to the project from big capital and the ubiquitous expansion of the ways to practice Ethereum, makes this digital asset popular and valuable.

Mining Ethereum coins (ETH)

There is no limit to the issuance of the ETH cryptocurrency, so mining can go on forever, but developers have repeatedly voiced plans to switch from traditional PoW (proof of work) mining to PoS (proof of ownership) mining. How these cryptosystem protection algorithms differ is the subject of a separate article, but, to briefly explain, the switch to POS signifies the end of mining on any hardware.

You will only need a computer with a local wallet to get new coins, and the “thicker” the wallet, the more productive PoS mining will be. In the first phase, a combined system will work and a certain share of the output will remain under the control of PoW, while the other part will be given to validators. The regulations for the transition from Proof-of-Work to Proof-of-Stake and all of the features of Ethereum forging contain the updated Casper algorithm, on which the Ethereum 2.0 network will run. The updated network was launched on 1.12.2020.

The first ASIC miners for earning Etherium released by Bitmain were unprofitable due to their relatively low hash rate and high cost. The new Bitmain Antminer E9 ASIC with a fantastic 3 Gh/s hash rate is due out this November. Well, for now, this market segment is dominated by devices on integrated circuits from Innosilicon. For etherium mining, you should only buy the latest versions of ASIC miners with 5 to 7 GB of memory. After the DAG volume reached the 4.02GB mark, owners of four-gig cards needed special programs to prolong mining for a while longer. But this is already in the past. Now you can mine ether only on GPUs with 6GB of memory (no one makes five-gig gpu devices). ASICs with 5GB of memory will finish mining Ethereum next May. But most likely ETH mining will stop in winter, at least that’s what some Ethereum development team says. However, if you have saved enough ether, you can become a validator and continue earning by participating in maintaining the most powerful ecosystem after bitcoin. How to do that we are going to tell you now.

Ethereum (ETH) Stacking

ETH 2.0

To start Ethereum Stacking ETH 2.0, you need to lock 32 ETH into a smart contract. You can do this here. Initially, only the Mainnet version was used as the Web 3.0 wallet, but then it became possible to make a deposit, via the regular MEW wallet. A mnemonic phrase is generated when you create a deposit on the updated network, be sure to save it and not show it to anyone. The money you blocked cannot be returned until the next phase of the upgrade is launched and the legacy ETH 1.0 network is fully merged with the new version of the blockchain. That is, you have to make a deposit, run the client, but you can use the money you’ve earned in a year and a half.

PoS validators perform the same functions as miners in PoW (proof-of-work) consensus networks. That is, they validate transactions and sign blocks. The updated etherium network has a system of punishing validators for attempting to damage the blockchain. Not only are they disqualified from voting, but all the money in that address is taken away. Failure to act incurs penalties. If such measures were applied to our MPs, they would probably become much more effective. So, if you want to become an Ethereum 2.0 validator make sure that your node is functioning at all times, otherwise you will be left without reward. Recommended system requirements:

Operating system: 64-bit Linux, Mac OS X, Windows;
Processor: Intel Core i7-4770 or AMD FX-8310 (or higher);
RAM: 8GB;
Minimum available SSD space: 100GB;
Minimum internet bandwidth: 10 Mbps.
The client programs used are:

Prysm – the most popular and reliable Ethereum 2.0 client. It is written in the computer language Go and is licensed under the GPL-3.0 license. Documentation: https://docs.prylabs.network/docs/getting-started.
Lighthouse – created in the Rust programming language with an emphasis on security and high speed. Licensed under Apache 2. 0. Documentation: https://lighthouse-book.sigmaprime.io.
PegaSys Teku – Jaba client for Ethereum 2.0 for the needs of institutional clients. Licensed under Apache 2. Documentation: https://docs.teku.pegasys.tech/en/latest/HowTo/Get-Started/Build-From-Source.
Nimbus is an experimental version of the Ethereum 2.0 client in the Nim language. This language is similar in syntax to Python and is compiled in C. It is oriented towards future work with mobile devices. Documentation: https://nimbus.team/docs.
You will also need to run a full node on the ETH 1.0 network. Link to set-up guide: https://ethereum.org/ru/developers/docs/nodes-and-clients.

Detailed instructions on how to start the node can be read here.

Those who can’t run an ETH 2.0 node on their own can connect to one of the co-stacking pools. The best way to do this is on the Binance exchange. There are detailed instructions in a separate review on our website.

On October 27, 2021, the first hard fork in the Etherum 2.0 network should occur, codenamed Altair. After the upgrade, not only full nodes but also light wallets will be available on the network, which will greatly expand the user base and provide additional opportunities for earning on ETH stacking. Join in!

What can I buy with Ethereum (ETH)?

Ethereum is primarily designed to provide smart contracts, but it can also be used as a means of payment. For a list of shops that accept the cryptocurrency, see https://cryptwerk.com/pay-with/eth. And, of course, you can sell Ethereum for traditional money, on a marketplace or cryptocurrency exchange.

How and where to buy Ethereum (ETH)?

If you don’t want to mine the cryptocurrency yourself, you can buy Ethereum coins for fiat on exchanges such as:

  • Binance;
  • Exmo;
  • Bitfinex;
  • Kraken;
  • Coinbase.

You can buy or sell Etherium for roubles dollars or other cryptocurrency on Binance. The cryptocurrency exchange provides customers with several options to buy etherium cryptocurrency at once:

  • Instant exchange of digital tokens and fiat.
  • Spot market, where market and limit bids can be placed.
  • P2P service for buying ether and other cryptocurrency directly from token holders.
  • The advantages of trading on the exchange are its reliable service and low commissions.

Many other exchanges also work with BTC/ETH pair. Cryptocurrency exchanges require registration and account verification for transactions with traditional money. You provide the exchange administration with copies of your bank accounts and documents proving your identity and place of residence, and wait for the results of verification. Internet exchanges allow you to remain anonymous, but they charge higher commissions, and the rates at different sites may vary significantly. You should use only verified online services to avoid losing your money.

How to store Ethereum (ETH) coins correctly

The basic rule of storing cryptocurrencies is not to use trading site deposits for long-term storage. To keep your digital assets completely safe, you must keep your wallet’s secret keys safe from intruders. What is a private key?

Etherium, like other blockchain projects, uses asymmetric cryptography to create combinations of numbers and Latin letters that provide access to your share of virtual assets. When you create a new wallet, the system generates a private key and a public key (wallet address) is linked to it. The peculiarity of the etherium public key is that it always starts with “0x” and is not case-sensitive on the keyboard. You give the wallet address to any member of the network from whom you expect a coin transfer. Always keep your private key secret, you will need it only for outgoing transactions.

The most popular wallet for storing etherium is MyEtherWallet. It does not require downloading the blockchain to your hard drive, is easy to manage, and quite reliable. Especially if you sync it with a Trezor or Ledger Nano X hardware safe. Hardware safes are a flash drive-like device with a mini-display designed to securely store your private keys.

Never store private keys electronically on a regular flash drive, much less on a PC hard drive. If someone asks you for a private key to supposedly send money to your address, never do that. Do not brag about your crypto-purse balance on forums and do not disclose your storage method. Only download and install digital asset software from trusted sources. That, in a nutshell, is all you need to know to store Ethereum safely.

Conclusion

As one of the platform’s executives, Vitalik Buterin, said:

“Ethereum’s blockchain performs 15 transfers per second and should do 100,000. The development team has two main scaling strategies – tier one and tier two. Sharding will be used to speed up transaction processing, the idea being to distribute the transaction to different nodes on the network, chosen at random. This technique will help speed up blockchain by a factor of 1,000, or maybe more.

There are other ways to speed up transaction processing. Most recently, startup Offchain Labs launched a major version of Arbitrum, designed to scale the Ethereum network. Using Arbitrum allows smart contracts on the Ethereum platform to process up to 500 transactions per second. Thanks to open source, every programmer can create decentralised applications capable of processing large volumes of data without compromising customer privacy. The correct execution of the transaction is guaranteed by a special mechanism called AnyTrust Guarantee. The Arbitrum solution, which is an add-on to the core network, is suitable for any platform, but a version for the ETH blockchain is currently being tested.

While there is great potential for development, ether in its current state has yet to fully escape its limitations and shortcomings. For the Ethereum blockchain ecosystem to become the basis for a financial system, transaction processing speeds must be increased. Not forgetting to keep the network decentralised. In addition, it is desirable to reduce resource consumption. That is what the main set of ETH 2.0 updates is being implemented for.

If the project team succeeds in realising its plans, it will not only strengthen Etherium’s position in the blockchain industry, but will also accelerate the expansion of digital money into the global financial system. The future is in the cyber economy and the money of the future is not paper, or even gold, but mathematics.

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