What Is Ethereum – A Complete Beginner-Friendly Guide

If you think Ethereum is valuable because it has the second largest market capitalization and a relatively high unit price, you missed the point. And just by buying and holding cryptocurrency, you are depriving yourself of an even more fantastic opportunity.

The cryptocurrency market is truly like the Wild West these days and many people are just looking for profit. However, understanding Ethereum will give you an idea of ​​Vitalik Buteri's bigger picture and why his project is so big.

But let's not forget that there have been some changes in Ethereum. The so-called version 2.0 has been launched, the proof-of-stake process and protocol will change, but it remains to be seen how Ethereum will ultimately work.

Ethereum explained

First of all, Ethereum is a platform created by Vitalik Buterin to decentralize the Internet, where the code is law. Its currency is the most popular altcoin, larger than the ether, the leading cryptocurrency.

Ethereum is a natively developed decentralized application platform (DAPP). It allows you to create an application that is not controlled by anyone and is supported by blockchain technology. This eliminates the need for a third party as everything is managed by a smart contract.

Decentralized applications are built with Solidity and Vyper and you can provide them with almost anything you want.

More experienced developers may also want to use YUL, an intermediate language for the Ethereum virtual machine, or Yul +, an extension of Yul.

NOTE. Solidity is an object-oriented programming language for writing smart contracts on the Ethereum platform. Solidity is very similar to a simplified version of JavaScript. Vyper is a Python programming language with less functionality than Solidity which aims to make contracts safer and easier to test. Yul and Yul + are created by experienced developers supporting EVM and Ewasm, who can help you optimize gas usage in your contracts.

The platform is somewhat complex and constantly evolving, so we won't go into the specifics of coding. But to understand Ethereum it is enough to know that it has a central aspect:

The Ethereum virtual machine calculates the elements that determine how smart contracts work.

As for the size of the Ethereum blockchain, in November 2022 its size exceeded 1000 GB.

Start with Ethereum

To get started with Ethereum, you first need to understand that the Ethereum blockchain has changed the consensus protocol from Proof of Work (PoW) to Proof of Stake (PoS).

This action was called "Unity". This became a relatively recent reality on September 15, 2022, when Ethereum's original execution layer, called the main network, merged with a new Proof-of-Stake consensus layer, the Beacon Chain.

Before Confluence, the Ethereum blockchain functioned as a giant decentralized supercomputer. It was buying computing power from around the world, and that computing power required gas, which was paid for with ether.

For example, the price of gas in April 2022 was around 36 Gwei (0.000000001 Eth). Furthermore, the average power consumption of Ethereum PoW (TWh) was 78.

After the merger, the Ethereum blockchain functioned like a giant, but more environmentally friendly, turning this blockchain green. Let's clarify that as of September 15, 2022, Ethereum's staking mechanism uses only ~ 0.0026 TWh per year.

The PoW consensus was 30,000 times more important than the PoS protocol in the case of Ethereum. This major blockchain upgrade has reduced network power consumption by 99.99%! These are drugs, right?

After this review, you will understand more about the importance of the "merger" in the Ethereum blockchain. But now you're wondering how to really get started with Ethereum, right?

So, first you need an Ethereum wallet. There are many Ethereum wallets out there, some better, some worse. That's why you should read our guide before choosing a cryptocurrency wallet.

You can then start writing smart contracts and creating dApps.

What is the ether for?

There is no information on the maximum offer of ETH, but at the time of writing there was 122.37 million ETH on the market.

The primary use of Ethereum is to support and stimulate the Ethereum network. But for now, you might want to know what Ether is used for besides buying gas.

And there are several off-platform use cases. People use Ether to send money overseas with minimal fees via peer-to-peer transfers. Additionally, you can use Ether to purchase products or services from any vendor that accepts them. Or you can just trade the stock market.

NOTE. You can use Metamask to make it easier for your web browser to connect to dApps, especially if you want to make small transactions here and there.

Ethereum smart contracts

An important innovation of Ethereum was the smart contract.

Smart contracts are small programs that are installed before a token is issued and then stored on the blockchain. Once the characteristics of a function have been written, they will work autonomously and no one will be able to modify them.

In essence, a smart contract defines a condition that all parties agree on when using it. Furthermore, smart contracts can contain various information, from the number of tokens to the type of security.

In the beginning, creating a new smart contract and token was like reinventing the wheel. Almost every new token will require a special configuration of the exchange, wallet or communication app.

There was a lot of room for error and it took hard work to change the dApp once it was connected to the main network. Hence the need for a symbolic standard .

Comment on the Ethereum (ERC) survey.

Think of Ethereum Request for Comment (ERC) as a document that programmers use to write smart contracts on the Ethereum blockchain. In these documents, they define the rules that Ethereum-based tokens must follow.

Many ERCs are currently mature, so below we will only present a few that are the most important:

ERC20 appeared in 2015 and provided Ethereum users with instructions on how to create a tradable token. This is the most common sign and the easiest to make.

You don't even need to write a smart contract yourself. You can use the token generator to automatically generate your cryptocurrency. You just have to enter some basic information:

• the brand name;
• symbol;
• maximum reserve;
• price;
• gas limit.

Some of these platforms even allow ICOs .

Over time, people have encountered a lot of problems with ERC20 , and one of the most common problems is sending tokens to a smart contract that isn't designed to support it. Millions of dollars were lost due to blocked transactions.

ERC223 solves this problem by adding a token return function. This is an improved version of ERC20 which rejects unsupported transactions and uses half the gas.

ERC721 is a token standard that provides a non-negotiable token. While ERC20 comes with a token that has the same value as another, ERC721 provides indivisible and unique tokens. The most popular use of ERC721 is in CryptoKitties.

ERC777 is a new way to interact with contracts. This allows anyone to add additional features to the token, similar to a mixer contract, for greater transaction privacy or disaster recovery functionality in the event of private key loss.

ERC1155 is a unique approach that proposes a standard where a contract acts as an interface for many types of tokens such as fungible, non-fungible or other configurations.

Ethereum 2.0 and integration

Ethereum 2.0 contains enhancements designed to modernize the Ethereum network through decentralized network scaling planning and staking transitions. Around 2018, all the researchers' work was brought together in a single roadmap called "Ethereum 2.0".

The previous chain was available until September 15, 2022, when it switched to Ethereum Proof-of-Stake; the former Eth1 Proof of Work chain will become obsolete over time due to difficulties. As of September 15, 2022, users and applications have switched to a new proof-of-stake Ethereum chain known as ETH2.

The process of changing the consensus protocol in Proof-of-Stake started with phase 0 in December 2020, when Beacon Chain was officially launched. In this phase, Beacon Chain manages the register of validators and implements the Proof of Stake (PoS) consensus mechanism for Ethereum 2.0.

Beacon Chain adds native staking capabilities to the Ethereum blockchain as a key feature of the network's transition to a PoS consensus mechanism.

The second phase, called "Merger", merged Beacon Chain with the main Ethereum network, which took place recently on September 15, 2022. The latest ETH2 update will implement Shard chains.

Now, if you are wondering if Ethereum can be mined, the answer is NO. At least not in the classic way. After the merger, the consensus protocol was changed to Proof-of-Stake, which means you can't mine Ethereum. However, you can get Ethereum by betting 32 Ether and using a regular laptop.

Merging occurs at a rate of tens of thousands of operations per second. Furthermore, the costs and commissions will be reduced.

The interface is more user friendly so that people can develop more projects on Ethereum.

Prior to the September 2022 merger update, Ethereum's power consumption last month (August 2022) was approx.   86 TWh per year . This is what the average country consumes in a year. After replacing with mining bets, this number dropped by 99.95% .

The introduction of sharding in Ethereum 2.0 should allow Ethereum to scale down as transactions can be split into 64 new chains.

This means running an Ethereum node will be simpler in terms of hardware since less data needs to be stored in the system.

Full modernization is expected to take place by 2023.

NOTE. Please note that the Ethereum organization is moving away from Ethereum 2.0 and ETH2 terminology. However, the roadmap and events remain the same.

Ethereum Proof of Stake

In the previous status quo, Ethereum could support 15 transactions per second. In order to expand, Ethereum "Melt" was accompanied by numerous equity-related improvements, which led to a proof-of-work release phase.

Moving on to staking, Ethereum means supporting thousands of transactions per second.

At the same time, the increase in the number of transactions per second does not happen at the expense of real nodes. Proof of Stake consensus mechanisms rely on an economic incentive to ensure that validators are honest.

Moderators can unblock staking nodes by blocking 32 ETH in one staking contract. And by lending net, they will earn a fixed annual interest rate that can range from 3.9% to 5.4% per annum and from 9% to 12% per annum.

NOTE. The current APR can be checked at launchpad.ethereum.org.

The conversation test system has opened a node that requires less hardware power than the previous consensus method because the node has to process less data at the same time. The node operator has to patch their node, which would be possible even with an office laptop.

The most important thing in the betting process is luck. Nodes are randomly assigned to shards and transactions so that they can't cooperate and own a shard.

Ethereum staking has become more accessible to promote decentralization. All you need is a computer and 32 ETH. If you want to block more ETH, you need to open a separate node with a different part of 32 ETH.

But keep in mind that technical knowledge is required to properly set up a node. If you tamper with your node configuration, hack into or attempt to damage the network (even by mistake), your offer may be reduced or even canceled.

And, of course, there are several packages so that everyone can find the option that best suits themselves and the network. Options:

Private Home Equity - Known as the gold standard for staking, it offers shared participation rewards, supports a decentralized network, and doesn't require you to entrust your funds to anyone else.

Betting as a Service : This package is for people who are not familiar with the hardware but still want to place bets. This allows you to outsource the hard part while earning bulk rewards. This will allow you to generate a set of authentication credentials, upload signature keys to it, and deposit 32 ETH.

Consolidated Staking : Some pooling solutions will help users who don't want to stake 32 ETH. This includes what is known as "liquid staking," which includes an ERC-20 liquidity token representing ETH. This solution makes it easy to withdraw funds at any time and makes staking as easy as trading tokens. It also allows users to store their assets in an Ethereum wallet.

centralized exchanges . Many centralized exchanges offer staking services if you don't want to keep ETH in your wallet. It could be a return to profiting from your ETH holdings with minimal scrutiny or effort.

Ethereum Proof of Stake is currently running. Beacon Chain joined the Ethereum network on September 15, 2022.

Forked-chain Ethereum

Sharding is a concept that divides the entire Ethereum network into multiple parts called "shards", which reduces the density of the network and increases the number of transactions per second. Each segment will contain its own independent status, which is a unique set of account balances and smart contracts. Additionally, partitions provide additional low-cost storage tiers for applications and storage pools.

This concept also allows for second tier solutions that offer low transaction fees using Ethereum's security.

Sharding can be considered the most difficult solution to scale Ethereum. It is expected to be released in 2023, giving developers time to study it thoroughly and test it in a production environment.

Before we go any further, it is important to know the roles that nodes play in the Ethereum network. These nodes are designed to verify miners' work and enforce consent rules. The best way is to keep a complete copy of the Ethereum playbook and start with the simplest. However, this is difficult as the Ethereum blockchain comes close to 1 TB of storage, making it impossible for the average person to run a node.

What solves a breakup? Well, running nodes on Ethereum can be very expensive, making the network more suitable for centralization. At the same time, every transaction processed by each node will be executed, which is why Ethereum never scales.

Sharding is not intended to move transactions out of the blockchain, but to improve the network without sacrificing decentralization, scalability or security.

The future of Ethereum

The hottest topic of 2022 for Ethereum was the merger between Beacon Chain and the Ethereum mainnet, which took place on September 15, 2022.

All attention is now focused on a separate update. For the Ethereum team, this update has become even more important since Ethereum switched to Proof-of-Stake.

Sharding could be released in 2023.

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