What Is Ethereum? – Definition, Functions, And More

Definition Ethereum

LA cryptocurrency Ethereum is one of the most significant cryptocurrency projects in the cryptocurrency industry. Ethereum itself is a digital platform that is based on blockchain technology. Its goal is to become a blockchain capable of running decentralized applications.

To achieve this, this project has a blockchain and a cryptocurrency with unique characteristics. Among them the ability to use and create smart contracts and new tokens. Both are rich functionalities, which allow it to establish itself as one of the most complete and powerful blockchains in the crypto world.

The network’s currency is called Ether (ETH), and like Bitcoin (BTC), Ether is characterized by being a cryptocurrency that can be used as a payment method between pairs. Another similarity with Bitcoin and other cryptocurrencies is that any government or the regulatory body does not control it. Its development is marked by the Ethereum Foundation, its Core Team, and the community it supports and supports. Another critical point is that it uses the Proof-of-Work (PoW) consensus protocol, using the Ethash algorithm. However, this may change in the short term with the launch of Ethereum 2.0 and the jump to being a cryptocurrency using the Proof of Stake (PoS) protocol.

The development of this blockchain began thanks to the work of Vitalik Buterin in 2013.

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Ethereum technical characteristics

Mining

Ethereum is a cryptocurrency that works thanks to the PoW consensus protocol using the Ethash algorithm. This algorithm is designed to be highly demanding and targeted for GPU mining. For this reason, mining was initially highly decentralized and diverse.

Ethash uses the Keccak hash function, also known as SHA-3. In this way, the algorithm seeks to use highly secure cryptographic elements. At the same time, Ethash is intended to be memory and cache-intensive. Both characteristics are aimed at offering resistance to ASIC mining and avoiding its centralization.

Cryptocurrency issuance

This cryptocurrency currently has an annual issuance limited to 18 million Ethers per year. That is, each year, the mining activity can generate 18 million new coins at most. However, the total emission is infinite. To achieve the issuance, the network has a rather peculiar coinbase transaction system. In the first place, if a miner finds the solution of a block, he receives 2 ETH as a reward. But if another miner also considers an answer to that block at that time, that miner also receives a prize. In this way, the coins are issued on the Ethereum blockchain.

Ether’s initial issuance on the blockchain was related to the pre-sale to boost the project. Back then, a total of 60 million Ethers were created. Of these, 12 million were used to create a development fund. It is the beginning of the well-known Ethereum Foundation.

However, Ethereum is an ever-evolving blockchain. One of the significant changes that will be seen in Ethereum in the coming years will be the abandonment of PoW to move to a PoS mining system. With this change, Ethereum will start to create cryptocurrencies for its blockchain in a completely different way than the current one, avoiding miners’ use and encouraging greater economic participation in the blockchain.

Gas, the basis of everything

Gas is a concept very typical of the Ethereum network. It is used to measure the work done within the blockchain. Each action in the blockchain as an operation or a set of functions has a specific cost given in Gas units.

Among the functions of Gas within the blockchain, we can mention:

Assigns a cost to the execution of tasks. Gas is used as a unit to measure the cost of performing a particular action within the blockchain. Each activity has a cost in Gas, and a set of actions executed adds to the total cost of said operation. In this way, we can see Gas as the price to pay for carrying out activities within the blockchain.

Helps improve system security. As each action has a price, this helps prevent the blockchain from stopping its operation and undermining its security. It is possible thanks to the fact that Gas helps protect the network from spam attacks. For this, the Gas implies an expense that prevents DDoS attacks from being efficiently carried out on the web, attacks that can leave millions of users without service.

Reward the miners. Actions on the blockchain depend on their execution on the hardware that is in the hands of the miners. To pay for this use, there is Gas.

Block size and generation time

Ethereum is characterized by calculating the size of its blocks in a somewhat peculiar way. Unlike Bitcoin, where its size is limited to 1 MB, in Ethereum, its scope is limited to a specific amount of Gas.To be more precise, the Ethereum block size limit is 12,500,000 Gas (as of February 2021). It means that each block can contain a total of operations as long as it does not exceed the specified Gas limit.

In general, a block can contain about 500 payment transactions between accounts, the simplest of the possible transactions. In the case of a smart contract, the operations of one of them can easily reach the Gas limit of each block.

Another difference with Bitcoin is the block generation time.In Bitcoin, each block is generated every 10 minutes, while in Ethereum, this value is variable. In principle, each league was developed approximately every 16 seconds. This value increased to 30 seconds in 2017 and currently stands at 14 seconds on average. It means that it is generally faster in providing confirmations than Bitcoin, which positively impacts its capabilities as a payment system.

Smart contracts

A smart contract or smart contract is a computer program that executes specific actions pre-established in its code under certain conditions. Activities that have been reviewed and accepted by the different parties that have “signed” said contract. In this way, the intelligent contract enforces its programmed conditions by presenting a response according to its clauses in a completely autonomous way.

Innovative contract technology is one of the fundamental bases of Ethereum and the operation of many of its characteristics. A situation that can be especially appreciated in the tokens and DApps of this blockchain.

Ethereum Virtual Machine

The Ethereum Virtual Machine (EVM)  is software whose objective is to serve as an abstraction layer in the execution of code stored in the blockchain. It seeks to prevent a malicious programmer of a DApp or smart contract from threatening the security of the network nodes and with the network itself.

To achieve this, EVM performs a complete abstraction of the system, managing access to computer resources and limiting its actions in a controlled environment or virtual machine. But in addition to this, EVM also seeks to simplify the development and update of applications and features available for DApps. That is to say, EVM was created both to protect and extend the functions of Ethereum.

EVM allows the operation of smart contracts and DApps thanks to the use of the Solidity programming language. This language will enable you to program all the logic behind DApps and smart contracts while allowing your code’s decentralized execution using EVM.

Ethereum uses

Ethereum is one of the cryptocurrencies and blockchain with the most excellent variety of uses that currently exist. Among them, we can highlight:

Accept and receive payments quickly and safely

Since its inception, one of the great features has been its ability to handle payment much faster than Bitcoin. The short block production period ranges from 10 to 30 seconds and the scalability of the blockchain.

Carrying out ICO

Although the creation of tokens and ICOs was not initiated by Ethereum but by the so-called colored coins, the truth is that this project offered tools to facilitate this work immensely. With the creation of the ERC-20 token, Ethereum became the “Father of ICOs“ and its reasons. With the product of ERC-20, creating a ticket was no longer a highly complex task.

Currently, it is enough to carry out an intelligent contract following the ERC-20 token model, and you had the job done. It gave an essential boost to the blockchain and allowed the cryptocurrency market diversification, opening up new possibilities.

There are currently at least 191,000 ERC-20 tokens created, each with unique characteristics running on its blockchain.

Smarts contracts and DApps

Smart contracts and DApps are one of the most extensive uses for Ethereum. The capabilities of these two tools are practically endless. Since smart contracts are created to buy-sell or negotiate goods or services, their usefulness is only limited by imagination. On the other hand, DApps are a revolution. These are capable of creating completely decentralized, uncensored, secure, and financially self-sufficient applications. We can also mention the oracle platforms that are built on this network, as in the case of Augur.

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