One of the most sought-after platforms that utilizes blockchain technology is Ethereum. Notwithstanding this fact, not a lot of people understand what it is and how it works. Here, we aim to give a foolproof guide on Ethereum.
What is Ethereum?
Like all blockchain technology, Ethereum is a decentralized platform. In theory, applications are designed to function without the danger of fraud, interference, downtime, and censorship. It utilizes a global infrastructure that allows value and ownership transfer. It eliminates the need for a middle party to facilitate transactions.
Developers may use this platform to create markets, store ledgers containing accounts and debts and move funds. It makes use of Ethereum wallet that allows its users to store ether and other assets, and create smart contracts. With Ethereum, servers and clouds are replaced by thousands of so-called “nodes” run by volunteers from across the globe.
Who started Ethereum?
The project was initiated by the Ethereum Foundation which is a Swiss non-profit organization. It offered ether presale in August 2014. From that year on, the organization grew bigger with the help of many bright individuals from all over the world. Despite being a decentralized platform, Ethereum owes its existence to the genius of a 24-year-old programmer named Vitalk Buterin, a Russian-Canadian programmer who is the co-founder of Ethereum. Branded as a boy-genius, he was the brain behind the second most popular and successful cryptocurrency. He is also a writer who co-founded Bitcoin Magazine.
What is ether (ETH)?
ETH is the element that is needed for operating Ethereum. It is the form of payment that clients make to the machines that execute the operations within the platform. It is a way to compensate the developers for their quality work. With this, the platform and its network function efficiently and effectively. To paint a picture, imagine ether as the fuel of a car. Without which, the car cannot be powered up and cannot bring you to the place you intend to go.
Where did ETHcome from?
Literally, ether pertains to the sky, the air, or the heavens. Much like the literal sense of the word, ether is everywhere now. Originally, 60 million ETH were created during the 2014 presale. From then on, 5 ethers are created every 15 seconds. With the previous statement, people may assume that ether supply is infinite. Unfortunately, that is not the case, issuance of ether is capped at 18 million ETH per year.
How is ether produced?
ETH may be produced by creating the latest block on the chain. This is a reward to the computational cost of processing contracts and securing the network. On the average, every 15 seconds ETH is created, which is equal to the same amount of time needed to create a block. The process of generating a proof of work and the selection of machine with the highest computation power to be rewarded are assured to be chosen in random by the very nature of the algorithm for block generation. This process of producing ether is also known as “mining” in the blockchain world.
What is next for Ethereum – switching from PoW to PoS?
Recently, there has been a proposal for the Ethereum network to switch from PoW to PoS. To better understand the implications of this change, there is a need to discuss the main differences between the two.
Proof of work is a procedure that deters cyber-attacks such as a distributed denial-of-service attack (DDoS). Proof of stake is an algorithm used to validate transactions and achieve the distributed consensus. While PoW and PoS have both the same purpose, the methods they employ are varied. Unlike PoW, where the algorithm rewards miners who solve mathematical problems; with proof of stake, the creator of a new block is chosen in a determined way. A validator is chosen based on the stake he raises and deposits to the platform. This means that in the PoS system there is no block reward, so, the miners, now called forgers, take the transaction fees.
The main reason why Ethereum wants to switch to PoS is due to the massive energy usage of the PoW algorithm. PoW has also led miners to come together and create “mining farms” which can consequently destroy the decentralized nature of the platform.
What is the difference between ether and bitcoin?
While both are open source digital currencies used to make financial transactions. Some argue that ETH is way better since it features a technology that is not available in the Bitcoin platform. Ethereum uses smart contracts which can program transactions that will allow money to work on its own through investments. Smart contracts also let you exchange property and stocks without the need for a middleman. Bitcoin focuses mainly on payment technology while Ethereum may be used in other types of industries such as in banking and corporate transactions.
How is Ethereum (ETH) different from Ethereum Classic (ETC)?
Ethereum Classic is the product of a long debate about how to handle disagreements within the community and data hacks. Ethereum Classic is an open-source computing platform based on blockchain technology and the original Ethereum code. It makes use of value tokens called classic ether, used as payment for products, services and smart contract transaction fees. In the year 2016, the decentralized autonomous organization (The DAO), which was a venture capital fund built on Ethereum platform, was hacked. Reports claim that approximately $50 million was stolen. This hack caused a split in the community. Some reasoned that ETH can be returned to the owners and the amount stolen may be recovered, and thus may continue to operate. Others believed that this runs counter to the very principle of cryptocurrency where transactions cannot be modified. This divergence resulted in the birth of a separate coin. Today, we have both ETC and ETH – one running under the main code, and the other running on a newly coded platform.
What is GAS?
Ethereum Gas is the lifeblood of the platform’s ecosystem. It is the unit of measure of the amount of computational effort necessary to perform certain operations such as smart contracts, transfers or ICO.
Everything in the Ethereum network costs some amount of gas. It functions the same way gas functions in the real world. The longer the travel, the more gas a machine needs. The amount of gas essential for an operation depends on how complex the function is. Speed is also an important factor in determining how much gas an operation necessitates. The faster the execution, the more gas is required.
How is Ethereum relevant to the Philippine setting?
Reports have stated that rural banks in the Philippines are expected to launch a new system of payments on the blockchain. Project i2i was launched by an Ethereum start-up Consensys. The purpose of the project is to provide cheaper transaction costs for retail payments and fund transfer and to bridge the gap between rural banks and major financial networks. Project lead stated that the cost of transactions may be reduced dramatically from 50 -150 pesos to a single peso. In addition to cost reduction, there is also an expected decrease in the process time of transactions – automatic reconciliation and bank verification may be performed within five minutes instead of a couple of days. The project was done in response to the growing need for a reliable, fast and cheap financial platform of people in far-flung
areas of the Philippines.