Understanding Ethereum: A Comprehensive Guide
Written by  Daisie Team
Published on 8 min read

Contents

  1. What is Ethereum?
  2. How Ethereum works
  3. The History of Ethereum
  4. Ethereum vs Bitcoin
  5. How to buy and store Ethereum
  6. What are Smart Contracts?
  7. The role of Ether in the Ethereum network
  8. The Future of Ethereum

Ever wonder about the world of cryptocurrency beyond Bitcoin? Ever hear the word "Ethereum" tossed around and wonder, "Just what is Ethereum?" Well, you're in the right place. This blog is your simplified guide to understanding Ethereum.

What is Ethereum?

Ethereum is like the multi-talented sibling of Bitcoin. Sure, Bitcoin gets a lot of attention, but Ethereum has some pretty cool tricks up its sleeve too. Let's break it down:

  • Ethereum is a platform: Think of it as a stage where all sorts of neat things can happen. It's not just a cryptocurrency — it's a whole network where developers can create and run applications.
  • Ethereum uses blockchain technology: Much like Bitcoin, Ethereum relies on this secure and transparent method of recording transactions. However, Ethereum's blockchain is a little different. It's designed to support "smart contracts", which we'll get into later.
  • Ethereum has its own currency: It's called Ether (ETH). You can use it to pay for transactions and services within the Ethereum network.
  • Ethereum is open-source: This means that anyone, yes, including you, can contribute to its development and improvement. Ethereum is all about community, and everyone is invited to the party.

So, what is Ethereum? In short, it's a versatile platform that uses blockchain technology to allow people to build and use decentralized applications. It has its own currency (Ether) and it's open to everyone. Now, isn't that something!

How Ethereum works

Now that we've tackled the question, "What is Ethereum?", let's get into the nitty-gritty of how it works. Remember, Ethereum is a platform where developers can build and run applications. But how does it do this?

  • It's all about the blockchain: Every application on Ethereum runs on its blockchain — a giant, global ledger that keeps track of all transactions. When you perform a transaction, it gets bundled with others into a 'block' and added to the 'chain' of previous blocks. Hence, blockchain!
  • Ethereum has miners, too: Like Bitcoin, Ethereum relies on miners to validate and add transactions to the blockchain. They solve complex mathematical problems to add a new block to the chain, and in return, they get rewarded with Ether. It's their way of saying 'thank you' for keeping the network secure.
  • Smart contracts make Ethereum special: These are self-executing contracts with the terms directly written into code. They automatically perform transactions when certain conditions are met. It's like having a robot lawyer that does everything for you!
  • Gas fees keep Ethereum running: Whenever you make a transaction or execute a smart contract, you have to pay a small fee called 'gas'. This is used to compensate the miners for their hard work. Think of it as the price you pay for the network's computing power.

Simply put, Ethereum works by using a network of computers to maintain a shared database (the blockchain) via a consensus process (mining). It uses smart contracts to automate transactions and requires gas fees for operations. The result? A decentralized world computer that's open to everyone. Now tell me, isn't that cool?

The History of Ethereum

Now, let's go back in time. I bet you're curious about the origin of Ethereum. Who came up with such an innovative idea? Well, it's quite a fascinating story, so sit tight.

Ethereum was proposed in late 2013 by a programmer named Vitalik Buterin. He was a young prodigy who had been involved in Bitcoin and understood its limitations. Buterin envisioned a platform that went beyond the financial use cases allowed by Bitcoin. He wanted a system that could facilitate peer-to-peer contracts and applications via its own currency.

Vitalik Buterin, along with other co-founders including Anthony Di Iorio, Charles Hoskinson, Mihai Alisie, & Amir Chetrit started working on the development of Ethereum in early 2014. They held a crowd sale to fund the project, and it was officially launched on July 30, 2015.

But Ethereum’s journey hasn't been without bumps. In 2016, a major hack happened. A hacker exploited a flaw in a smart contract known as The DAO and stole about $60 million worth of Ether. This resulted in a big debate in the Ethereum community and eventually led to a hard fork, splitting Ethereum into two: Ethereum (ETH) and Ethereum Classic (ETC).

Despite the hurdles, Ethereum has grown and evolved rapidly. It has been adopted by many businesses worldwide as a platform for decentralized applications, paving the way for a wave of innovation.

So that's a quick history lesson on Ethereum. From the vision of a young programmer to the leading smart contract platform, Ethereum has truly made its mark in the blockchain world.

Ethereum vs Bitcoin

It's like comparing apples and oranges, isn't it? Bitcoin and Ethereum are both fruits of the blockchain tree, but they're different in many ways. Let's break it down, shall we?

First off, Bitcoin was the first kid on the block(chain) — you might say it's the pioneer. It was designed to be a new form of digital money. People often refer to Bitcoin as "digital gold." It's primarily a currency, a medium of exchange.

Ethereum, on the other hand, is more like a platform. It's like a big, decentralized computer that developers can use to build and run applications. Instead of just being a coin, Ethereum is a whole network with its own internet browser, coding language, and payment system.

Another key difference is their purpose. While Bitcoin aims to disrupt traditional currency and the way money is transferred, Ethereum aims to facilitate and decentralize the creation of decentralized applications.

Oh, and then there's the matter of speed. Ethereum transactions are a lot faster than Bitcoin transactions. Ethereum block time — that's the time required to create a new block in the blockchain — is only seconds, compared to Bitcoin's 10 minutes. Now that's what I call speed!

So, in simple terms, while Bitcoin is a digital currency, Ethereum is a platform for smart contracts that uses a currency called Ether for transactions. They're different, but both have their unique strengths. You could say they're two sides of the same coin (pun intended)!

How to buy and store Ethereum

So, you've heard about Ethereum and its potential, and now you're wondering, "How do I get in on this?" No worries, I've got you covered!

First, you need to find a place to buy Ethereum. This is typically done on a cryptocurrency exchange. There are many out there, but some popular ones include Coinbase, Binance, and Kraken. Just like buying stocks, you'll need to create an account, provide some personal information and deposit money to make a purchase.

Once you have your account set up, you simply search for Ethereum (or its ticker symbol ETH), click on it, and then decide how much you want to buy. You can choose to buy in terms of a certain dollar amount or a specific quantity of Ethereum.

After you've made your purchase, it's very important to move your Ethereum off the exchange and into a wallet. Why, you ask? Because exchanges can be vulnerable to hacks. And trust me, you don't want your hard-earned Ethereum disappearing into thin air!

There are various types of wallets you can use to store your Ethereum: software wallets that live on your computer or mobile device, hardware wallets that store your Ethereum offline on a physical device, and even paper wallets where your Ethereum address and private key are printed on a piece of paper.

Remember, when it comes to storing your Ethereum, security is key. So make sure you do your research and choose a wallet that you feel comfortable with and that has good security features.

So there you have it! That's the basics on how to buy and store Ethereum. Remember, this is just the beginning. There's a whole world of cryptocurrency out there waiting for you to explore!

What are Smart Contracts?

Let's dive into the magic of Ethereum: Smart Contracts. If you've been wondering "What is Ethereum famous for?"—this is it.

Smart Contracts are self-executing contracts with the terms of the agreement directly written into lines of code. Sounds a bit complex, right? Let's break it down.

Imagine you want to rent a car from a company. Usually, you'd have to go through a middleman, like a rental agency. But with a smart contract, the rental agreement is a piece of code on the Ethereum network. You pay in Ether (the currency of Ethereum), and the digital key of the car is transferred to you!

But here's the best part: the code also checks if you've returned the car on time. If you're late, the smart contract might automatically charge you a late fee. And if you're on time, the digital key gets returned to the rental company. No middleman needed!

These contracts run on the Ethereum network, ensuring they're secure and decentralized. That's the beauty of Ethereum and smart contracts—they simplify complex processes and eliminate the need for trust. Smart, isn't it?

So, next time someone asks you "What is Ethereum?", you can say it's not just a cryptocurrency, it's a whole system for running secure, decentralized, and trustless applications!

The Role of Ether in the Ethereum Network

When you think about Ethereum, it's easy to mix up Ethereum and Ether. They're related, but not the same thing. So, let's sort that out. Ethereum is the platform, and Ether is the fuel that powers it.

Ethereum is like a giant, decentralized supercomputer, and Ether is the electricity that keeps it running. Every time you want to make a move on the Ethereum network—like making a transaction or executing a smart contract—you need to spend some Ether.

Think of it like an arcade. You can't play the games without tokens, right? On the Ethereum network, Ether is your token. It's not just a currency—it's a key to everything the Ethereum network offers.

But wait—there's more. Ether also keeps the network safe. Here's how: People who validate transactions on the Ethereum network—called miners—get paid in Ether. This incentivizes them to keep the network running smoothly and securely.

So, in a nutshell, Ether is the lifeblood of Ethereum. It powers transactions, incentivizes miners, and keeps the whole system humming along. Now, when someone asks "What is Ethereum?", you can explain that it's a network, and Ether is the fuel that keeps it running!

The Future of Ethereum

Now that we've covered the basics, let's gaze into the crystal ball and explore the future of Ethereum. While we don't hold any supernatural predictive powers, we can make some educated guesses based on current trends and the direction of the wind in the tech world.

Firstly, Ethereum is shifting from a proof-of-work to a proof-of-stake model. This change, known as Ethereum 2.0, is a big deal. It's like trading in your old gas-guzzling car for a shiny, new electric vehicle. Instead of miners competing to solve complex puzzles, the new system will rely on validators who hold and manage Ether. This change aims to make the Ethereum network faster, more secure, and more energy-efficient.

Secondly, the use of smart contracts is likely to expand. Smart contracts are like vending machines: you put something in, and you get something out. If you've ever thought, "I wish there was a way to automate this," there's a good chance a smart contract could be the answer. As more businesses and individuals realize the potential of smart contracts, their use will increase, and Ethereum will be there to facilitate it.

Finally, Decentralized Finance (DeFi) is on the rise. DeFi uses blockchain technology to offer financial services without the need for traditional banks. Ethereum, with its smart contracts and decentralized platform, is perfectly positioned to be at the forefront of this revolution.

So, what's the future of Ethereum? In a word: bright. But like any future prediction, it's not set in stone. Whatever happens, it's sure to be an exciting journey. And who knows—you might even be a part of it!

If you're interested in diving deeper into the world of cryptocurrencies and their impact on the creative economy, we recommend checking out Tom Glendinning's workshop, 'Crypto For Creators, Part 1: The Backbone Of The Digital Economy.' This workshop will provide you with a comprehensive understanding of Ethereum and other cryptocurrencies, and how they can benefit creators like you in the digital economy.