What is Ethereum and How Does it Work?

Ethereum is a decentralized blockchain platform that builds a peer-to-peer network that securely executes and verifies application code, called smart contracts.

This computer program runs itself on the Ethereum blockchain and enforces the terms of the agreement automatically.

The use of smart contract technology allows Ethereum users to interact with other users without having to involve intermediaries.

This started with the creation of Bitcoin in 2009 which began to act as an experiment that offered two components, namely internet-based assets and blockchain technology.

From there, people used the concept of digital currency and blockchain to generate projects and other assets.

Transaction records on smart contracts can be verified, and distributed securely throughout the network, immutable.

This gives participants full ownership and visibility of transaction data.

Transactions are sent from and received by user-created Ethereum accounts.

The sender must sign the transaction and use Ether, Ethereum’s native cryptocurrency, as a transaction processing fee on the network.

History of Ethereum

This blockchain hosts a number of important functions for developers building solutions on Ethereum as a base.

The Ethereum blockchain has a native coin known as Ether (ETH) which is used to pay for activities on the Ethereum blockchain.

These coins are also traded on crypto exchanges and have fluctuating values.

Other assets built on the Ethereum blockchain such as ERC-20 tokens, for example, require ETH as payment for fees associated with each transaction of that asset.

A non-profit entity, the Ethereum Foundation which acts as one of the trustees of the Ethereum project.

In contrast to Bitcoin with its mysterious creation and creator, Ethereum’s history is clearer.

Ethereum was created by Vitalik Buterin and several other people.

Vitalik Buterin was the person who first published a white paper explaining the Ethereum concept in November 2013.

After the initial concept was created by Buterin, other thinkers stepped in on various capacities to help make the project a reality.

Vitalik Buterin, Gavin Wood, Charles Hoskinson, Amir Chetrit, Anthony Di Iorio, Jeffrey Wilcke, Joseph Lubin and Mihai Alisie are all considered co-founders of Ethereum.

Ethereum became known in early 2014 when Buterin introduced the concept of a blockchain project to the public at the Bitcoin conference in Miami, Florida.

The project raised capital through an initial coin offering (ICO) later the same year, selling millions of dollars worth of ETH in exchange for funds that would be used for project development.

Between July 22 and September 2 2014, asset sales sold over US$18 million worth of ETH, paid in Bitcoin.

Although ETH coins could be purchased in 2014, the Ethereum blockchain was only launched on July 30, 2015, meaning ETH buyers had to wait for the blockchain to launch before they could move or use their ETH.

One of the reasons for the creation of the Ethereum blockchain is that it allows more flexibility in terms of building the blockchain and its surrounding ecosystem.

The Rise of Ethereum

Although the birth of this blockchain in July 2015 gave life to this project, its development would be a long process and take years.

Frontier, the first iteration of the Ethereum blockchain got the chain up and running.

It hosts smart contracts and proof-of-work (PoW) mining.

The soft launch gives people a chance to set up their mining equipment and start building the network.

Since its initial launch, this blockchain has received many other updates as part of blockchain development, such as updates called Byzantium, Constantinople, and Beacon Chain.

Each update has changed certain aspects of the blockchain.

Beacon Chain, for example, launched a consensus layer (previously called Ethereum 2.0), namely a shift from proof-of-work to proof-of-stake (PoS) consensus mechanisms.

Byzantium and Constantinople each brought a number of changes to the Ethereum blockchain, including a reduction in mining payouts from five ETH to three ETH (after Byzantium and the preparation of the PoS transition during Constantinople).

A significant change to the Ethereum blockchain was the transition to PoS which was initiated to scale the blockchain.

Many projects have built applications on the Ethereum blockchain over the years.

However, the network experiences difficulties when traffic increases significantly, such as during the CryptoKitties, digital collectible cats powered by the Ethereum blockchain in 2017.

In 2020 and 2021, decentralized finance (DeFi), a financial system operating on a decentralized network built on Ethereum received significant attention, bringing Ethereum’s scalability issues to the forefront as high network fees plagued users.

Ethereum’s transition to a consensus layer and PoS aims to bring scalability to the renowned blockchain, although the transition is happening gradually.

Leave a Comment