Ethereum is a decentralized open-source blockchain platform that enables developers to build and deploy decentralized applications (dApps) with smart contract functionality. Launched in 2015 by Vitalik Buterin, Ethereum has become the second-largest cryptocurrency by market capitalization, after Bitcoin.
In this article, we will discuss how Ethereum works, its key components, and its potential use cases.
Smart Contracts and the Ethereum Virtual Machine
Smart contracts are self-executing contracts that run on the blockchain. They are coded in programming languages such as Solidity, Serpent, or Vyper, and can be used to automate the execution of agreements between parties. Smart contracts are stored on the blockchain, which provides transparency and security, as once deployed, they cannot be altered.
The Ethereum Virtual Machine (EVM) is the runtime environment for smart contracts on the Ethereum blockchain. It is a virtual machine that runs on every node on the Ethereum network and executes smart contracts in a secure and deterministic way. The EVM provides a sandboxed environment, which means that the code running inside the EVM cannot access the host machine’s resources or interfere with other contracts.
Gas and Transactions
Gas is the unit used to measure the amount of computational effort required to execute a transaction or a smart contract on the Ethereum network. Every operation performed on the Ethereum network, such as sending a transaction or executing a smart contract, requires a certain amount of gas.
Gas is paid in Ether, the native cryptocurrency of the Ethereum network. The gas price is denominated in Gwei, which is a unit of Ether. The gas price fluctuates based on supply and demand, and it is set by the miners who validate transactions on the network.
Miners on the Ethereum network are rewarded with Ether for validating transactions and creating new blocks. They prioritize transactions based on the gas price offered by the sender, which means that transactions with higher gas prices are processed faster.
Ethereum Nodes
Ethereum nodes are the backbone of the Ethereum network. They are computers that store a copy of the Ethereum blockchain and validate transactions and smart contracts. There are several types of Ethereum nodes, including full nodes, light nodes, and archive nodes.
Full nodes store a complete copy of the Ethereum blockchain and validate every transaction and smart contract. They are the most secure type of node but also the most resource-intensive.
Light nodes, on the other hand, only store a subset of the Ethereum blockchain and rely on full nodes to validate transactions and smart contracts. They are less secure but more lightweight than full nodes.
Archive nodes store a complete history of the Ethereum blockchain, including all past states of smart contracts. They are useful for developers who need to access historical data on the Ethereum blockchain.
Decentralized Applications (dApps)
Decentralized applications (dApps) are applications that run on a blockchain and are not controlled by any single entity. They are built on top of smart contracts and interact with the Ethereum network through nodes.
dApps can be used to build a wide range of applications, including financial applications, social networks, supply chain management systems, and more. They offer several advantages over traditional applications, such as decentralization, transparency, and security.
Some popular dApps built on the Ethereum network include:
- Uniswap: a decentralized exchange for trading cryptocurrencies
- Compound: a decentralized lending platform
- CryptoKitties: a game where users can collect and breed virtual cats