Ethereum enables decentralized applications and smart contracts through its blockchain-based platform. It has gained significant attention in recent years as the second-largest cryptocurrency by market capitalization.
If you’re interested in starting with Ethereum but don’t know where to begin, you should read this beginner’s guide. We will walk you through the basics of Ethereum and how to start using it in this blog. This guide will give you a solid foundation to get started whether you’re looking to invest in ETH or build on the Ethereum Network.
What is Ethereum?
The creation of smart contracts and decentralized applications (dApps) is enabled by Ethereum, a decentralized, open-source blockchain platform. Transactions on the network are fueled by its native cryptocurrency, Ether (ETH), which also incentivizes the nodes that secure and validate transactions.
History of Ethereum
The history of Ethereum began when Vitalik Buterin, a young programmer and writer, proposed the platform in 2013. He recognized the limitations of Bitcoin’s blockchain technology.
With the help of co-founders and developers, launched Ethereum in 2015 as a blockchain platform. With its programming language, Solidity, Ethereum was created. Ethereum’s initial coin offering (ICO) raised over $18 million, and the network went live in July 2015.
How does Ethereum works?
Ethereum uses a decentralized network of computers known as nodes to verify and record transactions. It also uses smart contracts on a blockchain.
This is achieved through a consensus mechanism called proof-of-stake. It incentivizes nodes to validate transactions and add blocks to the chain. Smart contracts, a key feature of Ethereum, are self-executing programs that automatically execute the terms of an agreement. They are written in Solidity and stored on the blockchain.
Smart contracts & Ethereum
A smart contract is a self-executing program that runs on a blockchain and automatically enforces the terms of an agreement. In other words, it is a digital contract that executes itself when certain conditions are met. Smart contracts code is written in a programming language like Solidity, and their code is stored on the blockchain.
Ethereum is designed to support the development and deployment of smart contracts. Smart contracts are used on Ethereum to enable various use cases, from decentralized finance to supply chain management.
Using smart contracts, Ethereum eliminates the need for intermediaries or centralized authorities, as the contracts are automatically executed based on predefined rules and conditions. This makes the process faster, more efficient, and more secure. Moreover, all parties involved can be confident that the contract will execute exactly as written.
Ethereum Use Cases
Ethereum’s flexibility and versatility have led to a wide range of use cases beyond simple cryptocurrency transactions. Here are some examples of how Ethereum is being used:
- Decentralized Finance (DeFi): Ethereum is a leading platform for DeFi applications, which enable people to transact and access financial services without intermediaries. DeFi applications built on Ethereum include decentralized exchanges, lending platforms, and stablecoins.
- Non-Fungible Tokens (NFTs): Ethereum’s ability to create and store unique digital assets on the blockchain has led to the rise of NFTs. NFTs are used for various applications, from digital art to in-game items and collectibles.
- Supply Chain Management: Ethereum can be used to create transparent and secure supply chain management systems. These can track the movement of goods from production to consumption, ensuring authenticity and preventing fraud.
- Identity Verification: Ethereum can create secure and tamper-proof identity verification systems. These eliminate the need for intermediaries or centralized authorities, reducing the risk of identity theft and fraud.
- Voting and Governance: Ethereum’s smart contracts can create decentralized voting and governance systems. These can enable transparent and secure decision-making. It ensures that there is no need for intermediaries or centralized authorities.
- Gaming: Ethereum can be used to create decentralized gaming platforms. These allow players to own and trade in-game assets and earn cryptocurrency rewards for their gameplay.
Overall, Ethereum’s ability to support smart contracts and decentralized applications has opened up new possibilities for innovation and disruption in various industries.
Ethereum mining is the process of verifying transactions and adding new blocks to the Ethereum blockchain by using computational power to solve complex mathematical problems. This process is resource-intensive and requires significant amounts of electricity, leading to concerns about the environmental impact of mining.
In December 2021, Ethereum transitioned from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) mechanism. The former relied on mining. This transition, known as the Ethereum 2.0 upgrade, was designed to improve the network’s security, scalability, and energy efficiency.
It replaces mining with staking, which involves validators locking up their Ether as collateral to secure the network. As a result, Ethereum mining has effectively stopped, and the network now relies on staking to secure and validate transactions.
Ethereum staking is securing the Ethereum blockchain by holding Ether (ETH) and participating in the network’s consensus mechanism. Stakers, also known as validators, are responsible for verifying and validating transactions on the blockchain. In exchange, they receive rewards in the form of newly minted Ether.
Staking replaces mining as the mechanism for validating transactions and adding new blocks to the blockchain in Ethereum 2.0. It is the most recent upgrade to the network. By staking, users can contribute to the security and decentralization of the network while earning rewards on their staked Ether.
How to Stake Ethereum
If you are interested in staking Ethereum, then you can do so by following these steps;
- Obtain Ether (ETH): To stake Ethereum, you first need to acquire some ETH. You can purchase ETH on a cryptocurrency exchange or receive it as a payment from someone.
- Set up an Ethereum 2.0 validator node: To become a validator and stake ETH, you must set up a validator node. This involves running a client software that meets the requirements for running a validator node. Examples include Prysm, Lighthouse, or Teku clients.
- Deposit ETH into the Ethereum 2.0 deposit contract: After setting up your validator node, you must deposit at least 32 ETH. This amount goes into the Ethereum 2.0 deposit contract. This deposit serves as collateral to ensure that validators behave honestly and do not try to attack the network.
- Start validating: Once your deposit is confirmed and your validator node is synced with the Ethereum network, you can start validating.
Benefits of staking
- Earn passive income: Staking allows you to earn rewards for participating in the network, providing a steady source of passive income.
- Contribute to network security: By staking, you are helping to secure the network and prevent malicious actors from attacking it.
- Decentralization: Staking promotes decentralization by distributing the power to validate transactions across a vast network of validators.
Cons of staking
- Risk of slashing: Validators who behave maliciously or make mistakes can have their staked ETH slashed. Thereby reducing their earnings or even resulting in a loss of their entire deposit.
- Illiquidity: When ETH is staked, it cannot be traded or sold until it is withdrawn from the deposit contract, which can take several days to complete.
- Technical complexity: Setting up and running a validator node requires technical expertise and comes with the risk of losing funds if not done correctly.
It’s essential to research and understand the risks and benefits of staking before deciding to participate. It’s also recommended to consult with a financial advisor or do your research to determine if staking is right for you.
Ethereum VS Bitcoin
Ethereum and Bitcoin are two of the most well-known and widely used cryptocurrencies, but they have some key differences.
Bitcoin is primarily a decentralized digital currency that can be used to send and receive payments. On the contrary, Ethereum is a blockchain platform that allows for creating of decentralized applications and smart contracts. Ethereum has its native cryptocurrency, Ether, which is used to pay transaction fees and incentivize network participants.
In terms of market capitalization, Bitcoin has historically been the largest cryptocurrency. However, Ethereum has gained significant ground in recent years and is currently the second largest.
In terms of long-term potential, it’s difficult to say which cryptocurrency is better. Both have their own unique strengths and use cases. Bitcoin’s strong brand recognition and limited supply have made it a popular store of value and hedge against inflation. On the other hand, Ethereum’s programmability and support for smart contracts have made it a popular platform for decentralized finance (DeFi) and non-fungible tokens (NFTs).
In 2023, it’s possible that both Bitcoin and Ethereum could continue to thrive and grow in value. However, it’s important to remember that cryptocurrency markets can be volatile and unpredictable. Investments should be made carefully considering one’s financial situation and risk tolerance.
Advantages of Ethereum
Some advantages of Ethereum are as follows;
- Programmability: Ethereum’s smart contract functionality enables developers to build decentralized applications that serve various functions. These include executing complex logic, automating business processes, and facilitating peer-to-peer transactions without intermediaries.
- Decentralization: Ethereum is a decentralized blockchain platform. In other words, it’s not controlled by any single entity. It is immune to censorship and single points of failure.
- Large developer community: Ethereum has a large and active community of developers, which has resulted in the creation of many innovative applications and tools.
Disadvantages of Ethereum
Some of the major disadvantages of Ethereum are as follows;
- Scalability: Ethereum currently has a limited transaction throughput capacity. This can result in high transaction fees and slower processing times during periods of high network activity.
- Energy consumption: Ethereum, like Bitcoin, requires significant energy to maintain the blockchain and validate transactions.
- Security risks: The programmability of Ethereum introduces additional security risks, and smart contracts have been known to be vulnerable to exploits and hacking.
Overall, Ethereum promises to be something big despite some drawbacks. The programmability, decentralization, and active community make it a promising platform with a wide range of potential use cases.
Ethereum 2.0 – what you need to know
Ethereum 2.0, also known as Eth2 or Serenity, is a major upgrade to the Ethereum blockchain network. It is designed to address some of the scalability and security issues of the existing Ethereum network. It also introduces some new features and capabilities.
The main focus of Ethereum 2.0 is implementing a new consensus mechanism called Proof of Stake (PoS). This replaces the existing Proof of Work (PoW) system. PoS allows users to “stake” their Ether holdings as collateral to validate transactions and secure the network rather than relying on energy-intensive mining operations.
How to buy Ethereum?
A step-by-step guide to buying Ethereum is as follows;
- Choose a cryptocurrency exchange: Many cryptocurrency exchanges allow you to buy and sell Ethereum, such as Coinbase, Binance, Kraken, and Gemini. Research and choose a reputable exchange that is available in your country.
- Create an account: Once you have chosen an exchange, you will need to create an account and verify your identity.
- Fund your account: To buy Ethereum, you will need to fund your exchange account with a fiat currency, such as USD or EUR. You can also use another cryptocurrency, such as Bitcoin.
- Place an order: After funding your account, you can place an order to buy Ethereum at the current market price or a specific price.
- Store your Ethereum: Once your order is complete, the Ethereum will be credited to your exchange account. Moving the Ethereum to a personal wallet is recommended for better security.
It’s important to remember that buying Ethereum involves risks, and there may be fees associated with buying, selling, and transferring Ethereum. Make sure to research and understand the risks before investing in any cryptocurrency.
What factors influence the price of ETH?
The price of Ethereum, like any other asset, is influenced by a range of fundamental and technical factors. Some of the key factors that influence the price of Ethereum include the following:
- Market demand and supply: The price of Ethereum is driven by market demand and supply, with higher demand leading to an increase in price and lower demand leading to a decrease in price.
- Adoption and use cases: The adoption of Ethereum and its use cases, including decentralized applications and smart contracts. These can impact the demand for Ethereum and, thus, its price.
- Competition: Ethereum faces competition from other blockchain platforms. The emergence of new competitors or improvements in existing platforms can impact the demand for Ethereum.
- Investor sentiment: Sentiment and speculation in the market can impact the price of Ethereum. Positive sentiment leads to an increase in price, and negative sentiment leads to a decrease in price.
- Regulatory developments: Regulatory developments, such as government policies or restrictions, can impact the demand for Ethereum and price.
- Technological developments: Technological advancements, such as introducing new features or upgrades, can impact the demand for Ethereum and price.
It’s important to remember that the cryptocurrency market is highly volatile and subject to rapid fluctuations in price.
ETH virtual machine
The Ethereum Virtual Machine (EVM) is a key component of the Ethereum platform that enables the execution of smart contracts and decentralized applications. The EVM is a runtime environment that is responsible for executing code written in Ethereum’s programming language, Solidity, and other compatible languages.
The EVM is a sandboxed environment that runs on top of the Ethereum network and is isolated from the host computer’s operating system. This provides a secure and reliable way to execute code without exposing the underlying system to potential security threats.
The EVM also serves as the consensus mechanism for the Ethereum network, ensuring that all nodes agree on the system’s state. This is achieved through a consensus algorithm called Proof of Work. It involves miners competing to solve complex mathematical puzzles to validate transactions and add new blocks to the blockchain.
Overall, the EVM is a critical component of the Ethereum platform that enables the creation and execution of decentralized applications. It is a key differentiator between Ethereum and other blockchain platforms.
What are dApps?
dApps or decentralized applications run on the Ethereum blockchain. These are applications that run on a decentralized network. They are designed to be transparent, secure, and resistant to censorship and often utilize smart contracts to execute code and perform transactions.
Future of Ethereum
The history of Ethereum’s price and development indicates that the cryptocurrency was worth considerably less in 2022 than in late 2021. However, it did not reach its all-time low.
While the price of ETH went up in 2021, it was for different reasons than Bitcoin’s price growth. For instance, Ethereum made headlines when a digital artwork sold for over 38,000 ETH worth around 69.3 million U.S. dollars.
Ethereum’s rally in 2021 came from technological advances that sparked excitement among traders. However, the collapse of FTX in late 2022 significantly impacted cryptocurrency. As of February 16, 2023, Ethereum’s value was 1674.86 U.S. dollars, much lower than the 44,000 U.S. dollars it was worth by the end of 2021.
Ethereum’s future and the DeFi industry are closely related. Ethereum development will be closely related in the future to the scope that application developers find it to be on.