Ethereum For Dummies: The Basics Of The Ethereum Blockchain

Ethereum is probably something that you’ve often heard during the past few years. But what are Ethereum and Ether, and how does it actually work? Ethereum first appeared in 2015, and it is currently the second biggest cryptocurrency if we talk about market capitalization. To be more specific, Ethereum is the name of the network that it currently runs on, and Ether is the actual cryptocurrency.

But what are Ether and Ethereum? This article about Ethereum should give you a brief overview of how Ethereum works, some important points about it, and the effects of the current pandemic it has on it. By the end of this article, you should have some good knowledge and understanding of what your next move should be regarding Ether and Ethereum. Should you invest in it or not?

The Birth Of Ethereum

Bitcoin was always meant to always serve the purpose of being a digital currency. Given that it worked through a blockchain, many people believe that the same blockchain technology can be used as a means for other functions. One of these brilliant people is a computer programmer named Vitalik Buterin. In its early days, he invested in Bitcoin and believed that the blockchain technology was poised for broader possibilities. 

He first started his work on building DApps, which are Decentralized Applications, and introduced it to the Bitcoin Blockchain. However, the capabilities of the Bitcoin blockchain proved to be insufficient at the time. In turn, he started his separate work on a different blockchain. He published his Ethereum white paper way back in 2013, which then led to the Ethereum network’s birth in July 2015.

In 2016, there was an issue regarding $50 million worth of Ether that was stolen. This accident resulted eventually split the blockchain into two. The original version called the “Ethereum Classic” now had a counterpart new chain called the Ethereum. Ultimately, the stolen funds were reversed. The Ethereum network has since then proved its strength and potential. It now has over 3,000 Decentralized Apps and 200,000 tokens. 

Now, these things may sound gibberish to you as of now. So, you’ll need to know how Ethereum and the Ethereum network work to get a good grasp on the basics of Ethereum.

How Does Ethereum Work?

Ethereum is a network built on blockchain technology. It is the do-it-yourself platform for decentralized programs. If you desire to create a decentralized program that not even you can control, all you need is to learn Solidity, which is the Ethereum programming language. The Ethereum platform is also being run by thousands of computers, which makes it fully decentralized.

Ethereum is not a currency but rather an infrastructure for running decentralized programs worldwide. Ether, on the other hand, is the currency used to incentivize the network. Looking at the big picture, Ethereum aims to decentralize the entire Internet. In turn, people can connect themselves to each other without any intermediary or third party. 

The same blockchain technology is the reason why you cannot find any middlemen in any transactions that occur on the network. In turn, any transactions like buying cryptocurrencies, money transfers are possible without banks or any third party entity involved. Even housing contracts can be handed out without any agents. 

But what can Ethereum possibly be used for? There’s no doubt that Ethereum and its currency (ETH) can be used in any merchant transactions. However, its purpose aims to go beyond that. Smart contracts, as mentioned earlier, are a way to facilitate contracts on the network, given that stipulations are met and satisfied. DApps or Decentralized Applications, on the other hand, are essentially anything that a computer program can be written and built for. 

With these smart contracts and decentralized applications, the Ethereum network cannot be virtually altered, controlled, and manipulated. The Ethereum network functions just like any blockchain. It is decentralized and cannot be controlled by a single entity.

Understanding Ethereum Smart Contracts & DApps 

It is essential to learn or have a decent grasp on what DApps and Smart Contracts are both are integral parts of the Ethereum Network. 

Smart Contracts

Smart Contracts, in their essence, are self-executing contracts. The terms and agreements of these smart contracts are already written into code within the blockchain. Smart contracts often have functions such as insurance, real estate, supply chains, and even gaming.

Consider it as an If-Then agreement that executes itself on the blockchain. Ethereum developers provide and write the conditions for their program in which the Ethereum network will execute. Smart Contracts will also deal with all the aspects of the contract, which includes enforcement, management, and payments.

In turn, tokens are then formed through these smart contracts; however, these tokens are not incentivized, therefore separated from ETH itself. Smart contracts also play an integral role in handling transactions and tracking the balances of individual tokens. 

Decentralized Applications

DApps contain a special code that is meant for Solidity, which is the programming language for Ethereum. DApps can involve broad functions such as gambling, Defi, fundraising, social networking, exchanges, and even gaming! Upon equating these DApps with the Ethereum blockchain, these provide users an opportunity to gain incentives in the form of tokens.

One example of a well-known Decentralized Application is CryptoKitties. It is one of the first blockchain-games that started around 2017. CryptoKitties will involve collecting and breeding, and selling virtual cats through Smart Contracts. These cats, in turn, are one attempt at equating blockchain technology with recreation and leisure. Some virtual cats even sold for as much as $300,000 and even more. But, most go for around $100, which is still decent, if not ideal. 

Distinguishing Ether From Bitcoin

You already know that Ethereum is the network that uses the same blockchain technology as Bitcoin. And, a currency or a cryptocurrency is needed to fuel this network. This scenario is why Ether or ETH was invented. Ether is the currency used to manage and maintain a network of computers that executes code that, in turn, powers DApps. 

When we talk about the price of Ethereum, we’re talking about Ether. It is the currency that incentivizes people to run the Ethereum protocol on their computers. It is almost similar to how Bitcoin miners receive payment in exchange for maintaining the Bitcoin blockchain. An author must pay in the form of Ether before he can deploy a Smart contract into the Ethereum platform. 

The price of Ether’s first initial coin offering cost around $0.40 per one Ether. Today, one Ether now costs hundreds of dollars. It is the same as Bitcoin in a way that one can also use Ether as a digital currency for payments, traded on exchanges, and stored in hot or cold wallets. They are also decentralized and are utilized by blockchain technology, which means that a single entity does not issue them. 

Both still have their differences. For example, ETH is verified faster than BTC. And ETH’s purpose does not end as a digital currency. ETH is primarily used to facilitate and manage Smart contracts and DApps on the Ethereum blockchain. Transactions from Smart contracts on the Ethereum blockchain even contain executable code, whereas, in Bitcoin, these data from network transactions will only be notes. 

The Current State Of Ether Amidst The Pandemic

It has been a surprise that cryptocurrencies took a hit from the current situation caused by the Covid-19 pandemic. Cryptocurrencies were previously considered “safe havens” but really weren’t “immune” diving stock markets and crude oil prices from tremendous selling pressure. 

Ether and Ethereum is one of the cryptocurrencies that took a substantial hit from this Covid-19-inspired selling. ETH has been down to 61.24% on the IG Markets Limited website on March 18th, 2020. It recorded a previous high of over $285 in February. Some say that Ether Whales are the ones to be blamed for this latest devaluation. 

But are the Ethereum Whales the ones to be blamed in this situation? Santiment, a crypto data analysis company, told that these top 100 Ethereum holders, or whales, had accumulated more ETH for long-term holding. They also said that this was a sign of a positive trend that is coming. However, their insight drastically changed a week later.

The Ethereum whales were dumping their ETH assets in the lead-up. These ETH whales continued dumping ETH assets even after the cryptocurrency collapse that started on March 7th of this year. This scenario suggests that those Ethereum whales played a part in the steep fall of Ethereum. Some speculate that the same whales were pressured to sell ETH to cover losses elsewhere. 

To put a positive spin on ETH and Ethereum, researchers still say that the resulting intraday volatility resulting from the control that Ethereum whales have on Ether should not impact overall prices excessively. As of March 20th, 13 days after the cryptocurrency collapse of March 7th, ETH is valued at $113. It is an almost 40% drop from the numbers recorded from late-January.

Should You Invest In ETH?

You should approach any investment, like ETH and Ethereum, with caution. The safest way to approach investing in ETH and Ethereum is to do your research and figure out if it works for your goals, both short-term and long-term. However, ETH’s potential is always there as it could promise returns of up to 100 folds. 

Even amidst the Pandemic, investing in ETH still has its fair share of potential. However, the recovery rate might affect some investors’ expectations of a viable means of getting rich quickly. ETH promises long-term stability and growth despite the current climate. Researchers expect it to stay on-par with the 2025 predictions of ETH being valued around the $3,500 mark.

The bottom line is, ETH has all the potential and structure to allow it to promise such lucrative returns to its investors. As usual, blockchain technology will enable it to remain immune from any attempts of alteration, manipulation, or cheating. Without a doubt, ETH is an investment worth considering, if not spending your resources and attention on.

Ahsan Khalid

Blockchain Developer. An Electrical Engineer with majors in software development. I present forward my insight regarding the latest happenings of the blockchain world. All views on my articles are my own. Email: ahsan@blockpublisher.com or editor.news@blockpublisher.com

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