What is Ethereum?
Ethereum is a programmable blockchain which was launched in 2015. It is a blockchain-based, open, and decentralized software platform. The native currency of Ethereum is called Ether (ETH). As Ethereum is programmable, developers can use it to build different applications. Ethereum enables distributed applications and smart contracts to be built and run without any fraud, control, and downtime. The applications developed are called a decentralized application (dApps), and they are benefitted by blockchain technology. These applications cut out the middle man and the cost associated with the third party.
Ethereum is a decentralized system, and any governing entity does not control it. Today majority of online services are built on a centralized system, and we have come to know that it is flawed. Ethereum is also fully autonomous and has no point of failure. Being decentralized, Ethereum uses peer to peer approach, and interactions happening are supported only by the users taking part in it.
Ethereum can support anything through its programming and apps. Investors can buy Ether, which is a currency of Ethereum from brokerages like Coinmama, trading platforms like Bitfinex and peer-to-peer platforms like LocalEthereum.
How to use Ethereum?
Ethereum allows the developers to deploy decentralized applications that are for a specific purpose. As decentralized applications are developed by coding, and it runs on a blockchain network, it is not controlled by any central entity or individual. Ethereum can also be used to build Decentralized Autonomous Organizations (DAO), which is a fully decentralized and autonomous organization having no single leader. These organizations are run by programming code, which is designed in such a way that it replaces the structure and rules of a traditional organization. A DAO belongs to everyone who purchases token.
Ethereum can also be used as a platform to launch other cryptocurrencies. Ethereum allows other developers to issue their token and raise funds with ICO (Initial Coin Offering). In this, the developer sets an amount they want to raise to offer it to the crowd sale, and they get Ether in exchange. ICO raises billions of dollars in two years, and the most prominent one is the EOS, which is an ERC20 token. Recently Ethereum has introduced a new standard called ERC721 token to track the unique digital assets. The biggest use cases for such tokens are digital collectibles like infrastructure, which allows the people to prove their ownership of digital goods, which are scarce. Many games are now developed on this technology like CryptoKitties, where a player collects and breeds digital cats.
How Ethereum works?
Ethereum works on Blockchain technology, and it has two main features:
Smart Contracts – Ethereum blockchain is designed in such a way that transactions take place only when few conditions are met. The rules deciding such transactions are called as Smart contracts. These contracts cannot be changed once written, which is why they are called ‘trustless transactions.’
Ethereum is mined by the process Proof of Work, which is soon going to be replaced by PoS (Proof of Stake). As PoW uses a lot of computing power, it uses a lot of electricity. In PoS, users having a lot of Ether are picked randomly to verify the transactions. The miners are then going to be rewarded with fees instead of a new currency, which is a more energy-efficient solution.
How does Ethereum mining work?
Ethereum uses a Proof-of-work consensus mechanism for which mining is essential. Ethereum miners use their time and all of their processing power to solve the cryptographically difficult puzzles. If miners are successful, they can add the blocks to the Ethereum blockchain and can earn the reward in return.
Different Types of Mining:
CPU mining – This is one of the most basic forms of mining. Anybody from anywhere in the world can use the computer to mine. However, this is not applicable anymore.
GPU mining – GPU is a graphic processing unit, and it is a part of a video rendering system on the computer. The GPU functions to assist in rendering the 3D visual and graphic effects. GPU is a far stronger system than CPU for mining. Some coins like Monero are mined via GPU. However, as the difficulty increased, mining became more difficult.
FPGA Mining – FPGA is a device having a series of gate arrays to create truth tables and to calculate inputs from the data stream in order to get the desired result. FPGA makes any task possible such as mining hash to create an output that results in a successful hash.
How will the Ethereum scale?
From the past few months, we all are hearing that the Ethereum platform is going to fail due to its inability to scale. The main problem with Ethereum scalability is the network protocol that each node in the network needs to process in each transaction. The miners have to race to find the nonce to meet the target difficulty. Each node should verify that the miner’s work is valid and should keep an accurate copy of the network state. The entire process limits the capability of the transaction process.
Sharding is the process that offers the scalability problem of Ethereum. Sharding means partitioning the huge database into small and faster pieces known as Shards. Each shard is going to have its own transactions chain. Ethereum accounts will be assigned a shard, and the transaction with other accounts can happen on that shard. The idea is to facilitate cross-shard communication. While sharding offers the benefits of scalability by splitting the load of network transactions, it also poses some new security problems. With Proof of work, an attacker will need 51% of the hash rate to launch the attack. Now that the network is split into many shards, it will only take less of the hash rate to attack a shard successfully. While developers have proposed some solutions to this problem, they still need to be tested.