Ethereum is decentralized, programmable software, powered by its native currency (Ether).
Often looked at as Bitcoin 2.0, Ethereum is famous for the use of ‘Smart Contracts‘ on its blockchain, as well as its bustling ecosystem.
Currently, the network is secured by a ‘Proof of Work‘ consensus algorithm, however, Ethereum’s developers are transitioning to a ‘Proof of Stake‘, a change that is expected any time between 2020 and 2022.
Think of the Ethereum network as 3 layers.
Base Layer: Nodes
Software Layer: Languages
Application Layer: DApps
The base layer is a network of decentralized computers connected to the internet that have software running the Ethereum blockchain. At its core, this is where transaction data is validated, broadcasted and stored on the blockchain - actions performed by miners.
This process involves computational work and for this output, the miners are rewarded with Ether.
The software layer is home to several programming languages, like Solidity and Vyper that live in libraries.
Developers use these languages to write smart contracts, which power the Ethereum Ecosystem.
The combination of the Base Layer and Software Layer = the Ethereum Virtual Machine (EVM).
The application layer is where DApps live. At present, there are approximately 3,000 DApps running on the Ethereum Blockchain, with solutions like Stablecoins, Decentralized Exchanges, and prediction markets proving to be popular choices amongst market participants.
Ethereum and ETH are often used interchangeably, however, they are technically different. Ethereum refers to a decentralized Blockchain based software platform, while ETH is the native currency of the Ethereum Blockchain. ETH was created to fuel the Ethereum network but is also used as a Store of Value and for payments.
Let’s imagine a developer wants to build a new DApp on the Ethereum blockchain. To do this, they have to pay for the computing power and space using ETH.
The amount of fees for network usage is determined by a pricing system called Gas.
A common criticism of Ethereum is its lack of scalability, something that’s become quite the talking point in 2021.
With the Decentralized Finance (DeFi) ecosystem booming, transactional throughput is at an all-time high, as such, network fees are setting new records, forcing users to consider alternative blockchains.
At present, Ethereum is only capable of processing 10-15 transactions per second, however, Eth2 promises to fix this by switching from the current proof-of-work consensus system to proof-of-stake (PoS).
The new upgrade will be delivered via the Beacon Chain and ultimately, Ethereum will become more scalable, and more environmentally friendly.