What is Ethereum: A Complete Guide for Beginners

Hemendra Singh
Hemendra Singh, Managing Director at The NineHertz
Published on Jun 26, 2019 in Blockchain Developers Resources
What is Ethereum: A Complete Guide for Beginners

Going by market capitalization, Ethereum is the number 2 cryptocurrency in the world. There are some major differences between Ethereum and Bitcoin. Unlike Bitcoin (the front-runner cryptocurrency), Ethereum is more than just a secure means of payment or a store of value. Ethereum’s rabid backers and founders claim it nothing less than the future of the internet. According to them, buying Ethereum today is akin to buying a few shares of Apple back when it was practically run out of a garage.

Ethereum is a platform coin at its core. It facilitates a backbone on which other coins and decentralized applications (DApps) can be built. Moreover, it is also highly liquid and frequently traded coin. Next, to only Bitcoin, Ethereum enjoys more base pairing on exchanges than any other coin. In December when Bitcoin hit a high of more than $20,000, Ethereum up to almost $1,400 during the same time. Later Ethereum tumbled from it’s an all-time high, and it's not very clear by when it will again reach those lofty heights.

The Inception of Blockchain Technology

From the time in 2009, when the blockchain technology came into existence, people thought it’s just a fad. However, it has been continuously growing and evolving since then. Today it has reached a point where it is on the brink of changing technology. It’s a history in the making and is such a significant event that the world will come to see as the time before blockchain, and everything that came after.

Nobody had an idea when Pong started the whole video gaming industry. It pushed the technology advances to a point that it has changed our lives forever. It’s a history repeating itself. This time its blockchain technology which is still in its infancy but rapidly evolving into something much more than what it started out as. And it's the same with all new concepts. It goes through the process of developing a refined set of advancements along the way. Blockchain technology is quickly evolving and transforming since its inception.

In the inception, the blockchain technology merely started out as a technology- means to support Bitcoin in the following ways:

  • Provide a feasible way for decentralization of currency and financial transactions
  • Facilitate the decentralization of data or information stored using a distributed, decentralized database
  • Eliminate the dependency on “trusted” 3rd parties to verify transactions
  • Create an ecosystem that provides resistance to censorship, immutable, and corruption
  • Introduction of “Proof of Work Consensus Method” that combines computational processing power through the use of nodes connected to the network. The nodes act as an agent to verify all transactions and secure a public ledger.

Many Cryptocurrency Exchange Development experts were quick to identify the importance or the use of Blockchain that far exceeded Bitcoin’s need. The Node.js development experts analyzed the way blockchain technology works and found that blockchain was introducing a radical change to the internet itself. They analyzed the blockchain technology using the same method as used to develop the structure of the internet (internet protocol suite or TCP/IP Stack). To simplify things for the sake of understanding, the blockchain technology act as a platform having its own applications built on top of its core.

The Need for Ethereum

The blockchain technology itself is a radical concept for the internet. However, the Bitcoin blockchain source code did not allow for Turing complete smart contracts. In simple words, the automated technology failed to simulate human behavior and prowess. Bitcoin technology is powerful, but this was a major setback for many Cryptocurrency Exchange Development experts and led to frustration.

Russian-Canadian programmer by the name Vitalik Buterin was closely observing Bitcoin technology. Vitalik Buterin was a 17-year-old programmer in 2011 when he co-founded Bitcoin Magazine. He couldn't stop himself from the thing about a platform that went beyond the financial use cases allowed by Bitcoin. In 2013, he released a white paper describing what would ultimately become Ethereum using a general scripting language. He wanted the blockchain platform to have the ability to trade more than just cryptocurrency. Bitcoin blockchain couldn’t scale up enough to make this a reality. This is when Vitalik Buterin, decides to build it himself. In 2014, he gathered resources and started a little project called Ethereum. He along with other co-founders of Ethereum launched a crowdsourcing campaign. They sold participants Ethereum tokens to get their vision off the ground and raised more than $18 million from the campaign.

Building a blockchain platform to have the ability to trade more than just cryptocurrency was an evolutionary step in blockchain technology. It paved the way for many vast improvements that allowed for blockchain to become a platform and made possible the concept of a virtual distributed machine.

Today Ethereum and other similar platform are referred to as a distributed virtual machine. The reason is that they can run decentralized applications on their blockchains. Ethereum makes it possible what is not possible with Bitcoin.

The Ethereum can now program conditional transactions and build Turing complete smart contracts. This lends it the ability to emulate human behavior. Ethereum also opened the door to other possibilities such as the ability to conduct micro-payments whereby small value transactions can also be handled. This is an extremely important step in mass scale adoption of blockchain technology in businesses like large retail food chains or coffee houses.

Ethereum provides the ability to run applications on top of the blockchain. To facilitate this, promoters introduced the concept of tokenized digital assets. Factbars is a perfect example of this.

Ethereum Technology

Ethereum is an open-source public service. It uses blockchain technology to facilitate smart contracts and cryptocurrency trading securely without the involvement of any third party. Ethereum provides two kinds of accounts: externally owned accounts which are controlled by private keys influenced by human users and contract accounts. Developers have the freedom to deploy all kinds of decentralized apps on Ethereum. Bitcoin is the most popular cryptocurrency. However, Ethereum’s aggressive growth has led many blockchain experts to believe that Ethereum will soon overtake Bitcoin in usage.

Ethereum Price Prediction

Just like other cryptocurrencies, Ethereum also experienced dramatic fluctuations in the price of Ether. Despite this, Ethereum currency grew more than 13,000 percent in 2017. This gave a quick view of its growth potential attracting many investors. But keeping the volatility in mind, many investors are cautious. Ethereum is still young and quickly evolving. The potential applications could be limitless. In 2016, $50 million in Ether was siphoned out by an anonymous hacker. This raised serious security concerns. As a result, Ethereum’s infrastructure was enhanced over the last few years. Since Etherium is less monopolistic compared to Bitcoin, it is more open to reform measures, which means it stands a better chance to become a superior solution to Bitcoin.

Ethereum is performing better than Bitcoin according to ConsenSys. Electric firm, a crypto asset management firm reported that Ethereum development is as twice as Bitcoin development, looking at the current scenario. A few days back, an Ethereum mining pool, Sparkpool received a payment of more than 2,000 ETH for mining just one blockEthereum. The crypto market has seen a downside towards the end of 2018. Still Node.js web development experts believe that Ethereum will take an upward surge in the coming year and will touch around $1400 in 2019.

Burning Issues with Ethereum Technology

Etherium is on its way to bring radical change in the way internet works and the financial industry works. However, there are burning issues that need to be ironed out before Ethereum and blockchain technology as a whole will need to address before it is ready to take the world by storm.

Ethereum brought the idea of decentralized organizations (DAO). Its a concept of a decentralized corporation that entirely runs on smart contracts. The decentralized organizations would govern finances and company policy on the blockchain. However, since the blockchain and companies interweaved, few problems surfaced.

Scalability is one major issue with which blockchains projects are grappling. For a wide scale adoption, the technology will need to evolve and become mature enough to handle a monster amount of transactions per second. To give you a hint, here are some facts and figures:

  • Bitcoin can only handle 7 transactions per second
  • Ethereum can handle about 15 to 20 transactions per second
  • Lightcoin can handle about 56 transactions per second
  • Ripple can handle 1500 transactions or more per second

Now let's compare this with the amount of data financial world transact per second. Visa, handles 24,000 transactions per second. This is where the major issues blockchains have. This has to be solved before they take over the world.

Cross-chain interoperability is another issue. When blockchain becomes the norm, the services will need to run amongst varied applications on different blockchains.

Another issue with blockchain is the big data and widespread adoption. Manually programmable smart contracts are not practical to use. There has to be a better way. Till then the question remains at large as to how the organizations will analyze the big data that blockchains provide.

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About the author
Hemendra SinghManaging Director at The NineHertz

Hemendra Singh is Managing Director and co-founder of The NineHertz, a Mobile App Development Company. Hemendra has a keen interest in the latest trends and technologies that are emerging in different domains. Being an entrepreneur in the field of IT...

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