To understand how Ethereum works, we first need to know what a cryptocurrency is. A cryptocurrency is a digital asset that is fully encrypted and decentralized. In other words, cryptocurrencies are not in control by a central authority like the US Dollar or the Euro but rather run on blockchain technology. It can either be centralized (meaning there’s someone in charge) or decentralized (no one has control over it). Here is how Ethereum works.
The Ethereum Network
Many people use Ethereum and a lot of machines that run it. The users and machines work together to make sure everything works correctly. Sometimes the machines need to do things for the users, like taking their money or giving them money. So when a user wants something done, he broadcasts his request to the other users and the machines. The machines then validate this request using special software that checks if everything is correct (most are correct by default). Then, when the request is validated, the machines execute it.
You can make rules in Ethereum, but it is still not very user-friendly yet. Also, when the rules are in the break, you need to find someone to fix them. So Ethereum has something called a “smart contract.” A smart contract is a way to agree with someone without needing a third party to enforce it. For example, You want to borrow $100 from your friend and give him $150 after one year. If you don’t give back the money, he will not be able to get it back. It is what a smart contract is. There are several other use cases for smart contracts, but that’s the simplest example.
To do anything on Ethereum, you need to have some ether. Ether is the currency of Ethereum, and it’s also in use to pay for transaction fees on the network. To get ether, you either need to buy it or mine it. There are a lot of places where you can buy ether, but the most common way is from an exchange or from someone who already has some. You can also get it from mining. Mining is the process used to create new blocks when nobody wants to do it anymore.
If you sent ether to someone, they could send it back to you with a certain amount of fee. The sending procedure is the same procedure that is in use in transactions in Bitcoin.
Getting Your Ether Back
If you try to send ether from your account when it’s empty, you will not be able to do so. However, when somebody sends ether from their account to yours, it gets added to your balance. In this way, when somebody sends you ether, it goes through the network and is put in your payment address. It is why transactions in Ethereum are delayed and may take a while before they show up in the blockchain.
The blockchain is a distributed ledger that records all transactions on the Ethereum network. It means you can see who sent what to whom, how much it is worth, and when it happened. The blocks (they are in call blocks because they contain blocks of transactions) are generated by computers worldwide. The chain of blocks is like a chain of books that record transactions in chronological order. Additionally, you can create new rules for smart contracts, but only if you get people to agree with them (this is called “consensus”). It is how Ethereum works.
Getting Ether from The Blockchain
The blockchain is replicated to all network members, and whenever a new transaction occurs, all the members receive a copy of it. This way, everyone can check if they received the right ether and can’t spend it twice. Also, there’s no one in charge of checking if someone tried to do something fraudulently or if somebody spent too much money on gas fees for their transaction to go through.
The DAO Attack
Like in Bitcoin, Ethereum is in use to run a decentralized autonomous organization. It would be an organization run by its own rules instead of humans or one that computers instead of people run. A decentralized autonomous organization works with the trust less blockchain system without a third party, which means no single authority can go against it. That’s why they are called “trustless.” There are some example ideas where Ethereum is in use for this, i.e., transparent organizations that run by rules on the blockchain.
The DAO Code Bug
A bug found in the DAO code, a digital decentralized autonomous organization that exploited an opportunity to split up funds at will. This way, it could receive more money than it was supposed to have. It caused a lot of discontent in the Ethereum community because they split up funds that were supposed to be used for other projects on the platform so they couldn’t get their share of it anymore.
The community decided to resolve the problem by hard forking the ledger. It meant that all transactions after the DAO attack could be undone and all funds returned to their owners. The hard fork miners disagreed with this decision and wanted to keep the old chain going, but it didn’t work out. The community gave them a new name – Ethereum Classic – because they kept going with the old chain and started developing separately from what Ethereum does.
Ethereum Classic (ETC)
Ethereum Classic is the continuation of the original Ethereum blockchain. It started after the hard fork because it didn’t agree with what happened to the DAO account. They believed that it should be possible for users to spend their money as they please, even if that means that they misspend it. They also wanted to stick with the original idea of Ethereum – a trustless system where there’s no centralized authority. Also, they didn’t want Ethereum into two chains that are not compatible with each other. They wanted to keep it working together under the same name.
There are some high-profile projects on Ethereum, which are running on the network. Some of them are Golem, 0x, or Augur. These are exciting projects because they have a strong community behind them that gathers around these ideas. They use the decentralized nature of Ethereum to implement their ideas, and they’re working towards making things happen in the world.
More On NEM
NEM is a combination of blockchains that powers peer-to-peer communication, transfer of assets, and creation of applications. It’s been a very ambitious project in development for many years, refined since its inception. It has a solid team behind it, and they’re making progress every day.
Ethereum also has a roadmap that details what they want to do with the system in the future. It’s divided into phases, and we’re currently at phase 0, which means we still have to wait for all of this stuff to be released.
The foundation is the company behind Ethereum, which created it and tried to lead the platform forward. The foundation comprises volunteers who work on projects that they believe will benefit Ethereum in the future. It has nothing to do with developing or coding, which means its members can be developers who work on projects that are not related to Ethereum.
In Ethereum, the miners are the people that use their computers to mine new blocks. Without a process known as mining, there would be no Ether. It happens: you have a computer that has a program installed on it; this program does some work and produces a new block of transactions added to the chain. The whole process is in call mining because it’s like digging gold from the ground. In addition, miners get paid for this work in Ether or cryptocurrency, which you can get from exchanges or mining yourself.
Taking the Money
When you want to take some ether, you broadcast your request to the network using the software that you used to validate the request (I’ll explain why in a while). If it’s valid, then your machine will get some ether for you. You can broadcast many requests at once. Some requests are not valid because they are invalid, so they are ignored.
The Transaction Processor
Just like a server, there must be a special machine that coordinates the work done by the other machines. That’s what the Transaction Processor is for. It’s a special kind of miner that creates blocks at a constant rate. When it creates a new block, every other miner on the network receives it, and they validate it before adding it to their copy of the blockchain.
Ethereum is a futuristic cryptocurrency that can change the way things are in do in the world of finance and technology. It’s all about making things decentralized and taking away power from the middleman. It is a new step in monetary systems and financial transactions, which might be very revolutionary. The big question is: will this happen? Is it possible to make such a system work without putting too much power into one hand? Only time will tell, but there’s one thing that said for certain: Ethereum has great potential.
- Where Do I Store my Ethereum?
- Ethereum for Beginners
- Keeping Your Ethereum Wallet Safe
- Crypto Glossary for Beginners
- America’s Ethereum ATM Locations