What is Ethereum?

By July 17, 2020March 28th, 20225 minute read
What is Ethereum

After Bitcoin, Ethereum is the cryptocurrency system that is incredibly popular amongst investors and developers. Launched in 2015, it has positioned itself as the world’s first programmable blockchain.

According to ConsenSys, Ethereum is a ‘world computer’. What that means is that the second most valuable blockchain is open for anyone to create applications. But why?

Because the existing global software development infrastructure is based on a centralized client-server model.

Ethereum wants to replace that model, decentralize software development, and eliminate central points of failure/control. Piqued?

If yes, then let’s go deeper!

Brief History

As a 17-year old programmer, Ethereum creator and lead developer, Vitalik Buterin started tinkering with Bitcoin in 2013. The limitless possibilities of blockchain, Bitcoin‘s underlying mechanism enthralled him.

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Consequently, he attempted to develop applications on top of Bitcoin through the Mastercoin project. Buterin envisioned a platform that is robust enough to develop ‘decentralized applications’ after facing several roadblocks.

Along with the platform, Vitalik also thought of writing an entirely new programming language that application creators could use globally to develop applications on Ethereum.

Finally, in November 2013, he presented the Ethereum whitepaper. Subsequently, his decentralized computing idea began garnering significant interest and attention.

In 2014, Buterin and the other co-founders Joseph Lubin, Anthony Di Iorio, and Charles Hoskinson kickstarted the Ethereum token sale. The crowdfunding campaign went on from July to September that year and raised more than $15 million for the project.

As per official records, exactly, one year after the launch of the crowd sale, the Ethereum blockchain went live in July 2015.

Mainnet Launch and Upgrades

Frontier (a.k.a Frontier ‘mainnet’) Ethereum’s first version went public in July 2015. Mainnet is a term that folks in the cryptocurrency community use for blockchain protocols that are fully developed.

But before the Frontier mainnet went live, developers released the Olympic ‘testnet’ to test all aspects of Frontier before releasing it to the world.

Like mainnet, a testnet is a ‘test blockchain’ that programmers use to troubleshoot and sanitize the mainnet for errors and code loopholes.

With the launch of Frontier, developers could finally start building applications on Ethereum, and miners could start mining Ether (ETH), Ethereum’s native cryptocurrency.

Frontier was followed by the Homestead upgrade. Since the beginning, upgrades on Ethereum have been carried out through ‘hard forks’. Check out the video below to know more about them.

Ethereum Hard Forks and Soft Forks Explained

Homestead introduced Ethereum Improvement Protocols or EIPs to spruce up the Ethereum blockchain. Actioning EIPs bumped up quite a few features paving the way for future updates.

The core development team planned all upgrades and hard forks except 2016’s DAO fork. While all hard forks have led to upgrades, the DAO hard fork led to the creation of a new cryptocurrency – Ethereum Classic. See the video below to know more.

Ethereum continued improving further after the DAO drama with the Byzantium (October 16, 2017) and the Constantinople (February 28, 2019) upgrades.

Ethereum Upgrade History Part 1
Ethereum Upgrade History Part 1 (2015 – 2019), Source: Consensys

The blockchain platform will continue to improve its architecture through Istanbul and Serenity hard forks. Also, with Serenity, Ethereum plans to move from a Proof-of-Work (PoW) consensus protocol to Proof-of-Stake (PoS).

Ethereum Upgrade History Part 1 (2015 - 2019)
Ethereum Upgrade History Part 2 (2019 – 2022), Source: Consensys

How Does Ethereum Work?

Before delving deeper into Ethereum’s working, it makes sense to know a few basic things:

  • Smart contracts – Programs or code designed to execute upon fulfillment of certain pre-defined conditions. Solidity, Ethereum’s native programming language for developing smart contracts. This video will illustrate it better:
What are smart contracts?
  • Decentralized Applications (dApps) – Decentralized applications are the reason that started everything. They can be anything – websites, programs/software that run on Ethereum. dApps operate through smart contracts.

To look at it simply, the Ethereum system comprises of three layers. The first layer is the public ledger or blockchain. Second is the ‘smart contracts layer’ where developers use Solidity to write code for dApps. This layer also executes the designed dApps.

And the last layer is the ‘dApps layer’ where decentralized applications interact with users.

The three layers of Ethereum
The three layers of Ethereum, Source: Michele D’Aliessi

How Ethereum Found it’s Use Case with DeFi

Bitcoin promised to decentralize payments, monetary supply, and issuance. But there was a need to democratize access to broader financial instruments like lending, borrowing, investing (for interest-based returns).

That’s how ‘decentralized finance’ or DeFi came into being. All DeFi protocols are based on Ethereum and have the following features:

  • Interoperable
  • Programmable – smart contracts drive decision making in the DeFi ecosystem, not humans
  • Composable – the entire system is like a box of Lego blocks — there is absolutely no limit to what can be built

The map below best represents the DeFi ecosystem

Map Showing The DeFi Ecosystem
Map Showing The DeFi Ecosystem, Source: The Block

DeFi is an increasingly burgeoning space, with the total value recently crossing the $2 billion mark.

DeFi Market Statistics Since Beginning
DeFi Market Statistics Since Beginning, Source: DeFi Pulse

Compound is the most valuable token in the DeFi market and is now available for trading on WazirX.

What is Ether (ETH)? How and Where to buy it?

Ether or ETH is Ethereum’s native cryptocurrency. It powers all financial transactions on the second largest blockchain.

Apart from monetary transfers, ETH finds use in all interactions involving smart contracts and dApps.

As opposed to bitcoin’s maximum supply of 21 million BTC, ETH doesn’t have a cap on its supply. The total number of ETH in circulation surpassed the 100 million mark couple of years ago. The current circulating supply stands at over 111 million.

ETH is a pretty popular crypto asset amongst investors and has returned immense profits since it first started trading. At WazirX, we provide you a smooth and seamless way to buy ETH. To know more about using the WazirX mobile app, check out the video below:

Further Reading:

What are the Differences Between Bitcoin and Ethereum?

What are the Differences Between Ripple (XRP) and Ethereum (ETH)?

What is the difference between Litecoin and Ethereum?

What is Ethereum 2.0? Is it different from Ethereum?

5 Myths About Ethereum

5 Reasons Ethereum Momentum is Accelerating

ETH 2.0 Beacon progress, what to expect next?

Ethereum price prediction: Will it hit $5000 in 2021?

5 Things to Keep in Mind While Buying or Selling Ethereum

What is the difference between Bitcoin, Ethereum, and Ripple?

Also you can download the app and Start Trading Now!

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Is Ethereum Safe To Invest?

The Bitcoin market is unquestionably more volatile than the stock market. This may not be the market for you if you are incredibly risk-averse. Ethereum, on the other hand, may be a terrific investment for you if you're a diamond-handed investor who won't lose sight of short-term losses. Ethereum is a relatively safe investment as it is also based on blockchain.

Is Pi Cryptocurrency Safe?

Pi Network (PI) is the newest digital token to catch the cryptocurrency community's interest, even before it has wholly debuted. Some users see it as a chance to get engaged in a cryptocurrency from the beginning and profit in the future, similar to how early Bitcoin adopters made huge profits by mining and keeping the coin. Other users have compared Pi to a worthless multi-level marketing (MLM) scheme.

What Is The Meaning Of Crypto?

A cryptocurrency is a digital currency that is secured by the process of cryptography, making counterfeiting and double-spending almost impossible to happen. Blockchain technology is used to produce cryptocurrencies ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are distinct in that a centralized authority does not issue them.

Is Cryptocurrency Legal In India?

In India, cryptocurrencies are legal; anyone can purchase, sell, and trade cryptocurrencies. They are currently unregulated; India does not have a regulatory framework in place to regulate its functioning. According to the Ministry of Corporate Affairs (MCA), companies must now declare their crypto trading/investments during the financial year, according to the Ministry of Corporate Affairs (MCA). Cryptocurrency transactions have been taxable in India when people receiving such gains are Indian tax residents or where the crypto is considered to be domiciled in India

Is Cryptocurrency Safe To Invest In?

Cryptocurrency investments are subject to market risks, but if sufficient security measures are not taken, trading accounts can be maliciously accessed. Investments come with risks and uncertainties, and we cannot claim that any digital currency investment is risk-free. Buying and selling cryptocurrencies can be risky even if the trader is knowledgeable about the market and treats their coins carefully.

Is Bitcoin And Cryptocurrency The Same Thing?

Bitcoin is a cryptocurrency that was designed to facilitate cross-border transactions, eliminate government control over transactions, and streamline the entire process without third-party intermediaries. The absence of intermediaries has resulted in a significant reduction in transaction costs. Satoshi Nakamoto, the creator of Bitcoin, created the first cryptocurrency in 2008. It began as open-source software for money transfers. Since then, plenty of cryptocurrencies have emerged, with some focusing on specific fields.

Which Cryptocurrency Is Best To Invest In 2021?

Many altcoins are flourishing to invest in. Some cryptocurrencies with great potential are Ether, Ripple, Tron, and more. Investors are trying to diversify their portfolios and are flocking to the leading cryptocurrencies. Many growing businesses are already accepting cryptocurrency as acceptable payment methods.

Are Cryptocurrencies Legal In India?

In India, cryptocurrency is legal, and anyone can buy, sell, and trade it. Because India lacks a regulatory system to regulate its operations, it is presently uncontrolled. According to the Ministry of Corporate Affairs, companies must now document their crypto trading/investments inside the financial year.

How To Invest In Cryptocurrency Stocks?

Cryptocurrency can be purchased in two ways: through mining or exchanges. The process of confirming and adding transactions to the blockchain public ledger is known as cryptocurrency mining. Cryptocurrency exchanges are another option. Exchanges make money by charging transaction fees, but there are alternative platforms where you may communicate directly with other cryptocurrency traders.

What Is The Safest Cryptocurrency To Invest In?

Bitcoin has had the highest market capitalization, has been around the longest, has the most experienced development team, and has enormous network impact and brand recognition. As a result, while trading cryptocurrencies, the rate of return on Bitcoin is commonly used as a benchmark. However, the risks associated with cryptocurrencies remain, and the safest cryptocurrency for you depends on your analysis.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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