What Is Ethereum?
By Kaitlin Beegle, edits Denise Schaefer
For anyone diving into cryptocurrencies, blockchain technologies, or Web3, it’s not long until you stumble upon Ethereum.
Ethereum is one of the largest blockchain networks in the world, second only to Bitcoin.
Like Bitcoin, many people invest in Ethereum by buying its cryptocurrency (called ‘ether’ or $ETH).
Unlike Bitcoin, Ethereum is more than just a currency. It’s also a technology.
When home computers first became possible, you would have to go to a physical store to buy software (for example, Microsoft Word or a computer game). Then, with smartphones and social media, we started to download our software directly from the App Store or Google Play.
And now, thanks to Ethereum, we can get our software directly from the blockchain.
Let’s break down exactly what that means.
The basics: key terms and ideas
Have you already learned what a blockchain is? If so, you might remember that a blockchain is just… a chain of blocks!
Blocks
Each block ‘holds’ data. For example, if you buy some ether, the record of that transaction is added to a block as data. When a block is full of data and has no more space for new information, it gets added to the chain. The ‘blockchain’, then, is just a permanent record of all the interactions that have ever happened on the network.
The blocks in the Bitcoin blockchain hold only transaction data. In contrast, the Ethereum network was designed to support software programs. These software programs are called smart contracts.
Smart Contracts
Smart contracts are ‘smart’ because they run by themselves, without the need for a third-party, and ‘contracts’ because they execute agreements directly between people.
When someone creates a smart contract, they program all of the rules that describe what the smart contract will do. Then, the contract will self-execute whenever someone interacts with it (usually by sending some amount of cryptocurrency, i.e., paying the smart contract service fee).
Just like a contract for buying a house or financing a car, smart contracts facilitate a service between you and someone else. The only difference is that your real-life contracts may also include lawyers, bankers, and others who are responsible for facilitating parts of the deal. Smart contracts, however, do everything themselves.
So, Ethereum is a blockchain network full of software?
Yes!
Ethereum is important because it was the first, and remains the largest, of all the smart-contract blockchains. However, many other networks have used Ethereum’s model and have built blockchains with smart contracts.
Today, Ethereum’s smart contract infrastructure is the bedrock of many decentralized apps (dApps). dApps are just like apps, except they’re built on the blockchain. They are the Instagrams and mobile banking tools of the future, with one crucial difference.
dApps
Although the apps that you currently have on your phone do a variety of different things and were built by many different companies, they were all downloaded from the same App Store or Google Play Store. These centralized marketplaces give you access to these apps, but they also control the computer networks that these apps live and run on.
As a result, companies like Apple and Google control most of the software that we use every day. If Google or Apple servers go down, so does your app. If you submit personal information to your meditation app, or generate data with an online shopping app, this data is also owned by Google and Apple. A hacker doesn’t need to steal your personal information, because they can effectively steal everyone’s personal information if they successfully hack into a single Google or Apple server.
This is why decentralization matters. dApps built on Ethereum are hosted by the blockchain, not owned or controlled by Ethereum. Remember, when you use a dApp, you are interacting directly with a smart contract. No third party, no shady data sharing with anyone else, and no big tech company owning your information... Unless, of course, you want them to.
Smart contract networks like Ethereum power the decentralized web, and decentralization is all about consent. dApps allow you to use software that is safe and secure, using smart contracts that explicitly outline what service is provided and what data is shared.
OK, tell me more. What else do I need to know?
Ethereum has many uses, and there are many dApps, projects, and software that already run on the network.
As such, many decentralized projects and dApps price their services in ether, the Ethereum cryptocurrency. Some people buy ether as an investment, but it is also a functional currency that can pay for many things in the network.
Importantly, whenever you buy goods or services on the Ethereum blockchain (in other words, whenever you pay cryptocurrency to run or interact with a smart contract) you will also be asked to pay an additional fee called gas. Gas fees are the cost of using the network, which go towards the energy and computers used to process your request.
Simply speaking, gas is priced according to supply and demand: if more people are using Ethereum, the price of gas goes up. Ethereum’s growing popularity means that gas fees have also increased in price, posing a barrier to many people.
Oftentimes, people will try transactions several times, hoping that gas fees go down. Executing transactions on the network at ‘off-hours’, like early in the morning or later in the evening, is also popular. It is important to remember that the Ethereum network is still quite new, and many people are working to build and improve it. In the coming months, the goal is to make the network easier, faster, and more affordable to use!
Alright, I get it. Is that it?
Of course not! Blockchain networks are really complicated, and there is always more to learn.
That said, if you understand smart contracts, then you mostly understand Ethereum. If you understand Ethereum, you understand a key piece of the blockchain ecosystem and are one step closer to becoming a Web3 expert.
Let’s finish it up with a few facts that will help you sound like an Ethereum insider:
Vitalik Buterin created Ethereum. Many people see Vitalik as Web3’s version of Bill Gates or Steve Jobs.
One of the most popular uses of Ethereum right now is for building, buying, and sharing NFTs! For example, OpenSea, the largest NFT marketplace in the world, is built on Ethereum.
The Ethereum Foundation is the non-profit organization that helps to manage the Ethereum network. If you want to dive deeper, they have a ton of great resources!
And of course, if you’re interested in getting started with Ethereum, the next step is to set up a wallet.
— Have more questions? Want help getting started? Then head over to the SURGE Discord for more!