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    What is Ethereum? Explained Ethereum working, Uses and ETH’s Future

    Pathik Bhattacharya
    Pathik Bhattacharya
    Published on January 16, 2023 10:58 AM

    Updated on January 16, 2023 5:22 PM

    Ethereum: Know the definition of Ethereum, Ethereum network, ETH currency, Ethereum coin, Ethereum blockchain technology, and the future of Ethereum.
    What is Ethereum? Explained Ethereum working, Uses and ETH’s Future
    Source: Unsplash

    Ethereum is the second-ranked cryptocurrency after Bitcoin as per market capitalization. Ethereum was created to serve the basic need for decentralization in the payment system. Ethereum also stores computer code that may be used to power tamper-proof decentralized financial contracts and apps. One of the main applications of Ethereum is to provide layer 2 solutions for many other blockchain platforms. 

    In short,

    • Ethereum is a system that allows one to construct apps and organizations, keep assets, transact, and communicate without relying on a central authority.

    • There is no need to send up all of your personal information to use Ethereum; you retain control over your data and what is shared.

    • Ethereum has its token, Ether, which is used to pay for specific Ethereum network operations.

    Let’s get inside the world of Ethereum to know - Definition of Ethereum, its significance, Ethereum’s tokens, Ethereum price predictions, and ETH’s history.

    What is Ethereum?

    Ethereum is a decentralized blockchain-based software platform with smart contract capabilities. Ethereum is an open-source platform that is primarily used to support Ether, the native token on the Ethereum blockchain. Ethereum's blockchain enables smart contracts and apps built on it to execute seamlessly without fraud, latency, control, or third-party intervention.

    It is also a programming language that aids developers in the development of decentralized apps. One of the biggest Ethereum initiatives is Microsoft's collaboration with ConsenSys, which offers Ethereum Blockchain as a Service on Microsoft Azure, allowing developers and business clients to have a cloud-based blockchain developer environment with a single click.

    Later a system breach in 2016 led to the creation of Ethereum Classic. The hacker took use of a vulnerability in a third-party product to exploit a DOA (a smart contract set originating from the Ethereum platform). Now  Ethereum has two Blockchain protocols, one is Ethereum (ETH) and one is Ethereum Classic (ETC).

    Note: Ether is the native token of Ethereum.

    How does Ethereum Blockchain Work?

    The Ethereum Blockchain network operates on thousands of computers throughout the world because people participate as "nodes" rather than a centralized server. As a result, the network is decentralized and highly resistant to assaults, and it is incapable of going down as a result. It makes little difference if one computer fails since thousands of others keep the network running.

    Ethereum is essentially a single decentralized system that operates an Ethereum Virtual Machine computer (EVM). Because each node has a copy of that computer, all interactions must be confirmed so that everyone's copy may be updated.

    Network interactions are referred to as "transactions," and they are recorded in blocks on the Ethereum blockchain. Miners validate these blocks before they are committed to the network and serve as transaction history or a digital ledger. A proof-of-work (PoW) consensus approach is used to verify transactions. At the moment, Ethereum switched to Proof-of-stake.

    Let’s consider an example to understand the workings of Ethereum in a much more concise way.

    As you use messaging apps in your day-to-day life. You send messages and media to your friends or family. The data you have sent through the messaging app first go to the network of that specific application. The network then stores a copy of that information in its database and then forwards the actual information to the other end. 

    The data is claimed to be secured but it's being used to improve user experience and sometimes a bug could easily breach the system as the total authority over the system is controlled by one entity (the company itself). 

    To chaff off the mediator, Ethereum developed various Decentralised applications which run on Ethereum Blockchain. As a result, the user information is kept private (via cryptography). The network is less likely to get compromised because Ethereum is not a sole entity, it’s a community of networks.

    What is the Significance of Ethereum?

    Ethereum is like a one-man Army. Ethereum can fuel a variety of apps that perform a variety of services.

    The Ethereum concept of decentralized internet apps has the potential to eliminate intermediaries from hundreds of businesses. Smart Contracts can execute applications, trade money, and other values, and communicate data.

    Let’s see some major aspects of Ethereum.

    Ethereum’s Crypto Token - Ether

    Ethereum's cryptocurrency is called Ether (ETH). It is the gas that keeps the network running. It is used to pay for the computational resources and transaction fees associated with each transaction carried out on the Ethereum network. Ether, like Bitcoin, is a peer-to-peer currency. In addition to being used to pay for transactions, ether is also used to purchase gas, which is used to pay for the processing of each transaction performed on the Ethereum network.

    Smart Contracts

    The entire concept of Ethereum is a system managed by codes rather than a third party induced by smart contracts. Smart contracts are implemented automatically when specific stipulated criteria are satisfied, without the assistance of any other agency. 

    Any crypto could use smart contracts. They are not limited to and may be used outside of Ethereum, however, they are most recognized for their use on Ethereum. Although Bitcoin enables basic smart contracts, its uses are restricted in comparison to Ethereum's. Some developers and experts have criticized smart contracts, claiming that they might expose security flaws.

    Ethereum Virtual Machine (EVM)

    The Ethereum Virtual Machine (EVM) is intended to serve as a runtime environment for developing and implementing Ethereum-based smart contracts. EVM is the engine that interprets the syntax of smart contracts written in Ethereum's Solidity language. EVM is executed in a sandbox environment.  You may then test and verify your smart contract in your preferable virtual environment, and if you are pleased with its performance and functionality, you can deploy it on the Ethereum mainnet.

    Decentralized Finance (Defi)

    Decentralized finance refers to financial services and products that are open and accessible to anybody who has access to Ethereum. With Defi, no authority can refuse a user access to anything or prevent payments, and marketplaces are always open. The codes may be seen by anybody, and there are no longer any concerns about the human mistake because the services are now automated and regulated by code.

    Decentralized Applications (DApps)

    Ethereum enables digital programs that let users play games, invest, send money, maintain an investment portfolio, follow social media, and do a variety of other things.

    A Dapp is composed of code that operates on a distributed peer-to-peer network. The main distinction is that it is software built to run in the Ethereum network without being managed by a centralized system, as previously stated. It enables end-users to connect directly with decentralized application providers.

    When an application is open-source (whose code is on Github) and uses a public blockchain-based token to operate its apps, it qualifies as a Dapp. A token is used to power the decentralized application. The main design of any Dapp is that it lets the back-end code and data be decentralized.

    Non-Fungible Tokens (NFTs)

    NFTs are tokens that may be connected to one-of-a-kind products and are not interchangeable with other things. They enable the valuation of art, music, and other forms of media in terms of digital currency. 

    They are protected by the Ethereum blockchain and can only have one owner at any given moment. A new NFT cannot be created by copying and pasting, and no two may be identical. They may be used with anything produced on the Ethereum platform. NFTs may be sold anywhere, and their owners have worldwide market access.

    Although there are many other applications Ethereum works upon but the aforementioned attributes are some of the major operational areas.

    Ethereum Merge

    On September 15, 2022, the Ethereum network underwent a long-awaited upgrade with the merger to make it more scalable and energy-efficient. Ethereum's proof-of-work consensus process has been replaced with the proof-of-stake consensus mechanism. PoS consensus offers several benefits to PoW consensus, including being more resource-efficient and sustainable.

    Instead of miners confirming transactions, Ethereum will employ large stakeholder validation. These validators "stake" their cash and get ether incentives for confirming transactions. Stakeholders, on the other hand, risk losing their investment if they validate transactions that do not follow Ethereum's regulations. By staking their coins with a validator, even small investors may participate in the staking system and collect rewards.

    Ethereum Price

    Amid an overall market sell-off, the price of ETH cryptocurrency plummeted below $2500 at the end of January 2022. Later, the price of Ethereum plummeted as a result of the May 2022 crypto market meltdown.

     

     

    Source: Santiment

    ETH's price behaviour has been quite volatile since the beginning of 2022. In recent weeks, the price of Ethereum has fluctuated between $2000 and $850. Ethereum is down almost 72 per cent from its all-time high ($4,612). The new year of 2022 begin with a crypto market slider which later resulted in a crypto winter like 2018. In January, the price plummeted severely leading to many investors exit from the market taking billions of losses.  From April to June, the market never retreated to its bull rally and fell more than 64% in just two months. 

    However, from July to August as the Ethereum merge news was spreading into the market, the value jumped to $1,935 and continued consolidating till November. After the FTX collapse, the price again declined to smash the support at $1,200. Right now, the market is trying to heal again to retrace the next resistance.

     

    Source: TradingView

    Ethereum Price Predictions

    Ethereum is subjected to high volatility and price swings. Any analytics company predicting the price of any crypto or stock is based on some tools and algorithms. The below price predictions are made by the analytic firm Cryptonewsz. It’s just a prediction and not any investment idea.

    Ethereum Price Prediction 2023

    Based on technical analysis, Ethereum may trade at an average price of $2,081 in 2023. While the minimum and maximum ETH prices are expected to be $1,787 and $2,375, respectively.

    Ethereum Price Prediction 2024

    Based on Ethereum price predictions and technical analysis, the maximum value of ETH is expected to be around $2,987. At the same time, the past performance suggests that the minimum and average values could be $2,442 and $2,715, respectively.

    Ethereum Price Prediction 2025

    The minimum, average, and maximum trading prices for Ethereum in 2025 may be about $2,921, $3,255, and $3,589 in the crypto market. According to the Ethereum (ETH) price forecast for 2025, it is anticipated that more collaborations and integrations in the Ethereum network shortly.

    Ethereum Price Prediction 2026

    According to the Ethereum forecast, the Ether price will trade between $3,257 and $3,934, with the former being the lowest possible price and the latter being the highest possible price for 2026. While the annual average price may be $3,596.

    Ethereum Price Prediction 2027

    According to the Ethereum forecast, the coin could reach a high of $4,475 and a low of $3,851, respectively. In 2027, the average Ethereum price is expected to be around $4,163.

    Ethereum Price Prediction 2028

    The lowest and maximum prices for the year 2028 are predicted to be about $4,698 and $5,230, respectively. At the same moment, Ethereum's average trading price may be about $4,964.

    Ethereum Price Prediction 2029

    By 2029, the price of Ethereum will have skyrocketed, boosting both the coin's market capitalisation and demand. According to the Ethereum price projection, the coin's price might reach as high as $6,241 in 2029, while trading at $5,313. The average price is anticipated to be about $5,777.

    Ethereum Price Prediction 2030

    According to ETH price predictions for 2030, the coin may be racing to a climax. The token may have a long-term minimum price of $6,795 while the Ethereum price may reach a significant high of $7,650 by 2030, according to Ethereum price prediction.

    Ethereum Upgrades 2013 - 2023

    Ever since Ethereum was created, the protocol’s development activity has risen to a record level. Every year, there are one or more than one upgrades are deployed on the Ethereum mainnet to make the ecosystem more scalable and efficient. Below are some major upgrades Ethereum has undergone since its inception.

    Ethereum Latest Upgrade 2023 - The Shanghai Upgrade 

    The Shanghai upgrade, for which Shandong is the testnet, is scheduled to take place in 2023. It will be Ethereum's first update since the Merge in September when Ethereum switched from a proof-of-work to a proof-of-stake consensus process.

    Certain Ethereum Improvement Proposals (EIP) being examined for inclusion in Shanghai at the moment might alleviate some efficiency and scalability concerns. EIP 4895 is perhaps the most anticipated proposal since it will allow users who have staked ether (ETH) on the Beacon Chain to withdraw their investment as well as any prizes they have received over time.

    Ethereum Upgrade 2022 - The Paris Upgrade (The Merge)

    The Paris update was triggered when the proof-of-work blockchain reached a terminal total difficulty of 58750000000000000000000.  This occurred on September 15, 2022, at block 15537393, initiating the Paris upgrade to the following block. The Merge transition was characterized by the abandonment of the proof-of-work mining algorithm and accompanying consensus logic in favour of proof-of-stake.

    Bellatrix Upgrade

    The Bellatrix update was the Beacon Chain's second scheduled upgrade, preparing the chain for The Merge. It increases validator penalties for idleness and slashable infractions to their full amount. Bellatrix also includes an update to the fork selection rules to prepare the chain for The Merge and the transition from the last proof-of-work block to the first proof-of-stake block. This involves informing consensus clients of the terminal total difficulty of 58750000000000000000000.

    Gray Glacier Network Upgrade

    The upgrading to the Gray Glacier network pushed delayed the difficulty bomb by three months. This is the single modification in this improvement, which is comparable to the Arrow Glacier and Muir Glacier upgrades. Similar adjustments have been made to the network upgrades in Byzantium, Constantinople, and London.

    Ethereum Upgrade 2021 - Arrow Glacier

    The update to the Arrow Glacier network pushed back the difficulty bomb by several months. This is the single modification introduced in this update, which is comparable to the Muir Glacier upgrade in nature. Similar adjustments have been made to the network upgrades in Byzantium, Constantinople, and London.

    London Upgrade

    The London update included EIP-1559, which reorganized the transaction fee market, as well as modifications to how gas refunds are handled and the Ice Age timeline.

    Ethereum Upgrade 2020 - Beacon Chain

    To deploy safely, the Beacon Chain required 16384 deposits of 32 staked ETH. This occurred on November 27, implying that the Beacon Chain began creating blocks on December 1, 2020. This is a critical first step in realizing the Ethereum goal.

    Ethereum Upgrade2019 - Istanbul Fork

    The Istanbul fork:

    • In the EVM, the gas cost of various tasks has been optimized.

    • Improved resilience against denial-of-service attacks.

    • Improved the performance of Layer 2 scaling methods based on SNARKs and STARKs.

    • Interoperability between Ethereum and Zcash has been enabled.

    • Contracts were allowed to have more innovative functions.

    Ethereum Upgrade 2018 - Byzantium Fork

    The Byzantium fork:

    • Block mining incentives have been reduced from 5 to 3 ETH.

    • The difficulty bomb was postponed by a year.

    • The ability to make non-state-changing calls to other contracts has been added.

    • Certain cryptographic algorithms have been added to enable layer 2 scalabilities.

    Ethereum Upgrade 2016 - Spurious Dragon Fork

    The Spurious Dragon fork was the second reaction to the network's denial of service (DoS) assaults (September/October 2016), which included:

    • Optimizing opcode pricing to prevent future network assaults

    • permitting "debloat" of the blockchain state

    • Adding protection against 

    Ethereum Upgrade 2015 - Frontier thawing Fork

    The border thawing fork raised the per-block gas limit to 5,000 gwei and set the default gas price to 51 gwei. This enabled transactions, which need 21,000 gas. The difficulty bomb was introduced to ensure that there would be a future hard fork to proof-of-stake.

    The last two upgrades on the Ethereum blockchain were the release of the white paper and the yellow paper in 2013 and Ether selling in 2014.

    Difference Between Bitcoin and Ethereum

    Like Bitcoin, Ethereum is an open-source project that is not owned or administered by a single person. Anyone with access to the internet may operate an Ethereum node and interact with the network. However, Bitcoin has restrictions. It's a PoW network that's having difficulty scaling, prompting some to feel it's more of a store of value, akin to gold. Bitcoin also includes a hard maximum of 21 million coins, which lends credence to that claim.

    Ethereum, on the other hand, aims to substitute our present internet infrastructure. It intends to automate numerous activities that now need the involvement of other parties, such as accessing an app store or collaborating with fund managers. ETH is used to engage with the network rather than to send money, however, it may do both.

    Developers may use Ethereum to produce a unique Ether-compatible token, known as an ERC-20 token, for each DApp. While the method is far from flawless, it does imply that all Ethereum-based currencies are theoretically compatible. The Bitcoin network is only for Bitcoin.

    Ethereum’s switch to Proof-of-stake made the Ethereum environment more sustainable than Bitcoin.

    Risks Associated with Ethereum

    Degradation of Decentralization sustainability definition: The first risk is the risk of centralization and governance. Now that Ethereum is going toward proof-of-stake, the validators of transactions will no longer be miners, but Ethereum stakers.

    At the time of writing, four major parties own 60% of the shareholding. What if the authorities force these parties to vote against a specific transaction or even against a new Ethereum Improvement Proposal?

    This commitment to the blockchain made the blockchain restricted to those with huge sums of money. Small investors couldn’t participate as an Ethereum validator as it requires 32 ETH to become a validator which is a huge sum of money.

    Scams: Scams are another major problem. The Ethereum network and several other crypto groups have referred to the proof-of-stake layer as "ETH2." This might lead to confusion during the merging and frauds attempting to take advantage of customers during this transition by convincing them that they must upgrade to ETH2 or exchange their current tokens for new ones.

    No Mining Opportunities: Finally, there are the miners who have nothing to mine as a result of the Ethereum merge. For years, the proof-of-work Ethereum network, known as Mainnet, depended on miners to confirm blockchain transactions. For years, they have been acquiring expensive equipment to provide network stability and security in exchange for freshly generated Ethereum.

    To recoup these expenses, they may decide to stay on the previous Ethereum chain, the Mainnet. This might result in a so-called fork, which means that there will be two distinct Ethereum chains, albeit this is unlikely.

    History of Ethereum

    Buterin and the other Ethereum co-founders gathered more than $18 million in a crowdfunding effort in 2014 in which they sold participants Ether (Ethereum tokens) to get their concept off the ground. Frontier, Ethereum's first live release, was introduced in 2015. Since then, the platform has evolved fast, and there are now hundreds of developers active.

    In November 2013, Vitalik Buterin was the first to publish a white paper describing the concept of Ethereum. Following Buterin's initial effort, additional minds come on board in various roles to aid in the project's completion. Ethereum co-founders include Vitalik Buterin, Gavin Wood, Charles Hoskinson, Amir Chetrit, Anthony Di Iorio, Jeffrey Wilcke, Joseph Lubin, and Mihai Alisie.

    Finally, Buterin thinks that Ethereum will be the solution for all blockchain use cases that need a specialized framework.

    Frequently Asked Questions (FAQs)

    How to buy Ethereum?

    You may purchase, transmit, and receive Ethereum by opening an account with any trustworthy crypto exchange or an expanding number of other legitimate financial technology businesses.

    Is Ethereum still minable?

    The Ethereum blockchain recently experienced a fundamental mutation that altered the nature of how Ethereum is generated and confirmed, and as a result, mining Ethereum is no longer feasible.

    How much Ethereum is required to become a validator of Ethereum?

    To become a validator, investors would need to deposit 32 ETH collateral (approximately $52,000) and maintain hardware and software to avoid downtime penalties. This has resulted in staking pools. People who want to participate must entrust their Ethereum to a third party.

    How many Ethereum are in supply?

    Ethereum has an infinite supply. There were 113.5 million tokens in circulation in January 2021. There will be around 120 million by April 2022. Some believe that after switching the Ethereum process from PoW to PoS, the supply of Ethereum will be lowered.

    Is Ethereum a good investment?

    Ethereum and other cryptocurrencies are subjected to great market volatility and price fluctuations. There’s no certain possibility that holding any digital or physical asset could make you any profits. It solely depends upon the market. By far CAGR is considered, ETH had a CAGR of -82.7 in the year 2018, -0.8 in 2019, +462 in 2020 and +404 in 2021.