What Is Ethereum?

In this article, we explore the foundations of Ethereum — how it works, its advantages, and the potential impact on the future of decentralised applications.

Jun 21, 2023

What Is Ethereum

Key Takeaways:

  • Ethereum (ETH) aims to provide a decentralised computing network built on blockchain technology that allows for the creation of smart contracts.
  • It is one of the most popular platforms in the world for creating decentralised applications (dapps), hosting thousands of them, as well as tokens, exchanges, and tools.
  • Bitcoin and Ethereum share some similarities, but there are key differences between the two.
  • Unlike in the Bitcoin network, smart contracts are the fundamental building blocks of all applications in Ethereum, allowing network interactions and business functions to run in a trustless manner.
  • Ethereum’s large and robust network, programmability, and high liquidity are just some of its advantages, while its drawbacks include scalability issues and fluctuating transaction fees. 

What Is Ethereum (ETH)?

Ethereum was developed in 2013 by its founders Vitalik Buterin and Gavin Wood. Along with the network’s co-founders, Charles Hoskinson and Anthony Di Iorio, they launched the Ethereum network in 2015 with the aim of building a platform that goes beyond the capabilities of Bitcoin. The primary goal of Ethereum is to provide a decentralised computing network built on blockchain technology that allows developers to create and manage smart contracts and decentralised apps (dapps) without the need for a central authority.

Ethereum is the second-largest cryptocurrency by market cap after Bitcoin, and its ecosystem is home to many of the most popular altcoin projects in the cryptocurrency space.

How Does Ethereum Work?

Built on a blockchain network, Ethereum is a global, decentralised platform for digital money, smart contracts, and applications. It intends to provide a blockchain with built-in Turing-complete programming language, allowing for the creation of smart contracts and applications. These applications can handle various functions, such as storing and transferring personal data, executing complex financial transactions, and managing smart contracts. 

As one of the most popular platforms in the world, the Ethereum blockchain runs thousands of games, fungible and non-fungible tokens (NFTs), financial apps, developer tools, decentralised autonomous organisations (DAOs), and hosts other cryptocurrencies, as well.

The native cryptocurrency of Ethereum is called Ether (ETH), which secures the network, serves as a gas fee, and underpins the Ethereum financial system.

Ethereum’s Network and Smart Contracts

The blockchain network is central to Ethereum’s functionality. It is a decentralised, distributed system — publicly available to network participants — that acts as a ledger, recording the network’s entire transaction history. Copies of this ledger are distributed across a global network of computers, called nodes, which are responsible for verifying and recording transactions and smart contract data in the network. Additionally, nodes are in charge of the network’s state: the current information of all the smart contracts and applications running on it. 

Smart contracts, the fundamental building blocks of all applications that run on Ethereum, are self-executing contracts on the Ethereum blockchain with the terms of an agreement directly written into code. They allow network interactions and business functions to run in a trustless manner and without the need for intermediaries, as they automatically execute when specified conditions are met.

For a primer on how Ethereum smart contracts work, check out What Are Smart Contracts and How Do They Work?

Gas Fees on Ethereum

All transactions on the Ethereum blockchain are powered by gas and subject to gas fees, which help ensure they are processed securely and efficiently. The gas fee is the amount of gas used to perform an operation, multiplied by the cost per unit gas. Gas fees are paid using ETH, the native token of the Ethereum network, regardless of whether the transaction succeeds or fails. 

On Ethereum, gas prices are quoted in Gwei, which represent fractional pieces of gas; one Gwei is equal to 0.000000001 ETH. The term is a contraction of ‘giga-wei’, meaning ‘billion wei’, which is inspired by Wei Dai, a computational scientist who worked in the cryptography research department at Microsoft (‘Wei’ is the smallest denomination of Ether.)

The price of gas depends on the type of transaction and level of congestion on the blockchain network while the transaction is processing. The more users are trying to complete transactions at the same time, the higher the cost of gas.

Learn more about Ethereum gas.

Ethereum 2.0: The Merge

During The Merge in 2022, Ethereum switched the platform’s consensus mechanism from Proof of Work (PoW) to Proof of Stake (PoS). Transactions in Ethereum are now validated through staking, which involves locking away a portion of cryptocurrency to participate in the transaction verification process. This change eliminated the need for miners, who previously operated expensive crypto mining equipment and consumed vast amounts of energy. 

The upgrade was previously referred to as ‘Ethereum 2.0’; however, that has been phased out to reflect that it was a network upgrade, rather than the launch of a new network. The Merge is just one part of the Ethereum roadmap; the network will undergo multiple upgrades in the future, which are necessary for Ethereum’s long-term success.

Staking on Ethereum

To become a validator on Ethereum, one needs to deposit a minimum of 32 ETH into the deposit contract and run a validator client. Once the ETH is deposited, candidates join an activation queue (managed by the protocol/chain itself), where they wait their turn to become active validators.

Ethereum operates in ‘epochs’, which last approximately 6.4 minutes. During each epoch, a limited number of validators can join or leave the network due to the churn limit, which ensures the stability of the PoS consensus mechanism. If the number of validators exceeds a certain threshold, a queue system is implemented.

The time it takes to activate as a validator on Ethereum and start earning rewards depends on various factors, including the number of validators in the queue and the demand for staking. Validators need to wait for at least four epochs before activation to prevent the manipulation of the random beacon that selects validators. 

How to Stake ETH With Crypto.com

When staking with Crypto.com, users can circumvent the steep minimum deposit of 32 ETH and stake from as little as 0.00000001 ETH. 

To stake ETH on-chain with Crypto.com, users need to make a request either via the Crypto.com App or Exchange. Prior to the staking request, users can view the estimated activation period, which can range from a few hours to a few weeks depending on the queue length. This correlates with Ethereum’s own validator queue, which has become increasingly longer since the Shanghai Upgrade

Once the staking request status has passed the activation period and changes to ‘Staked’, users can start receiving rewards for their participation. Crypto.com provides an estimate on the first reward date when users enter into staking. When unstaking, Crypto.com processes the request as quickly as possible; however, most protocols impose an unbonding period when users unstake. 

Read more about on-chain staking with Crypto.com and how it works here.

The 2024 Dencun Upgrade and Danksharding

The Ethereum Dencun upgrade, also known as EIP-4844, is a highly anticipated development in the Ethereum network slated for March 2024. It aims to address one of the key obstacles to Ethereum’s mass adoption — the blockchain’s high gas fees. Poised to make significant improvements in Ethereum’s scalability, the Dencun upgrade introduces Proto-Danksharding, a method to decrease transaction costs and increase transaction throughput.

What Is Sharding?

Sharding is a method used to enhance the capacity and performance of a blockchain network. It achieves this by partitioning the network into smaller units, called ‘shards’, which are capable of independently processing transactions. 

This parallel processing significantly boosts the efficiency, lowering network congestion and subsequently reducing gas fees. Sharding is a critical step towards making the Ethereum network more scalable and accessible.

What Is Danksharding?

Danksharding is the current design proposal for sharding on Ethereum. It utilises Binary Large Objects (‘blobs’) — large amounts of data that help to further increase transaction throughput — and is designed to help lower transaction costs on the Ethereum network.

Often referred to as the ‘scalability killer’, Danksharding is expected to enhance Ethereum’s transaction processing speed to around 100,000 transactions per second (tps). It serves as the full realisation of how Ethereum rollups will achieve scalability.

Proto-Danksharding, the focus of the Ethereum Dencun upgrade, is a transitional phase towards full Danksharding. By introducing a new transaction type that accepts ‘data blobs’, Proto-Danksharding aims to prepare the Ethereum network for full Danksharding in the future. 

Get the full scope on the Dencun upgrade.

Benefits of Ethereum

Ethereum offers several advantages that make it an attractive platform for developers and users alike:

  • Large and robust network: Ethereum has a well-established and tested network with a global community. It also has the largest developer community and one of the most extensive dapp ecosystems in the blockchain and cryptocurrency space.
  • Programmability: Ethereum’s programmability attracts a large community of developers who seek new ways to improve the network and build innovative applications.
  • High liquidity: Ethereum is the second-largest cryptocurrency (after Bitcoin) by market cap, with high liquidity thanks to its compatibility with a growing list of cryptocurrency exchanges, trading platforms, and brokerages.

Challenges of Ethereum

Despite its numerous benefits, Ethereum also has some drawbacks:

  • Scalability: As transaction volume in the network has grown over the years, the network’s speed and size have become increasingly limited. To address the ongoing scalability issue, new scaling solutions have emerged, such as Layer-2 blockchains and rollups.
  • Transaction costs: Ethereum’s popularity and growing ecosystem have resulted in fluctuating gas fees, which can be costly for users at times.
  • Centralisation and censorship: Some critics argue that moving from a Proof of Work (PoW) to Proof of Stake (PoS) model opened up the Ethereum network to greater centralisation and increased risk of censorship.

Ethereum vs Bitcoin

Which of the top two cryptos is better: Bitcoin or Ethereum? The short answer is that they fulfil fundamentally different purposes but are both central to the crypto space. Bitcoin was originally intended as a decentralised payment network — its inherent value is derived from transacting its native token, BTC. As an asset, BTC primarily functions as a virtual currency and store of value.

Meanwhile, Ethereum goes beyond payments: As a programmable blockchain, it allows anyone to write smart contracts and build dapps on its network. Without Ethereum, a large number of altcoins and crypto projects would simply not exist. Ethereum is the infrastructure that much of the space is built upon.

In terms of network performance, Ethereum’s transactions per second (tps) average is ~24 (at the time of writing), processing transactions faster than Bitcoin (~7 tps). Block creation time differs, as well: New blocks in Ethereum are created every ~12 seconds compared to Bitcoin’s 10-minute validation time. Moreover, there is no limit on the number of potential Ether tokens, while Bitcoin has a cap of 21 million coins.

How to Buy Ethereum (ETH) With Crypto.com

Crypto.com offers a user-friendly platform to buy ETH and engage with the Ethereum ecosystem. 

Follow these steps to buy ETH on Crypto.com:

  • Download the Crypto.com App and create an account.
  • Complete the necessary verification process to unlock full access to the platform.
  • Deposit funds into the Crypto.com account; users can utilise fiat currency or other cryptocurrencies to fund their accounts.
  • Navigate to the ‘Buy’ section of the App and search for ETH.
  • Specify the amount of ETH to acquire and review the transaction details.
  • Confirm the transaction and wait for the order to be executed.
  • Monitor ETH holdings in the Crypto.com App, which doubles as a wallet.

Crypto.com provides a secure and reliable trading environment, ensuring that users can trade ETH with confidence. Take advantage of the platform’s intuitive interface, advanced trading features, and competitive fees to make the most of the ETH token trading experience.

Review our step-by-step guide on buying cryptocurrencies: How to Buy Cryptocurrencies.

Conclusion — Is Ethereum Worth Buying?

Ethereum is essential for the cryptocurrency space as a platform for dapps and smart contracts. Its innovative approach to creating a decentralised computing network on the blockchain has the potential to change the way we interact with technology and conduct transactions. As Ethereum continues to evolve and grow, how the platform shapes the future of dapps and the broader world of blockchain technology will be exciting to watch.

Due Diligence and Do Your Own Research

All examples listed in this article are for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, cybersecurity, or other advice. Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any coins, tokens, or other crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction. Any descriptions of Crypto.com products or features are merely for illustrative purposes and do not constitute an endorsement, invitation, or solicitation.

Past performance is not a guarantee or predictor of future performance. The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price. When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility.




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