Xpedition Week 3: Intro to Ethereum (Part 1)
History of Ethereum
“Empower the little guy” — this was the vision of Ethereum’s founder, Vitalik Buterin. At the robust age of 27, the newly crowned crypto billionaire fulfilled his dream of disempowering the “big guy” which he referred to as banks and corporations. As a teenager, Buterin was already involved in cryptos. After dropping out of school and working in the Bitcoin community for some time, Buterin felt that “Bitcoin had too limited functionality”, to which he compared to a pocket calculator. This led to the creation of Ethereum in 2013, a blockchain that powers the cryptocurrency, ether. Buterin likened Ethereum to a smartphone as Ethereum boasts to do a lot more complex work than Bitcoin. Ultimately, Ethereum’s goal is to decentralize everything, including the Internet. Yes, you heard right, the Internet controlled by tech giants are not as decentralized as we once thought it was.
Today, as Ethereum comes in as a runner-up in the crypto market, behind only Bitcoin, it continues to upgrade and is preparing for a Ethereum 2.0 release. While we anticipate the upcoming release, let us keep faith that blockchain technology and the right cryptos are created to solve real world problems and bring value to humanity. Meanwhile, keep your dreams alive, Xplorers!
Ethereum 2.0 — Proof of Stake
Currently, Ethereum uses a PoW consensus mechanism, which is similar to Bitcoin’s mechanism (Head to https://link.medium.com/RtgywO5yRgb if you haven’t already read it! ) However, this section will focus on the upgrade of the Ethereum blockchain to Ethereum 2.0 as that will be a game changer in the crypto market due to the expected increase in speed, efficiency and scalability of the Ethereum network. This is partly attributed to one of the major changes of the Ethereum network — Proof of Stake (PoS).
So, what is Proof of Stake? Unlike in PoW where we have miners doing the “work” or mining, PoS adopts validators to do staking instead. However, both the miners and validators play similar roles where they actively participate in a transaction validation process. Having said that, some slight differences do exist between the two. In PoS, adding a new block to the blockchain depends on the held stake — ether, rather than computational power like in PoW. In Ethereum 2.0, each validator would need to stake at least 32 ether to run a valid node (nodes check if a transaction is valid). Ether that is staked cannot be used when they participate in the PoS process — in a sense, these ether are “tied up”. Validators are more likely to win additional blocks if they “bet” more ether. Similar to Bitcoin Mining, validators are also rewarded when they add a block to the blockchain and “win” the block.
Ether, Gas, and Gwei
Unlike Bitcoin whose primary aim is peer-to-peer payment, Ethereum is envisioned as a multi-purpose tool that utilizes a single digital currency, which is ether, or ETH (remember Buterin’s comparison of Ethereum to smartphones?). While ether is important in the operation of Ethereum, it is intended as the utility currency to pay for the usage of Ethereum platform. Therefore, on top of Ethereum’s centralized payment network, it also leverages on blockchain technology for storing computer codes to facilitate tamper-proof decentralization in contracts and applications.
Of course, with Ethereum having a strong feature as such, there will be transaction fees involved, or known as gas fees. To elaborate, gas fees are not the gasoline for your vehicle. It is a payment (ETH as payment currency) that users give in exchange for the computing energy needed to process and validate users’ transactions. On the Ethereum blockchain, different transactions would require different amount of gas depending on the speed of the transaction (ie you would require more gas if you want your transaction to be completed faster) To calculate the transaction fee, we simply multiply the amount of gas needed by gas price. The gas price is measured in GWEI (1 GWEI = 0.000000001 Ether).
Take for example the gas cost is 100GWEI and it takes 21,000 gas to make a transaction. This would result in 2.1 million GWEI=0.0021ETH needed for the transaction. Taking the price of ETH at the time of writing (2400USD), this would result in a transaction fee of $5.04.
Still interested to learn more about Ethereum? Keep a lookout for more upcoming educational content and don’t forget to check out our Xpedition Week 3 Postings on Twitter and Instagram!
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