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Understanding Ethereum.

A guide to understanding Ethereum for any blockchain enthusiast

Let us start with Ether which just like bitcoin is another cryptocurrency that is highly accepted by most individuals as it is the second most accepted cryptocurrency. Ethereum is an open-source blockchain platform that is entirely maintained by peers(miners) who participate in the network.

Due to the Ethereum network, anyone can deploy their decentralised application over the network. Also, we can make transactions for non-fungible tokens. Vitalik Buterin, a Russian who is a Canadian citizen was the person behind Ethereum.

Bit torrent that we are using for many years, can be described as the first decentralised application. We all know that decentralisation is the need of the hour. Way long after the BitTorrent, the concept of blockchain came into popularity. Blockchain runs on a similar concept that BitTorrent follows. Ethereum was designed for allowing anyone to build the Decentralised application in short called the DAPPS. So we can easily call Ethereum an open-source, decentralised blockchain-based platform that powers the cryptocurrency i.e. ETH.


Before even understanding Ethereum we need to understand a few terms i.e. Blockchain, Open Source, Cryptocurrency. We will try to understand the fundamentals.


Blockchain can be easily explained as a block of information(nodes) that are chained together just to make a network perfect. These are immutable data that can't be edited or modified. Any new transaction made in this network is always added as a new node. Anyone authorised has access to the entire node and they can verify transactions at any time. These nodes are added to the blockchain, once the peers approve them based on the contract. If the peers don’t approve the nodes are never added to the network. This makes blockchain safe.

Open Source

Although the term Open source is not related to the blockchain or Ethereum it is a concept in which some set of information is readily available to anyone. Everyone has the right to contribute provided other peers in the network accept the change. If you are into software development, then you must already be aware of this concept. As in software development if we make any change we need to raise a pull request to the source code.


Cryptocurrency can be defined as a currency that runs over the Blockchain network. The peers can exchange cryptocurrencies amongst them. All the transactions are embedded into the Blockchain network forever. Bitcoin and ETH are some such cryptocurrencies that are now widely excepted in various financial transactions.


Till now we have understood that Ethereum is a platform that provides us with the functionality to create various Decentralised Apps. Ether which stands for ETH is the cryptocurrency powered by Ethereum. Ethereum’s white papers surfaced around 2013 and 2014. Ethereum was publicly announced at a conference NAB conference, which you can watch here. Ether (ETH) which is the cryptocurrency for Ethereum is currently ranking to second position after bitcoin. This makes Ethereum a choice for many. There is officially no limit to the amount of coins miners can mine over the network. The Algorithm i.e. Proof of Work helps Ethereum to avoid various attacks as it helps validate all the transactions that is been done over the platform. There are various nodes on the Ethereum platform, the client has compatible software running over them.

Ethereum Vs Bitcoin

So Ethereum and Bitcoin are two terms that are very popular amongst cryptocurrency enthusiasts. It is kind of necessary for us to understand these two terminology. But just to give you a context this is like comparing a barter system with a banking system.

Ethereum and bitcoin are all together are different things altogether. Ethereum is a platform vs bitcoin is a cryptocurrency. It makes more sense to compare Ether with Bitcoin. I hope now we have made this very clear that Ether is the currency that runs over the Ethereum platform. The Ether and Bitcoin both have different hashing algorithms i.e. Ethereum use Ethash and Bitcoin uses SHA-256. Although bitcoin's goal is to work as an alternative monetary platform on the contrary Ethereum is grown more as a platform for enhancing the blockchain due to its ability to run of Dapps over its network. Bitcoin is limited which makes it digital gold, as the maximum bitcoin that can be mined is 21 million. This makes it more in demand in terms of cryptocurrency. We all know the supply-demand relationship, wherever there is less supply obviously demands increase.

Ethereum Mining.

Ethereum mining is something that everyone should understand. The miner help in authenticating all transaction happening over the network by solving a puzzle. For mining, we need to have a mining rig ready with relevant hardware configuration.

We require to have proper electricity supply which might cost you a fortune. If you aren’t earning well from your mining, a good setup for a mining Ethereum will cost you a good couple of grand. Basically, the Ethereum mining works upon an algorithm which is called Proof of work. The proof of work as the name suggests is proof that some computational work has been done by the miner while mining. The obvious question arises about the type of work that needs to be done. As discussed earlier that a complex puzzle is solved by the miner. Post solving that puzzle the block is submitted to the other nodes in the network. The nodes verify the transaction and add them to the network. Of course, the miner must have some gains after doing all this hard work. So as a reward a miner is rewarded with Ether. A major concern about this mining setup as said by a blockchain developer Tim is the enthusiast who is spending a lot of money on buying miners, but the issue is that these technologies will become obsolete in some time. Along with it, mining requires a lot of energy which is indirectly contributing to global warming. There are various other algorithms that require a lot less energy which will soon replace proof of work. As the computational energy required to solve these puzzles doesn’t do any useful work for humankind, so it is considered a sort of a waste of resources.

Ethereum Gas Fees.

Gas fees as the name suggest are a fuel that helps fuel the Ethereum transaction on the Ethereum virtual machine. Gas fees in technical terms can be defined as energy-consuming during the computation required to solve the puzzles.

Ethereum gas has a unit that is GWEI, which helps us in calculating the cost of gas. The cost of a single gas unit multiplied by the total gas that would be consumed gives us the cost in GWEI units. By this, we can calculate the final gas prize. With various popular wallets like Metamask, we get the estimated gas cost beforehand making any transaction.

Final Thoughts

Ethereum as we discussed is a platform, which helps in setting up various decentralised applications. If you have watched Richard Hendricks was always behind having a decentralised internet i.e. the internet 2.0 or the pipernet. Although that was a fictional character and fictional story. But the message was strong about having a decentralised system. Ethereum is one such platform. But the cost of maintaining the platform is a kind of trade. Although till now we have just scratched the surface, they will be various innovations that are about to happen. Maybe we are the ones who might be doing such findings. So this was mandatory for us to at least understand the basics. So that complex topic becomes a cake for us.



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