What is Ethereum, and how does it apply to decentralised apps?

What is Ethereum?

Ethereum is an open-source, decentralised blockchain-based software technology that enables anyone to send and receive value without the need for an intermediary. It also powers smart contracts and decentralised apps (dApps) that run without the risk of downtime or interference from third parties.

Ethereum is the world’s second-largest cryptocurrency, behind Bitcoin. It was conceived in 2013 by Russian-Canadian programmer Vitalik Buterin with the release of Ethereum’s whitepaper, which was Buterin’s response to Bitcoin’s limitations. Ethereum was eventually revealed in 2015 with eight co-founders: Vitalik Buterin, Mihai Alisie, Gavin Wood, Anthony Di Iorio, Amir Chetrit, Charles Hoskinson, Jeffrey Wilcke, and Joseph Lubin.

Of the eight, only Buterin remains actively working on the blockchain platform.



How Does Ethereum Work?

Similar to Bitcoin, Ethereum is powered by blockchain technology. Going further than Bitcoin, Ethereum supports applications that go beyond money and it achieves this through the use of smart contracts, which are often written in the Solidity programming language. These smart contracts inscribe the conditions under which something can move.

All of the history from the smart contracts are stored on the Ethereum blockchain, which provide a shared record history. Similar to Bitcoin’s miners, on Ethereum there are nodes that verify the information, ensuring that the user is following the rules. 

Each node, which are all connected, follows the same set of rules and stores each user’s account, showing how much Ether they have, the smart contract code, detailing the rules that must be met to unlock and transfer money, and the state of the smart contract.

The Ethereum Virtual Machine (EVM) is another feature that each Ethereum node has. As smart contracts written in Solidity can’t be executed by the EVM, they are reduced to low-level machine instructions known as opcodes.

Ethereum is currently secured via the Proof-of-Work (PoW) consensus mechanism. However, this process is time-consuming and energy inefficient. For this reason, the network is in the process of upgrading itself to a Proof-of-Stake (PoS) model, which will achieve cheaper and faster transactions.

What is Ether?

Ether is the native cryptocurrency of Ethereum. It was created in order to incentivize programmers to run the network on their computers because it consumes a lot of power and is costly to power dApps.

Similar to how Bitcoin miners are rewarded for maintaining its blockchain ledger, Ethereum developers are paid Ether for each new block that’s added to the ledger. This is currently set at two ETH. At its height in May 2021, Ether reached an all-time high of more than $4,000, which was largely pushed up as investors looked to crypto for returns.

How Do Decentralized Apps Apply to Ethereum?

Decentralized apps (dApps) use the Ethereum blockchain to connect users with each other. Rather than going through a third party, users don’t have to give up control of their data, which is what many people find they do when using traditional apps.

Whereas centralized apps have control over a user’s actions, dApps give that power back to the user. Some of the key advantages of dApps is that they’re open source, they’re decentralized, they use smart contracts to implement rules, and they’re available worldwide.

According to State of the Dapps, it has nearly 4,000 dApps listed on its website. These range from collectable card games such as Splinterlands, automated token exchanges like Uniswap, P2P borrowing and lending platforms such as the Celsius Network, and crypto-backed loans like Nexo.

Where is Ethereum today?

Revealed in 2015, Buterin’s idea behind Ethereum was to address the shortcomings of Bitcoin. Today, it’s the second largest crypto asset by market value and, at the time of writing, one Ether is worth over $2,500 with a market capitalization of just under $294 billion.

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