This article is all about Ethereum. Ethereum-A Comprehensive Guide will cover what Ethereum is, how is it different to Bitcoin, its native currency Ether, Ethereum wallets and Decentralized Applications (Dapps). We need to understand these concepts before getting our hands on to Smart Contracts development which will follow this article in my blog.
Ethereum A Comprehensive Guide-What is Ethereum
- When we say Ethereum, we either mean the Ethereum Blockchain or the Ethereum protocol.
- First the Ethereum Blockchain. Ethereum is a Blockchain platform which allows us send, receive and hold cryptocurrencies and tokens (Ether and various tokens like BAT, Augur, etc.). It also helps to build and deploy Decentralized applications (Dapps) on top of it.
- Anyone with an Ethereum wallet and an internet connection can use Ethereum to send cryptocurrency (Ether) directly to anyone in the Ethereum network. They can also use Decentralized Applications (Dapps) hosted on Ethereum. A small fee in Ether is charged when you initiate a transaction or use a Dapp.
“””A Blockchain is a database in which data is kept ultra secured (immutable) using cryptographic techniques. Data is stored in blocks which are chained or linked together using cryptography. This linking is such that whenever data in any of the blocks is tampered it is escalated to the entire Blockchain.
The block data in a Blockchain are converted to its Hash using cryptographic functions. Hence every block has a Hash which represents the data in the block. Each block also stores the Hash of the previous block, which helps in chaining or linking the blocks together. Hence whenever the data in a block is tampered it changes the Hash of the block which in turn creates a mismatch with the Hash stored by the succeeding block. For more on Blockchain please refer to this article.“””
- Multiple computer nodes can employ the Ethereum protocol or node to join the Ethereum network. This is achieved by using an Ethereum wallet. When you register to a wallet you get connected to the Ethereum blockchain.
- Each of these members of the Ethereum network hold one copy each of the data (transaction data and code data of Dapps or Smart Contracts) in the Ethereum blockchain.
- The Ethereum protocol can be used among any network of computers to create an Ethereum blockchain network. The largest network using the Ethereum protocol is the mainnet or the main Ethereum network. There are other public and private local networks which are there for the purpose of people to learn. Ether in these networks has no real world value. They are just used to understand the usage and applications of Ethereum blockchain features.
How is Ethereum different to Bitcoin
- Both Ethereum and Bitcoin are blockchain platforms which help you to send digital money (cryptocurrency) directly to anyone, without needing any banks or third party financial services. But Ethereum goes much beyond just enabling digital money transfer. It lets you build, host and deploy Decentralized Applications (Dapps). Anyone with an Ethereum wallet and internet connection can use these Dapps for various financial services like loans, mortgages and even non financial services like gaming, voting, decentralized file storage apps, collectibles and more.
- The cryptocurrency Bitcoin, is merely a digital currency used for sending peer to peer payments. Ether, besides being a digital currency for making peer to peer payments, is also used as a utility currency used for using the Ethereum platform for building and deploying Decentralized applications (Dapps).
- Bitcoin uses a scripting language which is intentionally constrained to simple true/false evaluations of spending conditions. Whereas Ethereum is Turing Complete and uses a scripting language which can solve computer problems of varying complexities (provided enough processing power and time are given).
Ethereum A Comprehensive Guide-How to use Ethereum?
To get the benefits of the Ethereum platform, you need to get some Ether, download a wallet and try an Ethereum Dapp. Let us explore these three concepts one by one.
Ether is the cryptocurrency powering the Ethereum network. Just like Bitcoin is the cryptocurrency that powers the Bitcoin network. Ether is used for the below functions.
- To use the Ethereum Network: For any transaction on the Ethereum network you pay a small amount of ETH as transaction fee (gas fee). This means, when you send or receive ETH in the Ethereum platform a small fraction is used as the network fee (gas fee). Besides, when you use any application (Dapp) in the Ethereum network you again pay a small fee in ETH to the network.
- As a store of value: One can invest, trade and stake in ETH. Its a store of value because the creation of ETH slows down with time, which creates scarcity.
Since ETH is a cryptocurrency it has the following attributes.
- ETH is your own money: This means you do not need any banks or financial institutions to receive, keep and send ETH. You can directly send ETH to anyone (with a small fee) with an Ethereum wallet and internet connection. Same for receiving ETH. And you can always keep your ETH balance in your wallet (preferably hardware wallet).
- Secured by cryptography: Your ETH balance is secured by cryptography. This protects your ETH, your wallet and your transactions.
- Available in smaller units: You do not need to buy one complete ETH. The smallest unit of ETH is wei which is billion billions of an ETH, i.e., 1 ETH =10^18 wei. So one can buy ETH in multiples of wei.
- Open to everyone: The digital currency ETH and the world of Decentralized applications (Dapp) is open to anyone with an Ethereum wallet and an internet connection (no banks or third parties required). There are a whole lot of decentralized financial services like lending, borrowing, etc. open to anyone with an Ethereum wallet and an internet connection.
How to get Ether?
You can buy Ether from a Centralized Exchange, a Decentralized Exchange or directly from a wallet. Check this for more information.
Wallets in Ethereum are software applications which manage your funds, initiate and broadcast transactions and connect you to the Ethereum blockchain.
- Manages your funds by showing you the balance, transaction history, and provides you a way to send or receive funds. Some wallets may offer more.
- Initiates transactions by providing a way to send, receive and broadcast transactions to the network.
- Connects to the Ethereum network. Wallets enable you to connect to the Ethereum blockchain network. You can send/receive ETH. You can use Dapps. Wallets provide you the login to the Ethereum network to use Dapps.
Wallets are of different types like mobile, web and hardware wallets. You can get detailed analysis of different types of wallets here.
You can always change your wallet if you want to basis your ease and understanding of wallets. All you need to do is to transfer your funds from the old to the new wallet. Or simply saying export your private keys and import them in the new wallet.
Wallets store your private keys. In general one private key means one account. Your private key is like your digital identity to the Ethereum network. If you lose your private keys you lose access to your funds and access to Ethereum Dapps.
Few points to remember for security:
- Use hardware wallets if possible: Wallets keep your private keys. Hence it is advisable to use hardware wallets which are offline hardware wallets, not connected to the internet and hence not susceptible to web attacks.
- Download from trustworthy sources: Also when downloading, always do it from trustworthy sources in the internet.
- Go for popularity: In general, more popular a wallet is, the more trustworthy it is likely to be.
- Hardware wallet for crypto converted and web or mobile wallets for crypto curious: If you are Crypto Curious, meaning you have just started in cryptos shelling your first pennies then go for web or mobile wallets (they are almost free of cost). If however you are Crypto Converted and a large sum is involved, go for a hardware wallet. It costs you some bucks but are safer as they are offline and not susceptible to online attacks.
- Keep your seed phrase safe: When you use a wallet it gives you a seed phrase. Always write down your seed phrase in a piece of paper (avoid digital storage) and keep it in a locker or a similar safe place. It is used to recover your funds in case you lost your wallet. Remember in crypto, there is no customer support and you only are responsible for your funds. Seed phrases are random phrases or collection of words, like the one below
there ant elephant words that possible not keep safe
- Bookmark your wallet. In case you are using a web wallet always bookmark it in your browser to prevent yourself from using a phishing site.
- Triple check any transaction. Before proceeding with any transaction, triple check it for the receiver’s address, amount of funds. Transactions cannot be reversed (easily) in blockchains.
Some of the best wallets available in 2021 for Ethereum are metamask, ledger nano x, ledger nano s, trezor, atomic, etc.
Decentralized Applications (Dapps)
- Dapps are the software applications that run on the Ethereum network. These applications can be used by anyone who is connected to the Ethereum network and has Ether. Dapps can be in finance (Decentralized Finance or DeFi), gaming, social media, collectible and more.
- Dapps are software applications whose computer codes are stored in a decentralized network rather than a traditional centralized server. They use the Ethereum blockchain for data storage and smart contracts for their app logic.
- As mentioned, to use a Dapp, all you need to do is connect to the Ethereum via a wallet and get some Ether.
Note: You can get test Ether (which has no real world value) first to establish your hands in Dapps before you use the real Ether for real world use cases of Dapps.
Dapps are not like common software applications. They display some special qualities which are powered by the Ethereum. See below.
- Free from censorship: You can never be blocked from using a Dapp. For instance if Instagram was a Dapp hosted on Ethereum, one can never be blocked from using it.
- No owner: Once the Dapp is deployed in the Ethereum it cannot be changed.
- Anonymous login: You do not need to share your real world identity to use a Dapp. You can use a Dapp via your wallet login (which is merely possible by a strong password).
- No downtime: A Dapp can go down only when the Ethereum network goes down. Blockchains like Ethereum are very hard to be attacked.
- Built in Payments: Since Ethereum has Ether as the native cryptocurrency, developers do not need to tie along with third party payment providers. For any payments in Dapps, native Ether is used.
- Backed by cryptography: Only you can use a Dapp on your behalf via your wallet and private keys. No one else can forge anything.
Ethereum A Comprehensive Guide-Conclusion
Now we have known Ethereum and the concepts around it like how is it different to Bitcoin, its native currency Ether, Ethereum wallets and Decentralized Applications (Dapps). We will be exploring Smart Contracts development in posts which follow this.