Ethereum is an open source decentralized blockchain with an ability to run smart contracts which has its native currency named Ether (ETH) but unlike Bitcoin with a mysterious background Ethereum is pretty straightforward.
Who created Ethereum?
Ethereum who credits its existence mainly to Vitalik Buterin the person who first came up with the concept of Ethereum and published it’s whitepaper in November 2013. Later on many personalities like Gavin Wood, Anthony Di Lorio, Jeffrey Wilcke, Charles Hoskinson, Amir Chetrit, Mihai Alisie and Joseph Lubin joined in on the concept and are also the co-founders of Ethereum.
Ethereum network took time, efforts and finance to get built. In order to raise funds to built the Ethereum network Vitalik Buterin along with his co founders raise around $18 440 000 through a presale of ETH token later on an Ethereum foundation in Switzerland was also formed with a goal to develop and maintain the network.
How does Ethereum work?
Ethereum network is basically a network spread across thousands of computers worldwide. These network of computers or so called “nodes” build the network and also uses consensus mechanism on a series of blocks or batches of transactions, known as blockchain. Each block in this network have a unique identifier which should immediately follow in the chain to make the network valid.
Its is the nodes who add the new transactions on to the block chain. Certain nodes or the so called Miners add the transaction and the transaction gets passed between different nodes on the network whenever a node receives a block it checks its validity and if found to be valid adds it to the blockchain and executes all transactions.
The nodes or the miners are rewarded with ETH the native cryptocurrency of this blockchain for their work of adding and validating the blocks on the chain as Ethereum currently works on the “Proof of Work” mechanism if the miners are rewarded with ETH from where does that ETH come from? well its basically from the gas fee which needs to be paid by the user who uses the Ethereum network for any transaction. Currently the gas fee on Ethereum network is quite high based on the network congestion.
There is a shift from this proof of work mechanism to proof of stake in progress which is knows as Ethereum 2.0. Eth 2.0 strives to solve the congestion issue of the networks and will be more environment friendly as there will be no mining done as ETH 2.0 runs on proof of stake.
How is Ethereum different from Bitcoin? Which one is better?
Bitcoin and Ethereum in a way is similar when looked at from the viewpoint of the concept where both are decentralized distributed ledgers but are different when looked at from the viewpoint of technicality.
Bitcoin for instance is used as a store of value due to it’s limited supply and its deflationary nature like gold where the value of your money is stored, whereas Ether is used to run the Ethereum network and its applications.
Even though Bitcoin transactions are basically transfer of money even messages or notes can be encoded into the data fields whereas Ethereum transactions can have only codes used to execute the contracts and applications built on the network.
In matter of speed Bitcoin and Ethereum do have differences as Ethereum network is much more faster than the Bitcoin network. Bitcoin network can add a new block on an average of 9-10 minutes whereas on Ethereum it takes only 15-20 seconds.
Both of the networks suffer from scalability issues as of today on Bitcoin a total of 8 transactions can be done per second whereas Ethereum can handle around 35 transactions per second but that is way lower than the rate at which the other payment giants like Visa and Mastercard executes their transactions. Visa handles around 1800 transactions per second. This less scalability is going to make a huge impact as more and more people use Ethereum and Bitcoin leading to more network congestion and high gas fees. In order to solve the scalability issue ETH 2.0 was introduced.
What is Ethereum 2.0?
Ethereum 2.0 is the coming up upgraded version for Ethereum which moves Ethereum from proof of work consensus to proof of stake consensus. Ethereum to ETH 2.0 phase is planned to occur from 2020 to 2022 where the traditional Ethereum has already started integrating with the Beacon chain the first feature of Ethereum 2.0. Beacon chain lays the foundation work for future upgrades for ETH like sharding and shard chains which aims to solve the scalability issue with the earlier version of Ethereum. Sharding will reduce the congestion of the network as the transactions on the network is spread across smaller and multiple blockchain networks as a result larger computational power wont be required.
The future of Ethereum with the upgraded version ETH 2.0 looks much promising as it tends to resolve most of the issues which the traditional Ethereum is facing. With the increase in the transaction speed more and more applications will be built on Ethereum leading to wide spread adoption.