Welcome to Part 6 of Everest’s crypto and guide! In this article, we finally move on from and onto its spiritual successor: .
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Table of Contents
- What is Ethereum?
- What is ether, and what is gas?
- How does Ethereum differ from bitcoin?
TLDR;
1. What is Ethereum?
is a decentralized platform which allows anyone to build applications for any purpose, functioning like a truly decentralized Internet. Its utility thus far outstrips that of , which functions purely as a currency. was founded in 2014 by a team led by Vitalik Buterin and is an open-source project contributed to by developers all around the world.
is powered by the Virtual Machine (EVM), a virtual machine which interprets and runs the code for apps on the network. The EVM allows for transactions more complicated than simple currency transfers to be executed on the , while guaranteeing a deterministic execution of the code. Every full node and miner in the network runs the EVM to validate every transaction on the . That is to say, every action made on the is executed by every participant anchoring the decentralized network, which is guaranteed to return the same outcome due to the deterministic execution by the EVM. This is a means of enforcing consensus of the .
2. What is ether, and what is gas?
It is useful to think of ether as the currency of , or ETH, and gas as the fuel used to run the network. One can use the analogy of a car to explain the roles of ether, gas, and the code being run on the network. Just as one needs to spend money to buy fuel for a car to run on, one needs to convert ether into gas which is used to run the code on the EVM.
Ether can be converted to gas at a user-defined gas price, which is currently 0.02µ ETH per gas (or 0.00000002 ETH per gas). However, unlike money and fuel, gas does not exist as a separate as that would introduce inefficiencies in swapping the two currencies everytime you need to pay gas to run transactions. Instead, one converts ether into gas as and when it’s needed.
Operations in are powered by the Virtual Machine. Unlike in where transactions fees are dependent on the size of the transaction in bytes, in , transaction fees are paid in gas and are dependent on the computational power required to complete a transaction. However, some gas needs to be used to cover the size of the data of the transaction. This is known as intrinsic gas; if the gas offered is less than the intrinsic gas of the transaction, miners will not perform the computation.
The fee paid to the miner is equal to the total gas offered multiplied by the gas price chosen by the transaction maker. To recap, the total gas offered must cover both the intrinsic gas and the cost of all the calculations required to execute the transaction.
Each type of computation requires a certain amount of gas pre-defined in the . For example, an addition operation costs 3 gas, a multiplication costs 5, etc. Miners are incentivized to pick up transactions with higher gas prices as they receive a higher transaction fee the higher the gas price set by the user.
If the gas provided by the user making the transaction is insufficient to cover its entire computation, the transaction is reverted but the miner is still paid the provided gas to cover the use of their computational resources. If the gas provided is in excess of what’s required, the remaining gas is returned at the same price set by the user. Finally, a block gas limit is imposed to limit the the number of computations that can be done per block. This prevents attackers from crippling the nodes running the EVM with infinite loops in the transaction code.
Overall, this system of ether and gas incentivizes miners to validate transactions while ensuring that they get a fair return for the computational resources they commit to the network.
3. How does Ethereum differ from bitcoin?
From our point of view, there are 3 main ways in which differs from .
1. Purpose
Both and are powered by cryptography and DLT (distributed technology) in the form of blockchains. However, that is where the similarity ends. is primarily a virtual currency which is used for one purpose only; payments and P2P transactions. However, has a lot more potential as a platform for decentralized, P2P applications and smart contracts which can serve any function or purpose. is Turing-complete and thus its scripting language, Solidity, is a lot more expressive than ’s, allowing it to program a larger variety of applications.
2. UTXO vs Account/balance
uses a UTXO model as explained above, whereas uses an account/balance model. This means that tracks the balances and states of each individual account (user or smart contract), and thus is stateful: at any point in time, the network can be summarized by the collection of balances and states of the accounts in the network. The entire provides transparency at the level, allowing one to easily see the state of the network at any point in the past.
However, , being built on UTXO, only tracks past transactions which have already occurred. The lack of ability to track states in hinders its ability to build useful apps for , unlike .
Take for example, a decentralized social media app. Each user account has many different attributes, such as profile picture, interests, and shared posts etc. With , we are able to track the state and changes of state to these attributes, like if someone changed their profile picture from an orange to an apple. However, this is not possible in because state is not recorded on the .
3. Founders
The original creator of , Satoshi, is no longer around to help with ’s development. This allows for a truly decentralized, open-source governance of the project and the direction it takes.
However, the main person responsible for creating , Vitalik Buterin, is still active and spearheading development directions for the project. Despite Vitalik’s claims that the project is decreasing in reliance on him, many people still look to Vitalik for solutions, which makes him a unique point of weakness for .
Concluding Remarks
In this article, we have covered basic elements of and explained how it offers something different to . With , we have a platform for decentralized apps which returns power from large internet corporations to the individual user. Smart contract are key elements of which allows these decentralized apps to be created. We will talk more about smart contracts and real-life use cases of in the next section.
We see this guide as a continuous work-in-progress! Please leave any questions or remarks in the comments section and we will try our best to include them in updated versions of our guide. And if you found our guide useful, please leave some claps!
Published at Mon, 15 Apr 2019 07:15:32 +0000
