Vitalik Buterin came up with the idea of Ethereum at the age of 19, and in 2013, he published a whitepaper, remarkably thorough and visionary, sketching a framework that extends beyond mere currency transactions to a robust platform that empowers the creation and execution of smart contracts and decentralized applications. Flactuations in the ETH price chart are frequent, and impossible to predict because the whole cryptocurrency market is highly volatile and influenced by various factors, such as supply and demand, technology, and investors’ attributes.
Ethereum is often referred to as the world’s supercomputer, and in some respects, it’s a suitable analogy because it implements a globally decentralized digital computer for executing peer-to-peer agreements that can’t be personal property. The fusion of cryptographic architecture with Turing-complete is enough to revolutionize industries by introducing new business models and streamlining processes. Examples include but aren’t limited to cybersecurity, supply chain management, real estate, education, and agriculture. As opposed to Bitcoin, which primarily functions as a currency, Ethereum facilitates various applications, from DeFi to NFTs.
At The Core Of Ethereum Is The Ethereum Virtual Machine
The second largest cryptocurrency in the world, Ethereum, was designed by its founder as a computing platform for users to deploy unstoppable code, that is, contracts programmed for a specific and recurring use. At the heart of Ethereum is the Ethereum Virtual Machine (EVM), which is used by other blockchains, such as Polygon, Arbitrum, and Avalanche, which offer lower gas fees and faster transactions. Since most of these blockchains are open-source, the code is publicly available to everyone to read, modify, or validate. At the end of the day, it’s about optimization and the best user experience.
The Ethereum Virtual Machine operates across countless computers (or nodes) around the world, and its decentralized nature guarantees the security and reliability of the network, so it plays a central and irreplaceable role in Ethereum. Here’s an overview of its main functions:
- Secure and efficient runtime for smart contracts: The EVM enables the environment and runtime of smart contracts; the maximum size that can be deployed is 24KB. The self-executing agreements are written in Solidity and Vyper and compiled using bytecode that includes logic (functions, conditionals, loops, and state modifications).
- Transaction processing: The EVM processes the input data, which may require calling a smart contract’s function. It uses a gas system to measure and regulate computational resources, so you must pay fees to incentivize validators to include transactions in the blockchain.
- Ensuring execution code is isolated and secure: The EVM prevents malicious code from affecting the entire network by using stack-based architecture, meaning that nodes come in a particular order. This helps Ethereum resist attacks from threat actors and increase efficiency.
Ethereum Uses Proof Of Stake As Its Consensus Mechanism
In 2022, Ethereum underwent one of its most significant transformations, namely the transition from a Proof of Work to a Proof of Stake type of algorithm to confirm transactions and add new blocks through randomly selected validators. The blockchain protocol provides traders incentives for validating transactions by rewarding them with cryptocurrency for every correct action (2 ETH for one block). As a measure of protection, the Proof of Stake consensus mechanism requires validators to stake some ETH as collateral, and after the limit is exceeded, traders can stake as much as they want. The more cryptocurrency they commit, the more likely they are to be chosen by the algorithm.
Proof of stake is regarded as an upgrade from Proof of Work because validators gain or lose rating points based on the number of tokens they have in their digital wallets and the length of time they’ve had the coins. Directing the resources of high-powered computers to solve puzzles translates into more energy consumption, so PoS is the obvious winner. Other blockchains that use Proof of Stake include but aren’t limited to Tezos, Solana, Cardano, and Algorand. The Proof of Stake consensus algorithm emerged years before the Ethereum blockchain was created, introduced by Sunny King and Scott Nadal in 2012 to solve Bitcoin’s high energy consumption.
Ethereum Ensures Constant Progress Through Its Roadmap
Vitalik Buterin put forward a rollup-centric scaling roadmap for Ethereum in October 2020, simplifying the roadmap by placing emphasis on data sharding over execution sharding. It helps scale the network by ushering in blobs to post data on the Ethereum Mainnet more advantageously than it’s currently possible. Blob-carrying transactions increase the platform’s data availability without affecting its existing infrastructure. The size and number of blobs included per block is limited. EIP-4844 was implemented after the Dencun upgrade, which restored the asset’s inflationary model, leading to less ETH being burnt and wiping out one of the benefits of the 2022 Merge.
Ethereum’s notorious co-founder proposed an interesting change to the blockchain to manage costs, namely to separate the gas calculation of calldata and adjust the base fee pricing mechanism. Put simply, it introduces a new gas class. EIP-7706 includes frameworks like max-basefee (maximum base fees) and priority_fee (priority fees), presented as a vector, which provides values for execution gas, blob gas, and calldata gas. It’s a more comprehensive solution to fee management. Vitalik Buterin wants to steer away from a system where resources are pooled to serve users – resources are now allocated improperly. Speaking of which, EIP-7706 is a Solana-esque approach.
Wrapping It Up
What started out as a simple experiment by Vitalik Buterin slowly but surely developed into a complete plan paramount to Ethereum’s future as the world supercomputer. The cryptocurrency that runs on the blockchain, Ether, serves as fuel for the network: for every transaction made, users must pay a fee, which is calculated in gas and paid in ETH. Since it’s the leading platform for building DApps, Ethereum’s role in the development of Web3, the next iteration of the Internet, is crucial. Entrepreneurs and smaller companies have the opportunity to compete with corporations like Google because they’re rewarded with a greater number of coins.
Whether or not Ethereum will continue to enjoy success, it has managed to catch the attention of developers, cryptocurrency economists, and investors, and it will continue to be a source of engagement and interest in the years to come.
