Before we get into the details of Ethereum and how it works, let’s start with some background. The Ethereum project was first proposed in late 2013 by the founder Vitalik Buterin, who is a cryptocurrency researcher and programmer and now, one of the biggest names in the industry. The project was funded by an online crowd sale that took place between July and August of 2014 and the Ethereum’s blockchain was officially launched on July 30th, 2015. More than six years after Bitcoin, however, it climbed quickly to be the number two crypto, regarding market cap, continually chipping away at that number one spot.
A small investment of $1000 back in August of 2015 would have made you 1.4 million dollars today.
A common misconception among new investors and enthusiasts is that every crypto asset is a cryptocurrency, meaning that every digital asset can be used as an investment or form of currency, which is not the case. Ethereum is an open-source, public, decentralized platform that allows applications to be developed and run on their custom built blockchain. This platform runs on smart contracts.
Smart contracts are applications that run precisely as programmed without any possibility of downtime, censorship, fraud or third-party interferences. What this does is it “enables developers to create markets, store registries of debts or promises, move funds following instructions are given long in the past (like a will or futures contract) and many other things that have not been invented yet, all without a middleman or counterparty risk.”
In comparison, on traditional server architectures, every application must set up its own servers that run on their specific code which makes sharing data difficult. If one of those applications is compromised or goes offline, it affects many of the other users and apps.
What makes the blockchain special is that anyone can set up a node that replicates the necessary data for all nodes to reach an agreement and be compensated by the users and app developers. Having this take place on the blockchain keeps the user’s data private and apps to be decentralized like the internet was supposed to work.
Ethereum has many features to the users such as their smart wallet. Downloading and using their smart wallet allows you to securely hold Ethereum and any other crypto assets that run on the Ethereum blockchain. Also, it will enable you to write, deploy and use smart contracts. Which brings us to the language used for smart contracts, called Solidity.
The technology Ethereum has created with a combination of smart contracts allows users to develop, design, and issue their own tradeable digital token. You can use these tokens for different things such as a currency, a representation of an asset, a virtual share, proof of membership, etc. The possibilities are truly endless.
Most people have heard of Kickstarter or GoFundMe which are online websites for users to post a project or a cause and receive crowdfunding from the public. Ethereum offers a similar feature with allowing projects to be created and have a trustless crowd sale.
How it works is a user can create a contract that will hold the donators money until any given date or goal reached. These can vary and depend on the outcome, either the funds will be released to the project owners to then use for development or safely returned to its contributors if the goal is not met. The fact that this is run on the blockchain, it does not require a centralized arbitrator, clearinghouse or having to trust anyone. You can use a created token to keep track of the distribution of rewards as well.
A common misconception is that Ethereum is a cryptocurrency; however, Ether is the proper name of the
digital token that runs on the blockchain. Ether is used to pay the nodes and miners for their work on accepting the transaction. For example, a car needs gas to run (or some form of power) and so does the Ethereum blockchain. You can think of Ether as the fuel that runs the network and rewards the nodes and miners.
The way transactions happen on the Ethereum network differs from Bitcoin in a few ways. The components of an Ethereum transaction include the nonce, gas price, gasLimit, and value. A nonce is a field in each account that keeps track of how many transactions that specific account has executed. It is incremented for every new transaction to allow the network to know which order to put the transactions in to be confirmed.
The gas price is the amount of ‘gas’ you are willing to pay per unit for this transaction. The gas for the transaction is measured in GWei and ranges from 0.1 to 100+ GWei. You pay for GWei with Ether, the token of Ethereum.
The gas limit is the maximum amount of gas you will pay for the transaction. The limit is used to ensure that the transaction does not take any more than you allow it. Once the transaction validates, if there is any remaining gas it will be sent back to your account. The “To” is merely the address you are sending the transaction. Value is the total amount of Ether you would like to send in the transaction.
Let’s put this all together. To start and execute a transaction on the Ethereum network, you would first set the gas price to the amount willing to pay per unit, set the gas limit to the max you want to spend, enter the address you are sending it to, and then the amount of Ether you would like to send. Confirm the transaction, and it will be sent to a local Ethereum node to be validated. Once validated, the transaction gets broadcasted to the network.
Note*: The transaction requires a certain amount of gas to complete the transaction so if gas prices and gasLimit are set too low, the transaction will be canceled due to not enough gas and it the limits will have to be reset.
How do I get it? How do I store it?
We now offer Ethereum at all Bitcoin Depot ATMs. Find the nearest location to you here. Download the Edge wallet to securely store your funds after purchase, or choose from one of our recommended wallets. Using our ATM gives you convenience in buying cryptocurrency with instant identity verification. No more waiting days or even weeks to get verified to buy.