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What is Ethereum (ETH)? A step-by-step guide for beginners

What is Ethereum (ETH)? Ether, or ETH, is the second highest market cryptocurrency in the world and has applications and values ​​that differ from those of the market leader, Bitcoin (BTC). Here's everything you need to know about this unique blockchain and its cryptocurrency.

What is Ethereum (ETH)?

Ethereum is the second blockchain and cryptocurrency in the world, with the second largest market capitalization. It was proposed by Vitalik Buterin, a famous developer of cryptocurrencies, in 2013. The protocol became operational in 2015. It was forged strongly in 2016, offering us Ethereum vs Ethereum Classic.

Although it is an evolution of Bitcoin, Ethereum is a more flexible application of blockchain technology, which means it has applications that go beyond sending and receiving funds. Here is one of the reasons why Ethereum is the most popular platform for developers.

Underlying Technology

First of all, Ethereum is an open source blockchain that uses proof of work to verify transactions. This allows users to send / receive verified funds from a network, rather than a centralized entity such as a bank or a credit card company. Another term for this is peer-to-peer.

What is Bitcoin? While BTC serves primarily as a form of payment, Ethereum is a platform on which developers can create their own applications.

This is thanks to something called the Ethereum Virtual Machine. A virtual machine is a type of code that works like a computer. In this case, it means that it can execute complex code, like the one behind smart contracts and DApp.

Technically, it's Turing Complete. In other words, this network can theoretically solve any equation, given the appropriate resources.

A platform for Smart Contracts and DApps

What is Ethereum (ETH)?

Smart contracts and DApp. Shutterstock

What is Ethereum? It is a blockchain with developers able to create DApp or decentralized applications and to execute smart contracts, or automated agreements.


A DApp is an application that exists on a decentralized platform, like blockchain. Unlike any app on your iPhone managed by a centralized company, DApps exist within a network that verifies transactions without third parties.

Smart contracts

Likewise, there are smart contracts within a decentralized network. What is a smart contract? An intelligent contract is a coded agreement with predefined terms and qualifications and automated application.

Smart contracts allow the parties to accept a contract without long negotiations, legal fees and third parties for execution. When one of the parties fulfills the end of the agreement, the intelligent contract will automatically withdraw the funds from the account of the second party. These could be held in an intermediate holding position on the blockchain, meaning that no one controls the funds until the service is completed. Otherwise, the second part takes it back.

The term for this is "without trust". You do not have to trust or even know the person with whom you have an intelligent contract or DApp because the blockchain automatically holds you (and yourself) to satisfy your respective sides of the agreement.

ETH facilitates the network

What is Ethereum (ETH)?

ETH coins. Shutterstock

This means that ETH, also called Ether, feeds the network instead of serving as an alternative to money. Do you need to add something to a DApp that requires payment to the network? Pay in ETH.

Unlike Bitcoin, which has a limit of 21 million Bitcoins, there is not a maximum of Ether. Every year, the community can extract a maximum of 18 million ETHs, forever. But with the increase in the total supply of Ethereum, this will represent an ever smaller percentage of the total supply, until it is irrelevant.

How the Blockchain calculates the taxes

Now you can answer what is Ethereum and why you need to use ETH. But how does the virtual machine calculate those taxes?

The system is based on a second unit called gas. Gas is the unit that the network uses to determine how much computational work undertakes a specific action. Every action on Ethereum costs a certain amount of gas. And the more energy the computer takes, the more gas it takes.

Commissions for gas

What is Ethereum (ETH)?

The x-axis shows the cost of the transaction in GWEI. At the time of writing, about 60% of the transactions cost 20 GWEI. EthGasStation

To get the total gas rates, you must multiply these two variables together:

  1. Gas limit: the amount of work needed for an action
  2. Gas price: the cost of that work

Where do these numbers come from?

  • The limit of the gas is the amount of computational power, in the gas, that an action entails.
  • The price of gas is how much you are willing to pay to run a miner.

Typically, the gas price is 20 GWEI, which is a very small unit of Ethereum. Specifically, 1 ETH = 1 billion GWEI. However, during high-volume transaction times, gas prices can reach 50 GWEI.

The gas limit is calculated in gas. In particular, a transaction requires a minimum of 21,000 gas, aaccording to the Ethereum yellow. Keep in mind that the gas /the transaction report changes constantly according to the request.

Why not calculate taxes on the air?

Why does not the network calculate in Ether, rather than in gas? In short, cryptocurrency exists on the cryptocurrency market, which means that its price changes constantly. Using gas, the network protects its users from the payment of exorbitant transaction fees depending on the price of the cryptocurrency.

Ethereum: a platform for everything

Ethereum is revolutionary because it is so flexible. Most new cryptocurrencies are ERC20 tokens: a token that exists on the Ethereum blockchain. Facilitates smart contracts and DApp payments.

But the fact that Ethereum represents so many different applications makes understanding more difficult. You can vote or be rewarded for viewing ads on Ethereum. You can also exchange solar energy or subscribe to a music platform.

This tells us a lot about what Ethereum is. Essentially, it is decentralization: the ability to build any app or company, perform any function without a centralized entity.

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