Learn everything about the leading smart contract blockchain
Welcome to DappRadar’s ultimate guide about Ethereum, the open-source blockchain ecosystem that sets itself apart by allowing developers to launch applications. This guide will dive into the blockchain, its native crypto coin, smart contracts, and its complete functionality.
Despite its popularity, what is Ethereum is still one of the most searched terms on the internet. Conceived in 2013 and launched in 2015 by Vitalik Buterin, Ethereum is a decentralized, open-source blockchain. The vital difference is that, unlike Bitcoin, Ethereum lets developers run smart contracts, which are the essential instruments behind the dapps tracked by DappRadar.
The native token of the Ethereum blockchain is called Ether, or ETH, and is second only to Bitcoin, or BTC, in terms of market capitalization. Ether is also the currency users must pay gas fees to complete transactions on Ethereum.
Moreover, Vitalik Buterin wanted to use the blockchain for real-life applications by adding programmable code, known as smart contracts, and effectively created Bitcoin 2.0. More importantly, just as apps gave mobile devices utility for end-users, dapps provide real-world utility using crypto. Moreover, much of that utility comes from the Ethereum ecosystem and community.
With all this new technology innovating and changing so quickly, it’s only natural that people have questions. Fortunately, DappRadar has you covered with this ultimate guide to Ethereum.
What is Ethereum?
The Ethereum platform launched in 2015. Vitalik Buterin did this together with Joe Lubin, the founder of the blockchain software and events company ConsenSys. The two founders were among the first to consider the potential of blockchain technology beyond just enabling a secure virtual payment method.
Ethereum is an open-source, decentralized computing network that allows users to transact with one another using smart contracts and run decentralized applications. Essentially Ethereum is nothing more than a digital public ledger where financial agreements can be verified and stored entirely by software — without needing a third party.
Transaction records are immutable, verifiable, and securely distributed across the network, giving participants full ownership and visibility into all the transaction data using block explorers like Etherscan. Transactions are also sent from and received by user-created Ethereum accounts, and a sender must sign transactions and spend ETH to have transactions processed on the network, but we’ll get more into that later.
What is ETH?
The native token and currency of the Ethereum blockchain is called ETH, or Ether, and is second only to Bitcoin, or BTC, in terms of market capitalization. Ether is also the currency users must pay to complete transactions on Ethereum. We call these transaction costs ‘gas fees.’
This fee incentivizes a block producer to process the information and verifies what the user tries to do.
Currently, miners are like the bookkeepers of Ethereum; they check that no one is tricking the system and carry out work for the right to propose a block of transactions. The work miners do keeps Ethereum secure and free of any one centralized control, but we will dive deeper into mining in a later section.
How does Ethereum work?
Ethereum relies on node operators to process transactions on the network. These operators collect a fee for running the hardware and software. The fees are called gas fees because they keep the network running, like gas in a motor vehicle, and they’re paid in ETH.
Moreover, Ethereum works by utilizing computing power to fuel the network. People and organizations use their computers to run specific software or nodes in the real world that complete the transactions of users. That’s why it’s called a distributed network.
Smart contracts are like programs stored on the Ethereum blockchain that can self-execute when certain conditions are met. One way to think about it is that the dapp is like the program’s front-end, and the smart contract is the program’s backend.
The decentralized system can lead to more anonymity for users, who may be able to use dapps pseudonymously. And it can also result in less control and censorship from third parties, including corporations and governments. These were some of the core motivations of Bitcoin and Ethereum in a post-2007 financial crash world.
Check out more of DappRadar’s Ultimate Guides:
What is a smart contract on Ethereum?
A smart contract is a computer program that automatically executes relevant events and actions according to the terms of a contract or agreement. The core objective of smart contracts is to reduce the need for intermediates, arbitration costs, fraud, and the reduction of malicious activity. Moreover, smart contracts introduced by Ethereum are generally considered a fundamental building block for all decentralized applications.
The transaction includes the smart contract’s code and a unique receiver address. That transaction must then be included in a block on the Ethereum blockchain. At this point, the smart contract’s code will automatically execute to meet the criteria outlined in the code.
On Ethereum, smart contracts are typically written in a Turing-complete programming language called Solidity and compiled into low-level bytecode to be executed by the Ethereum Virtual Machine. Long story short, smart contracts can act as intermediaries between users, thus removing layers of cost and human interference from the traditional transactional trip.
What are Ethereum gas fees?
All Ethereum transactions have a fee, which is paid in gas. The cost of gas fees can vary and is set by miners according to current supply and demand circumstances on Ethereum. The gas cost depends on the current demand, the computational power required to process the smart contracts, the total number of transactions, and the smart contract size that needs to be executed.
As more dapps, NFTs, and utility applications for ETH token holders arrived over the last three years, gas fees increased. Looking over five years of gas fees on Ethereum, we can see clear spikes leading to a normalized situation where the average gas fee can be as high as $30 in 2022. Driven mainly by play-to-earn and NFT dapps rise to popularity throughout 2021.
Use our handy guide to determine when Ethereum gas fees are the lowest.
What is the Ethereum Merge?
The Merge is the Ethereum blockchain’s shift from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) model. This means that instead of people needing to run robust computer processes to mine ETH, they can deposit an amount of ETH in exchange for rewards.
Pre-merge, the Ethereum Mainnet runs in parallel with the Beacon Chain. The former functions as a PoW system while the latter is PoS. With the merge, these two networks will unite and operate as one structure. Ethereum’s developers are pushing forward with the Merge for two main reasons:
- Costs. These things often come down to money and value. By switching from PoW to PoS, the issuance of ETH is expected to drop by about 90%. Less ETH available and stable demand leads to higher prices.
- The Difficulty Time Bomb. In a nutshell, the Difficulty Time Bomb refers to an element encoded within the blockchain that intentionally slows down the network. It was supposed to encourage developers to work towards a PoS model. By switching over to this system, they will negate the effects of the Time Bomb.
What is Ethereum Classic?
Initially, the Ethereum blockchain was created as a single blockchain in 2015, but in June of 2016, the blockchain was hacked, resulting in more than $60 million being drained. As a result, a hard fork was performed to secure the network, leading to Ethereum Classic’s creation and the ETC token.
One of the most significant differences between Ethereum and Ethereum Classic is that Ethereum has plans to migrate from proof of work (PoW) to a system called proof-of-stake (PoS). While Ethereum Classic intends to keep traditional mining on its blockchain.
Importantly, Ethereum Classic (ETC) does not follow the same price trajectory as Ethereum (ETH). These two ecosystems come with their communities and different pricing for their native crypto tokens.
Check out more of DappRadar’s Ultimate Guides:
What programming languages can Ethereum developers use?
One of the reasons Ethereum has become such a popular place to develop decentralized applications is that smart contracts can be programmed using relatively developer-friendly languages. For example, developers can find a language with familiar syntax if they know how to write with Python. However, the two most active and supported languages are Solidity and Vyper.
What cool NFTs are on Ethereum?
The question is probably better asked the other way around, i.e., which NFT collections are not on Ethereum. Ethereum became the defacto place to mint NFT collections since CryptoKitties broke the network in 2017. After that time, OG collections like CryptoPunks laid the foundation for the slew of PFP collections to arrive on Ethereum. Despite the cost of minting being higher than any other network, creators still used Ethereum.
Hunting through NFTs on Ethereum, you will see CryptoPunks, Bored Ape Yacht Club and its affiliates, MeeBits, Toadz, MoonBirds, Azuki, and many more high-value collections that arguably earned the title of being blue-chip collections.
Outside of the more popularized PFP avatar collections like CryptoPunks and BAYC, collectors of crypto and generative art can find lots to choose from on Ethereum. Curated marketplaces like Art Blocks and SuperRare focus exclusively on curating different experiences for users.
What cool dapps can I try on Ethereum?
DappRadar tracks almost 3,400 dapps on Ethereum in different categories such as finance, gaming, collectibles, gambling, and social media. Sure, not all of them are the month’s flavor, but several have been directing the dapp industry for years and have established themselves as leaders in their field.
On Ethereum, you can find yield farming, and token swapping platforms like Uniswap and SushiSwap, where you can jump into decentralized finance. Between them, they have processed millions of dollars of user funds and are considered relatively safe and reliable.
If you’re looking for play-to-earn and blockchain games, then the Ethereum ecosystem doesn’t have a lot to offer. However, most anticipated titles are set to launch on Ethereum scaling solutions as premium gaming makes its way to the blockchain. Think about scaling solutions that provide faster and cheaper transactions, including Immutable X and Polygon. Alongside established metaverse plays like Decentraland, CryptoVoxels, and Somnium Space, there’s still enough to discover on Ethereum for gamers.
NFT marketplaces are also plenty on Ethereum, with OpenSea being the leader in this field. However, as NFT ownership swelled, more marketplaces have emerged, offering users more rewards and participation in return for using their platform. Marketplaces such as X2Y2, LooksRare, and Gem stand out.
What is Ethereum Name Service (ENS)?
Ethereum Name Service or ENS is a domain name service that maps humanly-readable addresses set by their owners, such as dappradar.eth, to a machine-readable address. Such as the long series of letters and numbers in blockchain wallet addresses. The personalized ENS addresses allow users to manage their cryptocurrency funds and assets by simply using a human-friendly domain name.
ENS domains aim to become the usernames of web3 and can connect to popular crypto wallets, websites, content hashes, and metadata. Owners can secure all their crypto wallets under one ENS domain and receive cryptocurrencies or NFTs to that easy-to-remember address.
How can I mine Ethereum?
To mine Ethereum, computers worldwide vie to solve cryptographic riddles, expending processing power and energy. Any miner who successfully solves the puzzle first gets to add a block to the blockchain. For their work, miners receive ETH as rewards.
The current mining reward is two ether per block plus all the priority fees contained in the block. A new block is added to the blockchain every 15 seconds. However, as mentioned in this article, ETH mining through the Proof-of-Work (PoW) system will be replaced with ETH staking, eradicating the need for miners.
What’s the future for Ethereum?
In the blockchain and crypto space, Ethereum is revered and is the king of the hill by some stretch. The Ethereum network accounted for the lion’s share of total value locked in all of DeFi consistently and became home to the most prestigious and valuable NFT collections and dapps.
Despite the evolution of layer-1 and 2 solutions to alleviate the transactional burden on the Ethereum Network, all the primary processing still occurs on Ethereum. In that way, Ethereum can be considered the transactional and operational layer of the blockchain and arguably more relevant than ever.
Some believe Ethereum is an excellent long-term investment, primarily for three reasons. Firstly, it’s the second largest cryptocurrency in market capitalization, and the adoption and use-cases of the Ethereum blockchain are significantly higher than for any other blockchain network. Moreover, despite increasing fees and higher costs, users gravitate toward Ethereum due to its associated safety and security. Thirdly, the Ethereum merge is intended to bring about significant updates to make Ethereum more attractive in the future.