What is Ethereum? Know the smart contract blockchain

Ethereum with the abbreviation “ETH” is a digital currency and a decentralized network. This network has three main purposes and uses: 1. Decentralized digital money; 2. facilitating global payments; 3. Building and running decentralized applications.

“Decentralized” refers to a system, program, country, or anything that is not controlled only by a specific person or company or government, and others can also play a role in controlling it; Like a democratic government where one person alone cannot have all the powers.

This digital currency is here to decentralize “everything”. Imagine a future where people directly use all kinds of financial and non-financial services without trusting corrupt intermediaries. Systems that are controlled by people never stop and no one can interfere with their work. This is the future Ethereum is built for.

In this article, I will try to introduce you to Ethereum in a simple way, away from technical complications, and answer the following questions:

• What is Ethereum and how does it work?
• What is the difference between Bitcoin and Ethereum?
• What is an Ethereum smart contract?
• What is Ether, Ethereum’s digital currency, and what is its price trend so far?
• What is the Ethereum storage method? What are Ethereum wallets?
• How to buy Ethereum in Iran?

What is Ethereum?

On the official website of Ethereum, the project is defined as follows:

Ethereum is a decentralized platform for executing smart contracts. There is no possibility of failure, censorship, fraud or interference of intermediaries for the programs that run on this network.

I will explain what “smart contract” is next; But up to this point, I will say that Ethereum can be defined from two perspectives:

• It is a decentralized network.
• It is a digital currency.

Ethereum is a decentralized network

Ethereum is a decentralized network for building computer programs and conducting financial and non-financial transactions. In simpler and less precise terms, consider this digital currency as a decentralized internet on which you can launch decentralized websites; Websites that don’t stop and governments and middlemen can’t shut them down.

In fact, the difference between Ethereum and old platforms like today’s web is that the middleman has been removed in this digital currency and the control of data and assets can literally be in the hands of the people themselves.

Ethereum is a digital currency

Ethereum is also considered a digital currency. In other words, in order for this network to be complete and independent, the digital currency “Ether” (Ether) with the abbreviation ETH is defined in this network. This asset is the currency of the network and a way to pay fees and charges.

Do not forget that in the community of digital currencies, the digital currency of the Ethereum network is also called Ethereum; But in reality its name is “Ether”. So, if you see somewhere “buy ethereum”, “analyze ethereum”, etc., it means ether.

Many people are investing in this digital currency, hoping for the future of Ether. You can easily buy Ether from cryptocurrency exchange websites and store it on mobile wallet software or PC. In the continuation of the article, you will read more about Ether and how to store and buy it.

How will Ethereum transform our world?

Consider an app like Telegram or Instagram. Millions of people around the world use these useful messaging and communication apps; But there is a fundamental issue about them that few people pay attention to: these programs concentrated are. For example, Instagram is owned by Facebook and according to its policies, the company may remove content or block access or even sell private data.

In theory, with Ethereum, this decentralized platform, it is possible to create an Instagram that is owned and controlled by its users instead of Facebook. This is Web 3.0, which will be the future of the Internet.

Of course, we should not forget that this project is still in the beginning and at least at the current stage, its technical problems do not allow us to build a large system like Instagram on it.

As another example, with this network we can hold free and transparent elections; An election in which there is no possibility of fraud. This blockchain can decentralize any other centralized service. Important things such as payments, insurance, voting, banking, lending and many services that are now done by intermediaries will be decentralized with this network. Anyone can, on the Ethereum open network, Decentralized application (Dapp) Or develop your own digital currency (token).

A short history

The white paper of Ethereum was published in 2013 and the network was officially launched in 2015.

The main idea behind this project is the young Russian-Canadian Vitalik Buterin, who was a supporter of Bitcoin and inspired by Bitcoin, he presented the idea of ​​”decentralization of everything”.

The history of ether is full of ups and downs; From the birth of Ethereum Classic due to hacking to historical updates. It is a pity that due to the limitation of words, this interesting history cannot be discussed in this article.

Similarities and differences between Bitcoin and Ethereum

Since Bitcoin is the first decentralized digital currency, perhaps one of the best ways to better understand Ether is to examine its similarities and differences with Bitcoin.

What are the similarities between Bitcoin and Ethereum?

Bitcoin and Ethereum are similar in several ways:

Both are digital currencies

Both Bitcoin and Ether are decentralized digital currencies traded on online exchanges.

Both have independent blockchains

Like Bitcoin, this digital currency also has a blockchain. Transaction information and smart contracts are recorded on the blockchain. Next, I will explain more about blockchain.

Both are stored in wallets

You need digital wallets to store Bitcoin and Ether. I will explain about this issue in the rest of the article.

Both are public and license-free

Like Bitcoin, the Ether network is public and anyone can use it. Anyone can use this network to create transactions or smart contracts without needing permission from anywhere. Ethereum is transparent, free and public.

What are the differences between Bitcoin and Ethereum?

Bitcoin and Ether differ in at least the following aspects:

The purpose of creation

Bitcoin is the first decentralized, digital and distributed monetary system. Bitcoin was created to be a decentralized currency; But only money!

On the other hand, Ethereum has gone one step further and has provided the possibility of decentralized execution of computer codes (smart contract) so that we can decentralize other things in addition to money.

Ethereum transactions are faster

In general, Ethereum transactions are confirmed faster than Bitcoin. If you make a transaction on the main Bitcoin network, it may take about an hour for your transaction to be confirmed with normal fees; But on this blockchain, the transaction verification process only takes a few seconds.

The number of ether units is unlimited

One of the main differences between Bitcoin and Ethereum is the number of units (supply) of these two currencies. Bitcoin has a limited supply; But unlimited ether will be offered.

According to the Bitcoin protocol, only 21 million units of this digital currency are mined; While in Ethereum, there is no limit and at the time of writing this article, more than 120 million Ether units have been circulated.

It should be noted that this does not mean unrestrained inflation in Ethereum; Because the annual inflation of Ether is specific and limited and is close to 4%, which may increase or decrease slightly depending on the conditions.

How does Ethereum work?

This question can be answered in two ways:

A detailed or technical explanation of how Ethereum works is not included in this article and could be a book by itself. By the way, his book is also available; The book “Mastering Ethereum” by Andreas Antonopoulos. This book has also been translated into Farsi; But I am not sure about the smoothness of the translations.

You don’t need to know exactly how it works to buy and keep Ether and use this network; Just as now, network expertise is not required to work with the Internet; You have a mobile or computer and some user-friendly and simple applications.

In Ethereum, the story is the same. To use this network or to buy and maintain Ether, which I will teach later, you only need to have a smart phone or a computer to install some software or register on some websites.

However, since it is impossible to move forward blindly, we will continue to try to explain how Ethereum works in the simplest terms possible, so that even without the previous background, this complex network can be understood a little.

This part is written in such a way that not reading it does not affect the understanding of the rest of the content; So, if you don’t feel like it, skip this section and read the rest of the article.

In a simple model, the Ethereum network can be divided into three components, the work of each of which is dependent on each other:

• Smart contract
• Blockchain
• consensus mechanism (over transactions and blocks)

Smart contract

We start with the smart contract, which is the fundamental principle of Ethereum. A smart contract is a code (software) that runs on its blockchain. In case of predetermined events, this software executes commands automatically.

The principle is that after the contract is registered on Ethereum, no one can prevent its execution and this contract has an execution guarantee. Before I explain more about the smart contract, let’s review the normal contract first.

A normal contract is an agreement between two or more people that commits them to something in the future. For example, Behzad undertakes to pay Majid an amount every month in exchange for the use of Majid’s house for one year, which is called a rental contract or “lease”.

What makes the difference between a normal contract and a smart contract is that in smart contracts, computer codes solve the problem of the need for trust. With smart contracts, programs and projects can be made so that they continue their work without any intermediaries and malfunctions; So that even the programmer of the smart contract cannot prevent its execution.

If you think these explanations are not enough for the important concept of smart contract, you can learn more about this topic in the article “What is a smart contract?”.

What are the features of the Ethereum blockchain?

Ether, like Bitcoin, uses blockchain technology to store transaction records and their security. Think of the blockchain as a ledger where all transactions performed on the Ethereum network are recorded. For example, if you send an Ether to another person, this transaction is stored on the blockchain forever.

Banks also have a ledger on computer servers that stores transactions. However, the Ethereum blockchain has four main features that distinguish it from bank ledgers:

• Public blockchain
• Transparent blockchain
• Distributed blockchain
• Blockchain resistant to censorship

The Ethereum blockchain is public

The Ethereum ledger is public; That is, anyone can become a node by connecting directly to the network and download a copy of the ledger (including all transactions).

The Ethereum blockchain is transparent

Everyone can check and intercept the transactions in the network. The inventory figure is also known; Of course, not that the identity of people is determined directly; But you can see the balance of wallet addresses.

The Ethereum blockchain is distributed

Every computer that connects to its network and becomes a node receives a full copy of the blockchain. Therefore, the blockchain does not have that single point of failure, and if data is erased from one computer, it is still protected by other computers around the world.

Ethereum blockchain is resistant to censorship

Thanks to the block structure in the Ethereum blockchain, all the data stored in the chained blockchain are connected to each other; In such a way that changing one data makes other blocks invalid. This special feature makes the blockchain highly resistant to censorship.

If you still don’t know what blockchain is, I suggest you take a few minutes to read the article “What is Blockchain”.

Consensus Mechanism (Ethereum 2.0)

When we say that Ethereum is a decentralized network, so when you send money to someone, who supports your transaction to make the transfer? Who validates transactions or maintains the security of this network? The answer to these questions are validators or ether holders.

At the beginning of the work of the Ethereum network until 2022, Ether, like Bitcoin, was based on mining. People who wanted to participate in the process of building transaction blocks had to allocate the processing power of computer hardware to the network to participate in mining operations, and the network awarded rewards to miners in exchange for this processing power, which ultimately ensured the security and verification of transactions. This process is called Proof of Work algorithm.

Until, according to the predetermined plan and in a plan called “Ethereum 2” (ETH 2.0), in September 2022 (September 1401), this network will change from proof-of-work to proof-of-stake algorithm for greater scalability (faster and cheaper transactions) and to reduce energy loss. Proof Of Stake) moved and Ethereum mining ended forever.

In the proof-of-stake method, people must buy ether and allocate it to the network in their wallet to participate in the work of validating transactions and creating a block, or in other words, they must do staking. Thus, they can participate in the verification of transactions and receive new units of digital currency (Ether) as a reward. Contributors take network transaction fees. With this approach, there is no need to buy expensive hardware and consume electricity to participate in the network.

ether price

Why does Ether have value? The answer is simple: for the same reason that gasoline has value. Ether is the fuel of the Ethereum network, and network validators (contributors) are rewarded with Ether. For every activity and transaction on its blockchain, we have to pay the network fee with Ether; Therefore, Ether can be an investment option.

Obviously, as Ethereum becomes more powerful and trust in this network increases, the price of Ethereum will theoretically increase. On the other hand, when its network performs poorly and cannot reach its goals according to the roadmap, the price of Ether will take a downward trend. Not to mention the price of Ether and all digital currencies, the general market trend and foreign events are also involved; Like the legislative news of this area.

At what price was Ether traded for the first time?

In 2014, in the fund raising program of the Ethereum Foundation, about 7 million ether units were presold at a price of approximately $0.3 per unit; Therefore, we consider the first price of Ether to be $0.3. At the time of this update (D1401), the price of each Ether is around $1,200, which means early Ether investors are making around 400,000% profit if they still hold their holdings.

What is the peak price of Ether?

On November 1, 2021 (November 19, 1400), Ether recorded a new all-time high, reaching a peak of around $4,700. Due to the dramatic growth of the dollar price in Iran, the price of ethereum in Tomans has also increased astronomically, and from the bottom of about 2 thousand Tomans in 2014, it reached more than 140 million Tomans at the peak (Azer 1400). At the time of updating this article (D1401), with the drastic correction of ether price from the peak, the Rial price of this digital currency is about 48 million Tomans.

Ethereum wallets

To store Ether and Ethereum-based tokens, you need software or hardware called a wallet. Consider a digital currency wallet like a bank account that is used to store, receive and send money.

Ethereum software wallets are free and you can easily install them on mobile phones (Android and iOS) or PCs (Windows, Linux and Mac). In contrast, hardware wallets, which are more secure, are physically available and must be purchased from reputable stores.

There are dozens of wallets with different names for Ether; Therefore, if you are an investor of this digital currency or an investor of tokens based on this blockchain, it is not difficult to find a wallet. In the table below, you can see the names of some examples of the best Ethereum wallets. These wallets have the highest number of installs and the best popularity rate:

Each Ethereum wallet has one or more unique addresses. The wallet address is the same as the bank card number that you can use to receive money. An Ethereum address can be used to receive Ether and all Ethereum-based tokens (ERC-20). For example, Shiba Ino currency (SHIBA) is a network-based token of this digital currency; So you can store this token in your wallet.

Don’t forget that in the world of blockchain and digital currencies, everyone is responsible for protecting their capital; Therefore, it is necessary to make a backup copy of your wallet so that you can recover your funds if the wallet is deleted or the password is forgotten or the device on which the wallet is installed is damaged.

As a backup, wallets often show you a set of 12 or 24 English words that you should write down somewhere safe. Thus, with those words you can easily access your assets in any other wallet.

Read more about wallets in the following two articles:

Buy Ethereum (ETH)

To Buy Ethereum The best thing to do is to visit digital currency exchange websites. Users living in Iran usually use one of the following two methods to buy Ether from online exchanges:

• Direct purchase of Ether from Iranian websites with Rial and bank card (recommended)
• Buying Bitcoin or Tether from Iranian websites and then converting it to Ether in foreign exchanges such as Kocoin

To buy Ethereum from Iranian exchanges, first go to the page of buying Ethereum on digital currency. On this page, you will find the list of Iranian exchanges that have listed Ethereum.

First, choose the desired exchange, then register in it, deposit the desired amount and finally buy Ethereum! so simple!

Also, you can find the best Iranian exchanges from the list of the best Iranian cryptocurrency exchanges.

However, sometimes when the liquidity of domestic exchanges is low or the purchase cost is high, investors can use the second method; It means buying Bitcoin or Tether from domestic websites and then converting it to Ether in foreign exchanges such as Kocoin.

Read this article to learn more: Training to buy Ethereum

A few frequently asked questions about Ethereum

This article can be your starting point. It is definitely not possible to understand all the complexities of Ethereum in one or two articles. In this article, we only gave a brief explanation about each aspect, and the road to expertise in Ethereum is still long. Therefore, I suggest that you take a look at the “Learn Ethereum” page of the digital currency website or many other resources and learn more about this unique technology.