If you think Ethereum is so valuable because it has the second biggest market cap and a relatively high value per unit, then you really missed the point. And just by trading and hodling the cryptocurrency, you are actually kicking yourself out of a much greater opportunity.
It’s true that the cryptocurrency market is a little bit of a wild west these days, and many people are just looking to get some profits. However understanding Ethereum will bring you a glimpse of what Vitalik Buterin’s bigger picture is and why his project is so great.
So bear with me and find out what’s the big innovation Ethereum brings.
Table of Contents
First of all, Ethereum is a platform founded by Vitalik Buterin in the pursuit of making the internet decentralized, where the code is the law. The coin is actually called Ether.
Ethereum is a do it yourself platform for decentralized applications (DAPP). It allows you to build an application that no single person controls, and is backed by blockchain technology. Therefore it removes the need for a third party and everything is managed through smart contracts.
The dapps are built through Solidity, and you are virtually able to give them any capabilities.
The platform is rather complex and continuously evolving, so, we won’t get into coding specifics. But in understanding Ethereum it’s enough to know that there are 3 main aspects:
- Ethereum virtual machine – which calculates elements that dictates the way smart contracts work;
- Swarm – the storage layer, where the info about tokens, smart contracts, and various data are located;
- Whisper – the mechanism each node communicates through.
As for how big the Ethereum blockchain is, it has reached a size of 132.27 GB in January 2020.
Getting started with Ethereum
To get started with Ethereum you first have to understand that the Ethereum Blockchain works like a big decentralized supercomputer. It gains its computing power from around the world, and that computing power requires gas which is paid in Ether.
The gas price is 1 Gwei (0.000000001 Eth).
So first, you are going to need a wallet where to store Ethereum. There is a multitude of Ethereum wallets – some are better, some worse. That’s why you should read our Cryptocurrency wallet guide before picking one.
Then you can go forward on writing smart contracts and building dapps.
What is ether used for
There is no data for the max supply of ETH, but at the time the article is written there are 109,394,539 ETH on the market.
The main use of Ether is to power and incentivize the Ethereum network. But at this point, you may want to know what is ether used for aside for buying gas.
And there are actually several use cases for it outside the platform. People use Ether to send money abroad, with very small fees through peer to peer transfers. Also, you can use Ether to buy products on services from all the providers that accept it. Or you can just trade it on exchanges.
But keep in mind that every operation with ether uses gas, including transfers.
SIDENOTE. To facilitate the connection of your internet browser with the dapps, you can make use of the Metamask, especially if you want to make small transactions here and there.
Ethereum Smart Contracts
The big innovation Ethereum brought is the smart contract.
Smart contracts are little programs that are established before launching a token, then stored on the blockchain. After you write the function’s characteristics, they will run autonomously, without anyone being able to modify them.
Basically, a smart contract defines the condition on which all parties agree upon by using it. Also, smart contracts can contain various information, from the number of tokens, to even a type of insurance.
In the beginning, creating a new smart contract and a token was a lot like reinventing the wheel. Almost every new token would necessitate special customization for an exchange, a wallet, or an app to communicate with it.
There was a lot of room for errors, and changing your dapp after launching it on the main net would require a hard fork. So the need for a token standard appeared.
Ethereum Request Comment (ERC)
ERC20 appeared in 2015 and gave the Ethereum users a guideline for creating a fungible token. It’s the most spread token, and by far, the easiest to create.
You don’t even have to write a smart contract yourself. You can go on a token generator to automatically create your own cryptocurrency. You just have to put in basic info like:
- the name of the token;
- the symbol;
- max supply;
- gas limit.
Some of these platforms even allow you to even generate an ICO.
Over time, people noticed a lot of issues with ERC20, and one of the most known issues is that of sending a token to a smart contract that is not made to support it. Millions of dollars have been lost due to blocked transactions.
ERC223 comes to solve this problem by adding a token fallback function. It is an improved version of the ERC20 which rejects unsupported transactions, and also uses 2 times less gas.
ERC721 is the token standard that proposes a non-fungible token. If ERC20 comes with a token that is valued the same as the next one, ERC721 introduces tokens that are indivisible and unique. The most popular use of ERC721 is in CryptoKitties.
ERC1155 is a rather unique approach that proposes a standard where a single contract acts as an interface for multiple types of tokens such as fungible, non-fungible, or other configurations.
Can you mine Ethereum?
Yes, you can mine Ethereum and gain Ether. As Ethereum mining hardware, you can only use GPU (Graphical Process Unit). As for ASIC (application-specific integrated circuit), it is excluded for the sake of decentralization.
Through Ethereum mining, the network is kept alive and developed. The nodes help to add new blocks and confirming transactions by solving complex mathematical operations.
For now, Proof of Work is the main consensus mechanism used by Ethereum but it’s soon expected to transfer to Proof of Stake exclusively.
How hard is it to mine Ethereum in 2020?
In the beginning, it was relatively easy to mine Ethereum in order to distribute Ether around the world and to set up an extensive network. In 2016 you could still set up a mining rig investing about $2,000 and get around $20,000.
4 GPUs RX 580 8GB that would generate 115 MegaHash/s would get you 1 Ether a day. But in 2020 the Ethereum hash rate difficulty considerably increased to almost 15 GigaHash/s for 1 Ether a day. That would take about 500 GPUs like the one above.
And besides the initial investment, you would have to take power consumption into consideration.
Is mining Ethereum profitable in 2020?
The short answer is “not at all”. You can check any Ethereum mining calculator and you will see that the higher the difficulty is, the higher the power consumption will be. Unless you have a really cheap cost per KWh or you generate energy with solar panels and wind power plants, you may only lose money.
It may seem disappointing for the Ethereum miners, but Ethereum’s proof of stake will be a game-changer.
How to mine Ethereum on Windows
The first thing you need to know is that you have to own an Ethereum wallet before starting to mine. You need one so your Ether goes in the wallet after you mine.
Then, to start mining Ethereum on Windows you need to:
- Download an Ethereum mining software. Claymore, CGMiner, MinerGate, Ethminmer, and Geth are the most used. Each of these software has a Windows dedicated version.
- Extract / Install the software of choice.
- Configure the software to your mining rig.
- Select your pool.
For now, it’s better to mine inside a pool, especially if you are a beginner. That’s because the difficulty is getting higher and you might end up consuming energy without getting to mine a block because you don’t have enough hash power.
Future of Ethereum
Ethereum 2.0 coming up in 2020
The hottest topic in 2020 is Ethereum 2.0.
This year, the update to Ethereum 2.0 is expected to take place. The Ethereum blockchain will have its structure modified, introducing the Beacon Chain.
It won’t be a separate chain but an extension in which the beacon will manage the consensus and store messages between nodes and the activity of the PoS validators.
As for the consensus mechanism, Vitalik Buterin revealed the new Ethereum proof of stake will be lighter, faster, and much more efficient.
You will be able to mine Ethereum by staking 32 Ether and using an average laptop. For 100 Ethers you may need a high-end desktop computer and a mining rig for 1,000+ Ether.
The miners will be required to be online only for 2/3 of the time a day.
Ethereum 2.0 comes with a transaction speed in the order of tens of thousands per second. Also, the costs and fees will be cut down.
The interface will be more user-friendly as well, so people can develop even more projects on Ethereum.
With Ethereum 2.0, people expect the Bitcoin Flippenning to take place, and Ethereum to take the first spot.