Chapter 2

Ethereum (ETH)

thereum is a decentralized blockchain platform that allows developers to build and deploy decentralized applications (dApps). In this chapter, we will explore how Ethereum works, how it differs from Bitcoin, and the role of smart contracts in the Ethereum ecosystem.

-The Ethereum Network

Like Bitcoin, the Ethereum network is a decentralized peer-to-peer network. However, unlike Bitcoin, which was designed primarily as a digital currency, Ethereum is designed as a platform for building decentralized applications.

In addition to the blockchain, the Ethereum network includes a virtual machine, called the Ethereum Virtual Machine (EVM), which allows developers to write and execute code on the blockchain. The EVM is a Turing-complete machine, which means that any program that can be written in any other programming language can be written in Ethereum's Solidity programming language and executed on the EVM.

-How Transactions Are Processed

When a user sends a transaction on the Ethereum network, it is broadcast to the entire network and processed by miners, who validate the transaction and add it to the blockchain. Each transaction on the Ethereum network includes a "gas" limit and a "gas" price. Gas is the unit used to measure the computational effort required to execute a transaction or contract on the Ethereum network.

The gas limit is the maximum amount of gas that a user is willing to pay for the transaction, while the gas price is the amount of ether (the cryptocurrency of the Ethereum network) a user is willing to pay per unit of gas. The gas limit and gas price are used to calculate the total cost of the transaction, which is paid in ether. Miners are incentivized to process transactions by receiving a portion of the transaction fees in ether.

-Smart Contracts

Smart contracts are self-executing contracts with the terms of the agreement written into code. Smart contracts are stored on the Ethereum blockchain and can be executed by the EVM. They allow for the automation of complex agreements and transactions without the need for intermediaries.

Smart contracts are written in Solidity, a programming language specifically designed for the Ethereum network. Solidity allows developers to write complex programs, such as decentralized autonomous organizations (DAOs) and decentralized finance (DeFi) applications.

-Differences From Bitcoin

While Bitcoin and Ethereum are both decentralized blockchain networks, there are several key differences between the two.

1. First, Ethereum is designed as a platform for building decentralized applications, while Bitcoin is primarily a digital currency.
2. Additionally, while Bitcoin uses the Proof of Work algorithm to validate transactions and add them to the blockchain, Ethereum uses the Proof of Stake algorithm.
3. Finally, while Bitcoin has a fixed supply of 21 million coins, there is no fixed limit on the number of ether that can be created on the Ethereum network.

In conclusion, Ethereum is a decentralized blockchain platform that allows for the creation and deployment of decentralized applications. Transactions on the Ethereum network are processed by miners, who are incentivized with transaction fees paid in ether.

Smart contracts allow for the automation of complex agreements and transactions without the need for intermediaries. While Ethereum shares many similarities with Bitcoin, there are key differences between the two networks, including Ethereum's focus on dApp development and its use of a different consensus algorithm.