Financial Education

What Is Ethereum?

June 25, 2021

Breaking down the purpose of Ethereum requires an examination of the components that make it up. The Ethereum network runs on a blockchain, which stores information in individual blocks. These are dependent on other blocks linked together in a blockchain for accuracy.

Applications built with blockchain technology utilize Ethereum Virtual Machines to create decentralized applications or “dapps.” Dapps are built using smart contracts which are hosted on Ethereum or other blockchains. A smart contract is a form of trustless agreement between two parties that cannot be changed and runs on the Ethereum blockchain. Finally, we’ll review the language of smart contracts, called Solidity, and how it governs transactions on the blockchain.

Blockchain

First, we’ll break down what a blockchain is and some it’s basic applications. At its core, blockchain is a technology for permanent, untouchable history. It is a track record we can reference that is completely transparent for anyone to see. The primary building blocks are virtual blocks chained together. 

You can think about them like the building blocks you played with as a child - you need a lot of them to build a foundation on which to build more. Each one is unique and serves the other blocks by maintaining its structure.

Similarly, each block contains information and transaction history dependent on all blocks in the chain. Blockchain technology can be applied to manufacturing goods and services, improving supply chain and logistics monitoring. Medical data can be securely shared as well as improve the privacy of our personal information.

Ethereum Virtual Machine

EVM, or Ethereum Virtual Machine, performs like a mathematical function. EVMs are like digital sandboxes where the environment is limited to one computer and programs interact with one another within the sandbox. It takes an input, and it produces a calculated output. These transactions have a special signature containing instructions from a blockchain wallet or smart contract. EVM’s act as a stack machine, a trustless computation control requiring very little oversight to remain accurate and secure. To simplify, EVM’s allow the creation of decentralized applications, or “Dapps,” which developers value for being secure from disruption and having no downtime.

Smart Contract

A smart contract is a key function distributed across a decentralized blockchain network. Think of this as a package of language or code that is developed and put into action on the Ethereum blockchain. It serves as a trustless agreement between a buyer and seller written in secure computational code. Smart contracts are self-executing, meaning they take effect immediately without the oversight of external rules or judgment. 

Implementing smart contracts helps to increase the security of different transactions and seeks to reduce transaction costs as much as possible. The code written in the smart contract controls the execution, making all types of transactions irreversible and trackable.

Solidity

All of the elements we’ve discussed are built with the contract-oriented language, Solidity. A lot like a normal language, Solidity gives us a way to speak to the Ethereum blockchain. When creating a smart contract, you are using the language of Solidity to build it. It is essentially used to deploy smart contracts on the Ethereum blockchain by creating decentralized applications. Ethereum Virtual Machines contain the environment on which applications are built upon.

Heavily influenced by other programming languages such as Javascript, C++, and Python, it was designed to produce smart contracts on the Ethereum blockchain and various others. Learning how smart contracts interact with the blockchain and EVM’s is complex, but their usage will revolutionize the transactions of valuable assets and services.

Opportunities With Ethereum

The components that make up Ethereum run in an open-source platform, making the code transparent and therefore available for improvement. Blockchain technology’s adaptability and reusability create almost endless possibilities to improve transactions in traditional and emerging markets. Finding innovative applications in which we use smart contracts will improve security and spark creativity as to how we can use this technology to make information more accessible.

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