Introduction
Ethereum is a decentralized blockchain which also supports smart contracts without a central coordinator. Ethereum extends blockchain concept bitcoin by allowing us to run code equivalently on all computers in the network. Developers can build decentralized applications (dApps), which can be executed on the Ethereum network.
How is Ethereum different from Bitcoin?
Ethereum also uses Proof-of-Work consensus algorithm like Bitcoin and has an inbuilt crypto currency called Ether. But Ethereum is different in block size and block time when compared with bitcoin. Blocks on Ethereum are much smaller in size when compared with blocks on blockchain. The maximum size of a bitcoin block is around 1MB. Whereas block size on Ethereum depends on gas limit per block, which is complexity of contracts. Currently most Ethereum blocks are under 2kb in size. In Ethereum the time between creation of blocks is around 14 seconds when compared to bitcoin's 10 min. This means transactions are recorded to Ethereum's blockchain much faster than bitcoin's blockchain. Basic transactions block on Ethereum can fit around 70 transactions while bitcoin can fit 1500-2000 transactions, this explains Ethereum's small block size and short block time.
What does Ethereum do?
Ethereum can power a number of applications:
- Currency : Using an Ethereum wallet you can send or receive ether.
- Smart Contracts (Code is Law) : Smart contracts are small computer programs that are replicated and processed on all the computers on the Ethereum network.
- Decentralized apps (dApps) : dApps are like normal apps, and offer similar functions, but the key difference is they run on a peer-to-peer network, such as a Ethereum blockchain, using smart contracts.
- Non-fungible tokens (NFT) : An NFT is a digital asset that represents real-world objects like art, music, in-game items and videos. NFT can neither be replaced nor interchanged because it has unique properties.
- Decentralized Finance (DeFi) : Decentralized finance eliminates intermediaries by allowing people, to conduct financial transactions through peer-to-peer financial network.
- Decentralized exchanges (DEX) : DEX are a type of cryptocurrency exchange which allows for direct peer-to-peer cryptocurrency transactions to take place online securely and without the need for an intermediary.
Again, it's probably more realistic to think about Ethereum as a network that supports a variety of apps rather than a crypto that allows people to transmit money to one another.
Why Ethereum?
Bitcoin is a decentralized peer-to-peer transactions system. Ethereum, on the other hand, used to create and build applications and smart contracts with a cryptocurrency platform. Ethereum allows smart contracts and decentralised apps (dApps) to be written and run without the risk of downtime, fraud, control, or third-party interference.
Where Ethereum stands in Trilemma?
Termed by Vitalik Buterin, The Blockchain Trilemma addresses the challenges developers face in creating a blockchain that is scalable, decentralized and secure — without compromising on any facet.
- Decentralized : Creating a blockchain system that does not rely on a central entity.
- Scalable : The ability for a blockchain system to handle an increasingly growing amount of transactions.
- Secure : The ability of the blockchain system to operate as expected, defend itself from attacks, bugs, and other unforeseen issues.
As of now Ethereum is more decentralized and secure but not much scalable due to its less number of transactions per second (15-45 as of Feb 2022) and high gas fees.
Conclusion
It’s difficult for any blockchain system to effectively achieve decentralization, scalability, and security. The adoption of Layer-1 and Layer-2 solutions, as well as the introduction of Proof-of-Stake systems, is altering the perspective toward distributed, secure, and scalable blockchain networks. The long-awaited Ethereum 2.0 is a response to these concerns, one of its major innovations is moving the way it validates transactions from proof-of-work to proof-of-stake. Ethereum has many use cases and have the potential to lead the blockchain industry.