INTRODUCTION
Ethereum, like bitcoin, is a blockchain. Reading the Bitcoin whitepaper, we learn that blockchain technology is simply a record of transactions that can be viewed on a digital ledger. Building on the idea of blockchain technology, Ethereum exists as a virtual machine that houses smart contracts. Smart contracts open up more possibilities beyond a ledger recording transactions. While a blockchain has amazing potential in the world of finance, the implementation of smart contracts opens up possibilities beyond finance. Documentation provided by the Ethereum Foundation helps to simplify the complexities of the Ethereum blockchain.
EVM
Similar to bitcoin, the Ethereum blockchain is maintained by a network of computers. The state of the Ethereum blockchain that is maintained by the network is referred to as the Ethereum Virtual Machine (EVM). The EVM houses all the data on the Ethereum blockchain including smart contracts. The EVM is what separates Ethereum from Bitcoin. While bitcoin was designed to function as a currency, Ethereum was designed to function as a virtual server. Ethereum can serve as a currency if needed, but its purpose is to serve as a platform that can house code that can create use cases beyond currency.
ETHER
While Ethereum is a reference to the blockchain, the actual currency that allows the blockchain to function is called ether. Any action that occurs on the EVM is considered a transaction. Based on the complexity of the transaction, a fee has to be paid for with ether. This payment is known as a “gas fee”. One of the reasons behind gas fees is to reduce the spamming of transactions on the network. Gas prices also vary based on how congested the network is. Gas prices can easily be monitored by the same tool used to observe the blockchain, Etherscan.
SMART CONTRACTS
The concept of a smart contract is the key feature that separates Ethereum from Bitcoin. As mentioned earlier, ether is the currency on the EVM that facilitates transactions. A transaction can be something as simple as sending ether from one account to another. Ether is also necessary to execute a smart contract. A smart contract is simply code that exists on the EVM. Users create accounts to interact with the EVM. A smart contract is also an account that exist within the EVM differing from a user account in that a smart contract is not controlled by a user. It is controlled by code through the programming language Solidity. Therefore, a smart contract can be thought of as a program hosted on the EVM.
WEB3
A smart contract is what gives birth to the idea of web3. As the internet has evolved, we have grown accustomed to web2. Web2 is the world wide web we know today: a collection of applications such as social media that are controlled by various entities. Web3 is the idea of applications existing in a “permissionless” nature without the need of a central authority. The programs that are built with smart contracts are refereed to as decentralized applications (dApps). Therefore, web3 can be described as another iteration of the world wide web using the internet as infrastructure. Web3 does not require permission and exists in a decentralized manner. Whether this is good or bad is open for interpretation, but it is a defining feature of the EVM.
ETHEREUM REQUEST FOR COMMENTS
The possibilities that can exist in web3 are vast due to the implementation of smart contracts. ERC-20 and ERC-721 are two types of smart contracts. ERC-20 allows for the creation of fungible tokens while ERC-721 allows for the creation of non-fungible tokens. An example of a fungible, ERC-20 token is the cryptocurrency $USDC. $USDC is a “stable coin” pegged to the value of the US Dollar. Another example of an ERC-20 token is the $UNI token which allows users to participate in collecting a percentage of fees from the Uniswap dApp. These tokens are considered fungible because all of the $USDC and $UNI in circulation are the same. In contrast, nonfungible tokens (NFTs), are tokens that are unique from each other. Currently, the main application for NFTs is art. However, the future of NFTs will evolve into titles for cars and deeds to houses. All of these tokens will exist in a decentralized nature on a blockchain.
CONCLUSION
Ethereum has an infinite supply of ether and currently functions under the same “proof of work” consensus model as bitcoin. Capped at 21 million total coins, Bitcoin was not created to be a store of value; though it has recently been labeled as such. Bitcoin was created for day-to-day transactions. Ethereum, on the other hand, wasn’t created to simply serve as a currency. Through the implementation of smart contracts, Ethereum is limited only by a developer’s imagination. Ethereum has countless use cases beyond currency from marketplaces to games, and it continues to evolve. Moving from proof of work, Ethereum will eventually function under the “proof of stake” consensus mechanism. Ethereum has introduced a new evolution of the world wide web creating the framework for web3. The rise of Ethereum has seen the birth of so called “Ethereum killers” as everyone is in a race to carve out their own versions of web3.