Ethereum Complete Guide: Understand, Buy, Use, Secure

Ethereum Complete Guide

What is Ethereum?

Ethereum can be compared to a huge decentralized server.
Servers are the supercomputers that allow us to use the internet, read this article, or watch videos.

This was created in order to allow applications to be able to function without human involvement.

These applications are called “Decentralized Apps”, decentralized applications in French. We will see this point in detail a little further down.

Ethereum cryptocurrency, also called Ether, is considered a utility currency. It is used to take advantage of the virtual network.

Concretely, we pay for each transaction that we carry out with the contracts. Its code is ETH.

How does Ethereum work?

The Ethereum blockchain

Like Bitcoin and all cryptocurrencies, Ethereum has its own blockchain.

You have to see the blockchain as an unforgeable register listing all transactions. This registry cannot disappear since it is supported by thousands of computers (called minors) which will validate transactions.

Each miner in the network has a full copy of the register.

However, the Bitcoin blockchain only stores transactions. Ethereum’s also stores all smart contracts.

How transactions work

Ethereum transactions work through wallets. We must have the private key in order to be able to write a transaction in the blockchain and a public key in order to be able to announce with which wallets we will interact.

Unlike cryptocurrencies for monetary use like bitcoin, there is no need for a fund transfer (ETH) to write transactions. This allows applications to run on the Ethereum network.

In order to remunerate the miners supporting the network and providing computing power to execute smart contracts, each transaction will generate costs in GAS.

What is Ethereum for?

Ethereum is considered a useful cryptocurrency, you can program different smart contracts (smart contracts) and DApps (decentralized applications) on the Ethereum blockchain.

Theoretically, therefore, imagination is the only limit.
Technically, applications and contracts must be simple given the network costs that this generates.

Ethereum is the first cryptocurrency to be created with such great potential for evolution. The former allowed for the most part only a monetary exchange.

It is for this reason that Ethereum is also referred to as Blockchain 2.0.

Note: Do you want to see real world examples of Ethereum use?

See part 7 of this guide.

Smart contracts

As explained previously, Ethereum allows the execution of smart contracts. They are programmed and can be performed by themselves.

How is this useful?

This removes the inefficiencies created by intermediaries.

On the one hand, there is the cost of intermediaries.

The first examples that come to mind are Airbnb and Uber, which each take almost 30% commission on each transaction.

This commission makes it possible to pay for the development of the site, the marketing but especially the trusted third party. That is, the one who guarantees that there is an apartment for rent and that the owner has permission and declares his income.

I know another person who uses the Ethereum Blockchain to validate that he has planted trees for a business. This allows the company to reduce its carbon footprint and thus obtain certain certifications / ISO.

The examples are endless, whether it is property titles, the history of technical inspections, …

Ethereum mining

When a transaction is made, it is communicated over the Ethereum network.

The minors then validated or not this transaction. To do this, miners group transactions into a block that will be added to the blockchain. All blocks are linked together to ensure the authenticity of the register.

Now the Ethereum mining process is “Proof of Work”. The switch to “Proof of stake”, which is more economical, but also ecological and quick, is planned soon.

Miners use specialized computers for this type of mining. Technically, it is possible to mine with any device that has an internet connection and computing power. However, the complexity of the calculations to perform means that it will rarely be profitable unless you use specialized equipment.

For Ethereum mining, GPU cards (graphics card) are recommended.

As you can guess, this type of device is expensive in material and electricity, hence the remuneration of the miners for their participation in the network.

Whoever finishes the job first and validates the transaction adds a new block to the blockchain.

The miners are paid in GAS and new Ether created.

The history of Ethereum

Who created Ethereum?

It was at the end of 2013 that Vitalik Buterin published his idea of Ethereum in his white paper (white paper: explaining the purpose and function of a cryptocurrency project)

At first, Vitalik wanted to improve the bitcoin blockchain to enable him to run applications and contracts. However, the Bitcoin community opposed this vision.

After more work on the project, it was in January 2014 that Ethereum was publicly announced. The core project team consisted of:

  • Vitalik buterin,
  • Mihai Alisie,
  • Anthony Di Iorio,
  • Charles Hoskinson

Development of the Ethereum project began in early 2014.

The Ethereum ICO

The development was funded by a public fundraiser during June-July 2014. Those wishing to support the project had to send their funds to another cryptocurrency, bitcoin.

The ICO raised just over $ 18 million ($ 18,400,000) in bitcoin.

It was one of the biggest public fundraisers in cryptocurrencies at the time.

The growth of Ethereum

At the time of the fundraiser, the Ether were sold at 2000 ETH for 1 Bitcoin, which makes us 1 ETH at around $ 0.30. It is important to take into account that the value of bitcoin fluctuates and that the number of Ether given for each bitcoin decreased in a linear fashion the closer you got to the end of the fundraiser.

Upon its market introduction, 1 Ether was trading for around $ 2.

In January 2018, Ether was trading at over $ 1,300, making an implausible return on investment (ROI) for any investor who kept their ether.
To do the math, that’s a multiplication by 650!

However, Ether being a cryptocurrency, it remains volatile, dropping to $ 370 shortly thereafter.

Ethereum Hack

Unfortunately, the history of Ethereum has not only been talked about for its technical prowess.

Here are some examples of the biggest hacks that have occurred on the Ethereum blockchain. Be careful not to mix it up, it wasn’t Ethereum that was hacked, but programs running on it. It is not uncommon for human errors to occur in the code.

The DAO

The DAO (Decentralized Autonomous Organization), which as its name suggests, allowed for a decentralized autonomous organization.
It was the largest fundraiser at the time, with $ 150 million raised.

Unfortunately, a hacker who found an error in the contract embezzled more than $ 50 million in Ether.

The errors in the contract had however been pointed out by people wanting to help. However, the project team turned a deaf ear and the hacker was able to take possession of the funds.

In order to reduce the damage, the Ethereum community decided to fork (modification of existing software) in order to ban the pirate. Which gave birth to Ethereum Classic.

Parity Hack

Parity was hacked $ 150 million following the implementation of multisig wallets.

Ethereum Classic

Following the DAO hack, the Ethereum team decided to cancel the hack. However, not all of the community were of the same opinion. And like every time two large groups disagree on the future of a cryptocurrency, it results in a Fork.

A fork is actually the creation of a new cryptocurrency, using the same basic blockchain.

This separation gave rise to the creation of Ethereum classic. It is a cryptocurrency that is sometimes in the top 20 crypto currencies but rarely attracts new projects.

Against all odds, Coinbase, one of the largest cryptocurrency exchanges recently announced that it will add the Ethereum Classic.

The disadvantages of Ethereum

New programming language

The development of smart contracts and decentralized applications on the Ethereum blockchain is only reserved for a small part of the population.

Indeed, few programmers know the Solidity language which is the programming language of Ethereum. This is one of the skills most sought after by companies in 2018.

That said, Solidity is inspired by two very well known and generalized programming languages, C and Javascript.

Scalability problem

The blockchain is seeing big waves of new users, which creates several scalability issues.

We have several cases like Crypto Kitties which completely congested the Ethereum network.

When the Ethereum network is “sick”, transactions take much longer to be validated and cost much more.

Synchronization problem

One of the other problems with Ethereum is the problem of synchronizing Ethereum wallets with the blockchain.

This means that some users do not see the exact amount of ethers they have. It is not yet clear whether this error came from Ethereum or from the services offering the wallets.

As you can imagine, this worries more than one user.

Latency

We have seen previously that transactions on Ethereum take 10 to 15 seconds to be validated.

This characteristic shows us that Ethereum will not allow replacing all applications, as one might think. Indeed, 15 seconds, it can be very long (yes it does, I swear).

Imagine launching Facebook and having to wait 15 seconds for the first information to appear. Then you click on “Love” and you have to wait another 15 seconds for your love to be counted! Love doesn’t wait! In addition, these two transactions would have cost you a few cents in GAS.

The transaction cost

Ethereum transactions have a very low cost today. However, this cost is 74 times higher than a transaction on an Amazon server.

Indeed, decentralization has to pay, especially today.

Which makes us think that only simple applications that do not need real time (instant process) could run on Ethereum.

So it would be wiser to use Ethereum to avoid censorship issues.

Inflation

From an investor perspective, Ethereum is a complicated investment. Indeed, there is an inflation which is unknown every year.

This inflation should stabilize at 2-3 percent per year very quickly. Bitcoin also has inflation, but it is increasingly low and has a maximum.

There will be no limit on the circulation of Ethereum.

There are several factors that increase the price of Ethereum such as:

  • ICOs: Initial Coin Offering in French initial token / coin offer (fundraising).
  • The holders: those who buy Ethereum to store it despite inflation.

And of course more buyers than sellers.

The advantages of Ethereum

Fortunately, Ethereum has more advantages than disadvantages.

Resistance to censorship

Since the Ethereum blockchain is a public blockchain, anyone can consult it. So we have a fully distributed registry that can be viewed by anyone at any time.

This makes it impossible to modify the blockchain and transactions that have already taken place, or to delete part of them.

The Ethereum blockchain is unalterable.

No downtime

The Ethereum network is supported by several thousand computers and this number is growing larger and larger. There may be an internet outage in some part of the globe, but other miners will still be able to validate transactions.

Ethereum transactions can therefore always be carried out, whether there are strikes, wars or internet cuts …

Fundraising

The simplicity of setting up Smart contracts that allow you to create your own Token has opened the doors to many new projects in crypto currencies. It is for this reason that Ethereum is the main solution for making ICOs.

We are also seeing more and more decentralized applications appear thanks to Ethereum. It is very simple, for example, to create businesses where a system of trust and rating are necessary such as credit, short-term rental and any other connection.

Transaction speed

Bitcoin transactions can take up to 10 minutes when the network is not congested.

Ethereum now allows much faster transactions since validation typically takes 10 to 15 seconds.

How to get Ethereum (ETH)

There are several ways to get Ether. If you already have bitcoins or another cryptocurrency, it will be very easy to exchange them on the main platforms.

Mining

Of course, by participating in the network, we can earn Ether. However, winning doesn’t mean for free. It will require very advanced equipment and bear electricity costs.

We can see some apps promising to mine ethereum on their computer or smartphone. Unfortunately, it is not profitable today.

Cryptocurrency mining is rarely profitable in France and especially on a personal basis. It is necessary to have hangars with an incredible capacity of calculation and very large means.

On the other hand, services allowing the rental of computing power for mining are rarely profitable if we are to believe the many calculations that have been made here, for example.

Indeed, why would a business make something available that can make more money for it?

Get Ethereum for free

Several sites and apps often promise to get Ethers for free. They use several means such as viewing advertising messages, sending data without your consent, performing micro tasks like questionnaires and many more …

None of these methods are profitable, they are either too time consuming or not honest … They are sometimes even scams.

There is no way to get free Ethers. If you see a message promising it, remember to read the small lines (or not to read it at all!).

Buy on exchanges

The main exchanges allow the purchase of Ether. The advantage is that Ethereum is one of the main cryptocurrencies, so it is possible to buy it in euros.

More and more platforms are offering this type of service, whether it is purchase by credit card or by transfer.

We will deliberately avoid Paypal which will cost more.

The platform that we recommend is Coinbase. It is one of the easiest to use but also one of the most secure with much more reasonable fees than some competitors.

How to store and secure my Ethereum?

To store your Ether, there are 3 main solutions.

Online

When you buy Ethers, they go directly to your trading platform’s wallet. Even if you see them in your scale, you can’t be sure you always have them. Indeed, a phrase is often used by the most informed “as long as it is not your private key, it is not your cryptos”.

It is advisable to put your cryptos on exchanges only when you need to exchange them (it is therefore aptly named).

Wallet on computer or laptop

Several solutions and software are available to store your Ether on your computer. There is for example Exodus or the original Ethereum wallet (more complicated to use). It is an intermediate solution that will allow everyone to own their Ethers and not be subject to the risks of exchange hacking.

In the same way, it is possible to store your Ethers on your smartphone. Between iPhone or Android the applications will be a little different.

Offline wallet: cold wallet

Cold wallets are actually wallets that are not connected to the internet at all.

It is one of the most secure and easy to use solutions. Once connected to a computer it is possible to carry out transactions but at no time will the funds be exposed to the internet.

More and more brands want to launch their cold wallets. One of the most popular and more French solutions is the ledger wallet (cocorico!).

Ethereum vs Bitcoin

ETH (Ethereum) and Bitcoin are the two largest cryptocurrencies and here is what separates them:

  • Ethereum mining creates new Ether bit by bit at a fairly constant rate. This rhythm can be changed during hardfork. Bitcoin decreases by two every 4 years.
  • The time to create a block is 10-15 seconds for Ethereum compared to 10 minutes for bitcoin.
  • The proof-of-work uses the Ethash algorithm which avoids the use of ASICs in mining.
  • The amount of Gas Ethereum used in a transaction can be decided, it is measured in Gwei. Bitcoin transactions usually have a specified amount.
  • Ethereum transaction fees are normally much lower than those for Bitcoin transactions.
  • Ethereum uses a wallet system to store securities. Transactions therefore begin within one portfolio to credit another. Bitcoin uses a more analogous method, you spend money and then receive the currency in exchange.

How can Ethereum be used?

Decentralized Autonomous Organization (DAO)

DAOs are decentralized autonomous organizations. We write all the conditions on a smart contract and these are executed automatically.

The DAO allows everyone with tokens to vote on future decisions. The most famous DAO is none other than “The DAO” which was a decentralized venture capital fund.

People who invested in “The DAO” could therefore vote for the organization’s future investments.

Unfortunately, as we discussed earlier, it was hacked.

Initial Coin Offerings (ICOs)

Ethereum has found its audience to allow the creation of new crypto-currencies. Indeed, smart contracts make it possible to commit to offering tokens in exchange for Ether.

If you want to create your own cryptocurrency, then you have to say that for each Ether received, we will send you XX tokens.

This allows anyone to create their own token that can be traded on the Ethereum network. These tokens often use the ERC20 protocol.

The ease of creating ICOs has, as you might expect, attracted evil-minded people. Fortunately, this was able to allow the creation of some fabulous projects, notably OmiseGO, which we will discuss shortly.

Decentralized application (DApps)

Decentralized applications have no creative limits. It is possible to recreate all the services where a trusted third party usually takes a percentage for having connected two entities.

This process is like writing down all the tasks that we or a trusted third party performs.

For example, I send money to a seller on leboncoin, the money is well received, the seller must send the product to me to collect the money. It is only after that that the title deed is transferred to me.

OmiseGO

OmiseGo raised $ 25 million during its ICO.

As we explain in this article, OmiseGo was created by the Omise Company, a payment company in Southeast Asia.

Their purpose is to enable everyone to have access to financial services and to be able to make payments. Clearly, they want to become the new bank.

Crypto Kitties

The CryptoKitties have been one of the biggest hits of the Dapps. This application was very popular when it was released in December 2017.

This is a very interesting example because it allowed us to collect virtual cats and prove our possession. Like playing cards, there are several types of rarity and it is possible to perform some actions.

Like most collectible cards or whatever, the success was short-lived but is still present in blockchain news for one reason. When CryptoKitties was successful, it slowed down the Ethereum network enormously. It was impossible to carry out transactions. The transaction fees had risen to almost $ 15.

Golem

Golem is also an Ethereum-based project.

Its objective is to allow the rental of computing power.

Even though its primary purpose seems to resemble Ethereum, it is quite different.

Instead of storing contract information and decentralized applications, Golem allows the computing power of the Ethereum network to be used for other tasks.

It could be used for artificial intelligence, produced substantial renderings (for video editors or graphic designers) or even help medical research.

The internet has dubbed the project the “Airbnb of the computer”.

Ethereum FAQ

How many Ethereum are there in circulation?

The number of Ether is not limited in number. There are around 100,000,000 ETH in circulation today.

Annual inflation is normally between 2% and 4%.

What is the price of Ethereum?

It is difficult to know the exact price of an Ether. It is constantly changing and is additionally different depending on the exchange used.

As you can see from the chart below, the price of Ethereum is very volatile.

Who created Ethereum?

There was not just one person behind Ethereum but the person behind the project is Vitalik Butterin.

How to mine Ethereum?

Ethereum mining is possible on any device capable of performing calculations.

However, in order to be profitable, it is advisable to mine with very powerful graphics cards.

There are therefore two solutions:

  • Rent computing power online;
  • Miner yourself. It will then be advisable to use a Rig.

What is Gas Ethereum?

The GAS is very important, it allows minors to be remunerated for all the transactions they validate. Allowing:

  • To keep the network alive
  • Avoid DDOS attacks (denial of service, disconnection), since you would have to pay for each transaction.

It’s a bit like paying for a trip on a highway.

If you have any questions about Ethereum, you can share them in a comment or even give your opinion on this cryptocurrency.

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