Ethereum is the second most famous cryptocurrency. So obviously the term "Ethereum white paper explained" is quite common in search engines. We're going to try our best to explain it...
This article will explain the Ethereum white paper in detail so that anyone can comprehend what Ethereum is, how it operates, and the issues it addresses. This article is for you if you have a general understanding of Ethereum but are struggling to make sense of it all.
You will learn more about the distinctions between Ethereum and Bitcoin and how Ethereum fits into the developing blockchain-cryptocurrency narrative.
This guide is not intended for those with a deep understanding of Ethereum, nor will it turn you into an expert. In light of this, we will omit some of the more intricate technical details that are not necessary for you to understand the concepts.
Ethereum White Paper Explained - What You Can Expect
The Ethereum white paper explained! No, not yet. Sure, we'll carry that out. However, any white paper may be challenging to comprehend. So we decided to start with an overview.
On a worldwide, peer-to-peer network, developers can create and execute applications using Ethereum, a decentralized platform. The technological specifics of this platform, together with its distinctive features and advantages, are described in the Ethereum white paper.
Ethereum's major goal is to provide a replacement protocol for developing decentralized applications and to offer an alternative set of tradeoffs that would be particularly beneficial for a broad category of such applications. Its focus is mostly on circumstances where security for small and infrequently used programs, quick development times, and the capacity for diverse applications to interact very efficiently are crucial.
To achieve this, Ethereum develops a blockchain with an integrated programming language that enables anybody to create decentralized apps and smart contracts with the ability to define their own arbitrary rules for ownership, transaction forms, and state transition functions.
According to the white paper, Ethereum is based on blockchain technology, which enables safe, open, and unchangeable record-keeping. Unlike Bitcoin, which is largely used for digital currency exchanges, Ethereum is built to allow a variety of "smart contracts," or decentralized applications.
When specific criteria are met, smart contracts are self-executing programs that automatically carry out the terms of an agreement. A smart contract may, for instance, pay money to a vendor automatically after a customer acknowledges receipt of the items. They are not dependent on any middlemen, such as banks or payment processors.
The Solidity programming language is another feature of the Ethereum platform described in the white paper. The purpose of this language is to create smart contracts. Developers can use Solidity to build personalized smart contracts tailored to their unique business requirements.
The Ethereum white paper offers a comprehensive description of a potent decentralized platform that has the potential to revolutionize the way we do business and communicate online.
About Ethereum White Paper
Ethereum has developed as a game changer in the decentralization of the internet. It improves the way people connect. Ethereum created the groundwork for Web3, the third generation of the internet.
The Ethereum white paper, written by Vitalik Buterin in November 2014, is likely the second-most significant document after Satoshi Nakamoto's Bitcoin white paper.
Although Vitalik Buterin wrote the white paper, numerous co-founders—including Charles Hoskinson, who would later co-found Cardano, Gavin Wood, who would co-found Polkadot, Amir Chetrit, Anthony Di Loria, Miha Alisie, and Joseph Lubin—built the Ethereum community and network. Vitalik has now been recognized as one of the richest people in the cryptocurrency world thanks to his extensive engagement with the Ethereum project.
Vitalik Buterin released a white paper titled A Next-Generation Smart Contract and Decentralized Application Platform. It emphasizes the idea that the blockchain should offer more functionality than just being a means of decentralized value storage and money transfer.
What is Ethereum?
Before we jump into the Ethereum white paper's technical side, let's start with what it is. Ethereum is a public blockchain network, similar to Bitcoin. Each of them depends on a blockchain to function. Consider the internet. On top of it, you may create a wide range of applications, including Facebook, online stores, and email. In a manner, blockchain technology is a new kind of Internet where many applications can be built. Just two instances are bitcoin and ether.
However, the main distinction between Bitcoin and Ethereum is what they are used for. Ethereum is a platform that lets developers create and implement various decentralized applications, whereas Bitcoin only serves one unique function, peer-to-peer electronic Bitcoin payments. On Ethereum, for instance, you might create a different currency similar to Bitcoin. Ethereum is an open software platform built on blockchain technology. It facilitates the creation and distribution of decentralized apps by developers.
A blockchain-based program is referred to in this context as a decentralized application, or Dapp, for short. For example, Bitcoin is a decentralized cryptocurrency used for making payments. Blockchain-based decentralized apps take advantage of all the technology's features, including immutability, security, tamper resistance, and zero downtime. A decentralized application could essentially be created from any service. There are countless options. Without a central provider of those services, decentralized applications offer things like payments, storage, and computing that we already have today.
Ethereum White Paper Explained - How Does It Work?
The Ethereum white paper explains how the platform works. We will try our best to simplify it as much as possible. Ethereum's assertion that it enables developers to create any decentralized apps they desire is simple to make, but how does it make this happen? There is a lot to discuss about this. Let's look more closely.
Ethereum functions as it does because of five essential components. Each one will require that you comprehend it at least conceptually. These are:
- Proof of Work
- Smart Contracts
- the Ethereum Virtual Machine
Smart contracts: What are they?
This phrase has undoubtedly been bandied about for a while now. A smart contract is just a collection of computer code. It controls the exchange of anything valuable, including shares of stock, real estate, and money, between parties. Ethereum contracts should not be viewed as obligations that must be "fulfilled" or "complied with". They mostly exist within the Ethereum execution environment and are more akin to "autonomous agents" (EVM). When "poked" by a message or transaction, they are constantly running a specific piece of code. To track persistent variables, they have direct control over their own key/value store and ether balance.
Smart contracts have the cool feature of self-executing exactly as intended once certain requirements are met. It is also feasible to create a smart contract with conditions that are exponentially more complex. For instance, a smart contract might enable the automatic transfer of property title following the fulfillment of a set of essential requirements. All of these occur without any human intervention. Crazy!
The Ethereum Virtual Machine (EVM)
EVM and Ether drive smart contracts. Since the EVM has a Turing complete programming language, it is capable of handling any computation challenge. By keeping all the smart contracts executing on time and synchronizing them with the rest of the network, the EVM transforms Ethereum into a programmable blockchain. As a result, the EVM makes it possible to create hundreds of different applications that can all run on the Ethereum platform.
What is Solidity?
What is Ether?
Instead of mining for bitcoins, Ethereum blockchain miners work for Ether. For the Ethereum network to function, ether is a requirement. It acts as a motivator to encourage developers to provide high-quality applications and maintain a smooth network. Ether is a cryptocurrency that may be traded in addition to being a source of power for decentralized applications.
Developers in Ethereum utilize ether to cover transaction costs for network storage and services. A cost is charged for each computation performed on the platform as a result of a transaction, and the more storage you use, the higher the fee. This is due to the network's strain caused by computations and file storage. Hence, costs exist to deter developers from excessively using the network. The Ethereum network simply couldn't operate if there were no fees to motivate user behavior. So, consider Ether to be the cryptocurrency fuel that drives the Ethereum network.
Through the process of block mining, ether is continuously produced. During the 2014 presale, this exchange rate and the total supply of Ether were established.
- During the 2014 crowdsourcing effort, 60 million Ethers were bought.
- An additional $12,000,000 was donated to the Ethereum Foundation.
- The supply is finite. There can only be 18 million Ether mined annually.
- The miners that validate network transactions are given 5 ethers (ETH) every 12 seconds.
Users who want to engage with smart contracts and decentralized applications (Dapps) developers on the Ethereum platform will both need Ether.
Proof of Work
Initially, the Proof-of-work consensus process was used by the Ethereum network (PoW). This prevents several types of economic attacks by enabling the nodes of the Ethereum network to agree on the current status of all the information stored on the Ethereum blockchain. Ethereum, however, stopped utilizing proof-of-work in 2022 and began using proof-of-stake.
The proof-of-work-based Nakamoto consensus method is what originally allowed the decentralized Ethereum network to reach consensus (i.e., have all nodes concur) on issues like account balances and the chronological order of transactions. This made it impossible for users to "double spend" their currencies and made it extremely difficult to attack or manipulate the Ethereum chain. In place of the Gasper consensus process, proof-of-stake now provides these security features.
Ethereum white paper explained its tokenomics. Tokenomics is the study of a cryptocurrency's structure, supply, distribution, and yields. It develops a model to attract investors. So they would adopt the protocol. This model makes cryptocurrencies more engaging. This could entail rewarding users for particular behaviors or penalizing them for bad behavior.
We collected these data at the time of writing.
ETH ticker: $ETH
Max Supply: ∞
Total Supply: 122,373,866
Circulating Supply: 122,373,866 ETH
Market Cap: $192,409,631,179
Fully Diluted Market Cap: $192,379,322,987
All-Time High Nov 16, 2021: $4,891.70
All-Time Low Oct 21, 2015: $0.4209
TPS (Transactions per second): 27 (average)
Developer Activity: High
Market Dominance: 18.75%
Market Rank: #2
Why Ethereum Use Proof of Stake Now?
The Ethereum white paper states that the system uses proof-of-work consensus. Yet, it made mention of the switch to proof of stake. Because it is more secure and requires less energy, Ethereum turned on its proof-of-stake mechanism in 2022. In comparison to the prior proof-of-work architecture, it is also superior for adopting new scaling methods.
Some consensus procedures employed by blockchains to reach distributed consensus are based on proof-of-stake. By investing effort, miners in proof-of-work demonstrate that they are putting money at risk. Ethereum uses proof-of-stake, in which validators voluntarily stake money in the form of ETH into an Ethereum-based smart contract. If the validator acts dishonestly or carelessly, this staked ETH serves as collateral that may be lost. The validator is therefore in charge of ensuring that newly created blocks are validly propagated throughout the network as well as occasionally producing and propagating new blocks.
Improvements to the now-deprecated proof-of-work system include the following:
- Improved energy efficiency: Proof of stake computations don't use as much energy. Because it doesn't require mining like proof of work.
- Lower access barriers and fewer hardware requirements: You can create new blocks without any expensive equipment.
- Better chances of Decentralization: Proof-of-stake should result in more nodes safeguarding the network, reducing the possibility of centralization.
- More Participants: The low energy demand means that less ETH needs to be issued to encourage participation.
- Economic penalties: Bad behavior makes 51% style attacks for an attacker much more expensive than proof-of-work.
- Possibility of restoring chain: If a 51% attack manages to get past the crypto-economic barriers, the community can turn to social recovery to restore an honest chain.
Five Stages of Ethereum Development
Vitalik Buterin, the co-founder of Ethereum explained the five phases of development. The stages are:
- The Merge
- The Surge
- The Verge
- The Purge
- The Splurge
During The Merge, the execution layer of Ethereum's existing blockchain and The Beacon Chain will "merge" (the consensus layer). In other words, proof-of-stake will replace Ethereum's current proof-of-work consensus mechanism.
The measure is anticipated to reduce Ethereum's net issuance while 99% reducing its power usage. Many believe that ETH issuance will eventually turn net negative, earning it the nickname "ultrasound money."
The asset rose this month when an ecosystem developer suggested that the Merge upgrade would go live on September 19. According to Vitalik, testing for the Merge is currently 90% complete, and after its deployment, Ethereum will be around 55% complete.
The Surge phase, which will introduce sharding to the Ethereum network, will come next. Sharding is a scaling technique that divides Ethereum into distinct "shards" to distribute the computational load across the network. According to Vitalik's predictions from January, this update, which is scheduled for 2023, will bring Ethereum to about 80% of its final state.
Next is the introduction of "verkle trees," sometimes known as The Verge. This version uses a "strong enhancement to Merkle proofs" to optimize data storage for Ethereum nodes. It will also assist Ethereum scale because it allows for more blockchain transactions while maintaining the decentralized nature of the blockchain.
The Purge is a similar improvement for validators' data storage. It will lower the hard disk space requirements for "bad debt" and historical data validators. It will also reduce network congestion and simplifies storage.
The Splurge, a series of "miscellaneous" upgrades, will be carried out once the first four stages are complete to ensure the network keeps operating as intended
Use Cases Explained in The Ethereum White Paper
Three major categories are used to divide use cases in the white paper.
- Financial applications, such as “sub currencies, financial derivatives, hedging contracts, savings wallets, wills, and ultimately some types of full-scale employment contracts”
- Semi-financial applications, which are those “where money is involved, but there is also a heavy non-monetary aspect to what is being done; a wonderful example is self-enforcing bounties for answers to computational problems.”
- Non-financial applications, or “applications that are not at all financial,” include internet voting and decentralized government.
You can use Ethereum as -
Token systems can be implemented in Ethereum extremely quickly. One unique aspect of Ethereum-based token systems is the ability to pay transaction fees in that currency. It accomplishes the same using a smart contract.
Financial Derivatives and Currencies with a Stable Value
Financial derivatives offer a decentralized market of speculators who place bets on the price appreciation of crypto assets, acting as issuers. Advantages include the fact that they don't default, which lowers the risk of fraud.
Identity and Reputation Management Systems
With open database systems, users can register their names. In essence, it functions as a database that can be expanded but not changed or deleted.
Decentralized File Storage
It is a decentralized file storage system since there are contracts that permit people to rent out free space on their hard drives to other people in exchange for modest payments.
Decentralized Autonomous Organizations (DAO)
A DAO is essentially a virtual organization with members who, with a 67% majority, have the power to spend the organization's money and change its code.
5 Reasons Why You Should Read The White Paper
If you want to invest in a cryptocurrency coin or project, you must have sufficient knowledge about it. Typically, the white paper contains the majority of the necessary data. The Ethereum white paper is among the best written in the cryptocurrency industry. Why should you read it?
- The Purpose
Any project has an objective, which is among the most crucial things you should comprehend before getting involved. The problem and the project's approach to solving it are both described in the white paper.
- The Team
The team members are just as crucial as the project itself. It might inspire a sense of dependability if the project's creators have solid credentials and a solid reputation. White papers that contain no information on the people behind the initiative or whose creators' credentials are in doubt should be avoided.
- The Architecture
It's crucial to comprehend the systems that drive a project. You must be aware of the project's internal protocols and the kind of consensus process it employs. You might need to know the project's energy consumption, rewards for participation, scalability, degree of interoperability with other projects, and ups and downs.
- Timelines and Milestones
You need to know the team's goals, how each milestone will be attained, and how long it will take to get there. The project timetables or roadmaps will also enable you to determine whether the project has achieved its prior milestones or is not developing in line with expectations.
Token economics is known as tokenomics. It discusses various supply and demand issues that have an impact on a project. The tokenomics regulations may attract more investors or repel them. Tokenomics is comparable to a nation's monetary policy, which may be advantageous or disadvantageous.
You must study crypto tokenomics and take into account the token's supply as well as its maximum supply. The number of tokens that can ever exist is referred to as the maximum supply.
- What is crypto white paper?
White papers are documents that are created to raise awareness of a specific project or product. It is a thorough document that includes crucial project information. The crypto white paper in the field of cryptocurrencies outlines a project's status and future objectives. The objective is to educate and entice fans and investors to invest in it.
- What is the name of the Ethereum’s white paper?
A Next-Generation Smart Contract and Decentralized Application Platform is the title of Vitalik Buterin's Ethereum white paper. It draws attention to the decentralized nature of value storage and money transfer on the blockchain. Also, it adds another level of functionality.
- When was the Ethereum white paper published?
Co-founder Vitalik Buterin published the Ethereum white paper in November 2014. In terms of significance, it is second only to Satoshi Nakamoto's BTC white paper.
- Do I need to take any action if there is an upgrade?
The Ethereum upgrade doesn’t generally affect negatively the end users. It offers better user interfaces, a more secure protocol, and possibly more alternatives for interacting with Ethereum. It is not necessary for end users to actively participate in an upgrade or take any action to protect their assets.
- Is Ethereum a Good Investment?
Your financial aspirations, goals, and risk tolerance will all play a role in the response to that question, just like they would with any investment. Due to the volatility of the ETH cryptocurrency, money can be at risk. Nonetheless, it is undeniably worthwhile to consider as an investment because the various modern and emerging innovative technologies that employ Ethereum might start to have a significant impact on our society.
- Can Ethereum Be Converted to Cash?
Yes. Investors who own ETH have access to online exchanges like Coinbase, Kraken, and Gemini for this transaction. Creating an account on the exchange, connecting a bank account, and transferring ETH from an Ethereum wallet to the exchange account is all that is required. on the exchange, place a sell order for ETH. After being sold, transfer the profits in US dollars to the corresponding bank account.
Many began to explore the potential of blockchain technology after learning about Bitcoin because of its security and transparency. Vitalik Buterin and other programmers changed the blockchain sector by developing Ethereum. They utilized this technology and built a decentralized blockchain with smart contract capability. Despite being published nine years ago, the ETH white paper still has excellent solutions.
We tried to make the white paper's explanation as easy as we could. I hope you may now better grasp Ethereum. So before you invest, do further homework.