Ethereum has maintained a strong position as the second-largest cryptocurrency by market capitalisation after Bitcoin. However, it has gained widespread recognition for its unique technology, smart contracts, and the decentralized applications (dApps).
Ethereum goes far beyond the general abilities of first-generation cryptocurrencies. Since its launch in 2015, Ethereum has grown to become much more than just a digital currency. It has positioned itself as a base layer of computing, serving as the foundation for a variety of applications that rely on its unique abilities combined with its robust and secure infrastructure.
Ethereum’s Benefit, Smart Contracts, and the EVM
At its core, Ethereum, like its big brother Bitcoin, is a decentralised, open-source blockchain platform. However, Ethereum also enables developers to build decentralised applications.
dApps are possible with Ethereum, because it offers a programmable platform that allows developers to create smart contracts, which are self-executing contracts with the terms of the agreement between two or more parties (usually a buyer and seller) being directly written into lines of code. These smart contracts are executed on the Ethereum Virtual Machine (EVM), a decentralised runtime environment that can execute code on the blockchain.
Smart Contract Basics
Ethereum’s smart contracts are built on its blockchain technology, which is a decentralised, secure, and transparent ledger that records all transactions and interactions on the network. Smart contracts are designed to enable, verify, and enforce the negotiation or performance of a contract without the need for intermediaries such as banks, lawyers, or notaries, nor their escrow accounts. While there are similar blockchains, Ethereum is the most popular blockchain for smart contracts.
A smart contract’s encoded terms, stored on a blockchain, are then executed by the blockchain when certain conditions, known as ‘triggering events’, are met. Most of this code is a combination of simple ‘if-then’ statements. For example, in a simple, smart contract for a vending machine, the triggering event is the insertion of the coin: ‘if a coin is inserted’, ‘then’ the trigger releases the treat.
One benefit of blockchain-based smart contracts is that they are immutable, meaning the contract cannot be changed once deployed on the blockchain. Immutability ensures that the terms of the agreement are always executed as written, without the risk of tampering or fraud. It also means that a smart contract must be carefully crafted before it is deployed.
The Ethereum Virtual Machine
The Ethereum Virtual Machine (EVM) is a key component of the Ethereum blockchain. It is a virtual machine responsible for executing Ethereum’s smart contracts and recording transactions on the blockchain.
The EVM is a software environment that allows developers to write smart contracts in high-level programming languages, the most common is Solidity (Ethereum’s native smart contract programming language), and then compile them into bytecode that can be executed on the Ethereum network. The EVM is designed to be platform-independent, meaning that smart contracts can be executed on any device that is running an Ethereum node.
The EVM’s primary benefit is that it allows for the creation of dApps that can run on the Ethereum blockchain. These dApps can provide a wide range of services, such as digital identity, voting systems, supply chain management, and decentralised finance, discussed further below.
Because the EVM is a decentralised platform, these services can be provided without the need for intermediaries or centralised authorities, helping reduce costs and increase the transparency of these functions.
Another benefit of the EVM is that it provides a high level of security for smart contracts. Smart contracts are executed on the EVM in a sandboxed environment, which means that they are isolated from the rest of the network and cannot access any external resources without explicit permission. This can help to prevent hacks and other security breaches that can occur in traditional software environments.
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