View source for Ethereum blockchain

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#REDIRECT [[Ethereum]]

{{short description|A decentralized, open-source blockchain with smart contract functionality.}}
[[Image:Ethereum logo.svg|center|300px|The Ethereum Logo]]

'''Ethereum''' is a decentralized, open-source blockchain system featuring smart contract functionality. It is the second-most valuable cryptocurrency by market capitalization, after [[Bitcoin]]. Unlike Bitcoin, which was primarily conceived as a peer-to-peer electronic cash system, Ethereum aims to be a world computer, capable of running a wide range of decentralized applications (dApps). This article provides a comprehensive introduction to the Ethereum blockchain, covering its core concepts, architecture, functionality, and potential applications, geared towards beginners.

== History and Origins ==

The Ethereum project was initially proposed in late 2013 by [[Vitalik Buterin]], a programmer and co-founder of Bitcoin Magazine. Buterin envisioned a blockchain platform with more general-purpose capabilities than Bitcoin.  He believed that blockchains could be used for more than just currency, and that a platform allowing developers to build and deploy decentralized applications would unlock a vast range of possibilities. 

A whitepaper detailing the Ethereum vision was published in 2013, and development began in 2014. The Ethereum network officially launched on July 30, 2015, with an initial supply of 72 million Ether (ETH), the native cryptocurrency of the Ethereum network.  Since its launch, Ethereum has undergone significant development and upgrades, including the major transition to Proof-of-Stake (PoS) known as "The Merge" in September 2022, dramatically reducing its energy consumption.

== Core Concepts ==

Understanding Ethereum requires grasping several core concepts:

* '''Blockchain Technology:'''  At its heart, Ethereum is a blockchain. A blockchain is a distributed, immutable ledger that records transactions in a secure and transparent manner.  Transactions are grouped into blocks, which are linked together chronologically using cryptography, forming a chain. This structure makes it extremely difficult to tamper with the data. See [[Blockchain technology]] for a more detailed explanation.
* '''Decentralization:''' Ethereum is not controlled by any single entity.  Instead, it runs on a network of thousands of computers (nodes) distributed around the world. This decentralization makes it resistant to censorship and single points of failure.
* '''Smart Contracts:''' This is perhaps the most defining feature of Ethereum. Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They automatically enforce the terms when predefined conditions are met, eliminating the need for intermediaries.  Think of them as "if-then" statements executed on the blockchain.  Resources like [https://ethereum.org/en/developers/docs/smart-contracts/](Ethereum's official smart contract documentation) offer more insight.
* '''Ether (ETH):''' Ether is the native cryptocurrency of the Ethereum network. It is used to pay for transaction fees (called "gas") and computational services on the network.  It also serves as an incentive for miners (now validators) to secure the network.
* '''Gas:'''  Gas is the unit that measures the computational effort required to execute specific operations on the Ethereum network. Each transaction requires a certain amount of gas, and users must pay for this gas in Ether. The price of gas fluctuates based on network demand. Understanding [https://etherscan.io/gastracker](gas tracker) is crucial for cost-effective transactions.
* '''Nodes:''' Nodes are computers that participate in the Ethereum network. They store a copy of the blockchain and help to validate transactions. There are different types of nodes, including full nodes, light nodes, and archive nodes.
* '''dApps (Decentralized Applications):''' These are applications built on top of the Ethereum blockchain. They leverage the security, transparency, and decentralization of the Ethereum network. Examples include decentralized finance (DeFi) platforms, non-fungible token (NFT) marketplaces, and decentralized autonomous organizations (DAOs).

== Ethereum Architecture ==

The Ethereum architecture consists of several key layers:

* '''Ethereum Virtual Machine (EVM):''' The EVM is the runtime environment for smart contracts on Ethereum. It is a Turing-complete virtual machine, meaning it can theoretically execute any computation. The EVM executes bytecode, which is the compiled version of smart contract code.
* '''Ethereum Client:''' This is the software that allows users to interact with the Ethereum network.  There are several different Ethereum clients available, such as Geth, Parity, and Besu.  These clients connect to the Ethereum network and allow users to submit transactions, deploy smart contracts, and view the blockchain.
* '''Consensus Mechanism:'''  Ethereum initially used a Proof-of-Work (PoW) consensus mechanism, similar to Bitcoin. However, in September 2022, Ethereum transitioned to a Proof-of-Stake (PoS) consensus mechanism.  PoS requires validators to "stake" Ether to participate in the validation process. PoS is significantly more energy-efficient than PoW.
* '''Blockchain Layer:''' This is the underlying data structure of Ethereum, consisting of blocks of transactions linked together chronologically.

== Functionality and Use Cases ==

Ethereum's functionality extends far beyond simple cryptocurrency transactions. Here are some prominent use cases:

* '''Decentralized Finance (DeFi):''' DeFi aims to recreate traditional financial services, such as lending, borrowing, and trading, in a decentralized manner. Platforms like [https://aave.com/](Aave), [https://compound.finance/](Compound), and [https://uniswap.org/](Uniswap) are examples of DeFi protocols built on Ethereum.  Analyzing [https://defipulse.com/](DeFi Pulse) provides insights into the total value locked in DeFi.
* '''Non-Fungible Tokens (NFTs):''' NFTs are unique digital assets that represent ownership of items such as artwork, collectibles, and virtual real estate.  Ethereum is the dominant platform for NFTs, with marketplaces like [https://opensea.io/](OpenSea) facilitating their trading.  Tracking [https://nansen.ai/](Nansen.ai) can help understand NFT market trends.
* '''Decentralized Autonomous Organizations (DAOs):''' DAOs are organizations governed by rules encoded in smart contracts.  Members of a DAO can vote on proposals and make decisions collectively.  [https://daohaus.club/](DAOhaus) is a platform for creating and managing DAOs.
* '''Supply Chain Management:''' Ethereum can be used to track goods and materials throughout a supply chain, enhancing transparency and accountability.
* '''Digital Identity:''' Ethereum can be used to create self-sovereign digital identities, giving individuals more control over their personal data.
* '''Gaming:''' Ethereum-based games allow players to own and trade in-game assets as NFTs, creating new economic opportunities.  Axie Infinity is a prominent example.
* '''Prediction Markets:''' Platforms like [https://augur.net/](Augur) allow users to bet on the outcome of future events.

== The Merge and Ethereum 2.0 ==

"The Merge," completed in September 2022, was a pivotal moment in Ethereum's history. It transitioned the network from a Proof-of-Work (PoW) consensus mechanism to a Proof-of-Stake (PoS) mechanism.  This change had several key benefits:

* '''Reduced Energy Consumption:''' PoS is significantly more energy-efficient than PoW, reducing Ethereum's carbon footprint by over 99%.
* '''Increased Scalability:''' While The Merge itself didn't directly increase scalability, it laid the groundwork for future scalability upgrades, such as sharding.
* '''Enhanced Security:''' PoS is considered to be more secure than PoW, as it makes it more expensive and difficult to attack the network.

The broader project previously referred to as "Ethereum 2.0" is now an ongoing series of upgrades aimed at improving scalability, security, and sustainability.  These upgrades include:

* '''Sharding:'''  Sharding is a technique that divides the Ethereum blockchain into smaller, more manageable pieces (shards). This will significantly increase the network's transaction throughput.
* '''State Execution Layer (Statelessness):'''  Optimizing how Ethereum handles data to further improve scalability.
* '''Verkle Trees:'''  A more efficient data structure for storing and verifying blockchain data.

== Technical Analysis and Trading Strategies ==

Trading ETH, like any cryptocurrency, involves risk. Here are some strategies and indicators traders often use:

* '''Moving Averages (MA):'''  Used to identify trends and potential support/resistance levels.  [https://www.investopedia.com/terms/m/movingaverage.asp](Investopedia - Moving Averages)
* '''Relative Strength Index (RSI):'''  A momentum oscillator used to identify overbought or oversold conditions. [https://www.investopedia.com/terms/r/rsi.asp](Investopedia - RSI)
* '''MACD (Moving Average Convergence Divergence):'''  A trend-following momentum indicator. [https://www.investopedia.com/terms/m/macd.asp](Investopedia - MACD)
* '''Fibonacci Retracements:'''  Used to identify potential support and resistance levels based on Fibonacci ratios. [https://www.investopedia.com/terms/f/fibonacciretracement.asp](Investopedia - Fibonacci Retracements)
* '''Ichimoku Cloud:''' A comprehensive indicator used to identify trends, support, and resistance. [https://www.investopedia.com/terms/i/ichimoku-cloud.asp](Investopedia - Ichimoku Cloud)
* '''Elliott Wave Theory:''' A complex theory that attempts to predict price movements based on patterns in the market. [https://www.investopedia.com/terms/e/elliottwavetheory.asp](Investopedia - Elliott Wave Theory)
* '''Trend Lines:''' Identifying upward or downward trends.
* '''Support and Resistance Levels:''' Identifying price levels where the price is likely to bounce or reverse.
* '''Volume Analysis:'''  Analyzing trading volume to confirm trends and identify potential breakouts.
* '''Candlestick Patterns:''' Recognizing patterns in candlestick charts to predict future price movements. [https://www.investopedia.com/terms/c/candlestick.asp](Investopedia - Candlestick Patterns)
* '''On-Chain Analysis:''' Analyzing data directly from the Ethereum blockchain, such as transaction volume, active addresses, and smart contract activity.  Resources like [https://glassnode.com/](Glassnode) provide on-chain data.
* '''Whale Watching:''' Monitoring the activity of large ETH holders ("whales") to identify potential market movements.
* '''Dollar-Cost Averaging (DCA):'''  A strategy of investing a fixed amount of money at regular intervals, regardless of the price.
* '''Swing Trading:'''  Holding ETH for a few days or weeks to profit from short-term price swings.
* '''Long-Term Holding (HODLing):'''  Holding ETH for an extended period, believing in its long-term potential.
* '''Scalping:''' Making small profits from frequent trades.
* '''Arbitrage:'''  Taking advantage of price differences between different exchanges.
* '''Technical Indicators Combinations:''' Using multiple indicators to confirm signals and reduce false positives. [https://www.tradingview.com/](TradingView) offers tools for indicator combinations.
* '''Market Sentiment Analysis:''' Gauging the overall mood of the market towards ETH.

It's crucial to remember that past performance is not indicative of future results.  Trading involves risk, and you should only invest what you can afford to lose.  Always conduct thorough research and consider consulting with a financial advisor.

== Risks and Challenges ==

Despite its potential, Ethereum faces several risks and challenges:

* '''Scalability:'''  While upgrades are underway, Ethereum's scalability remains a challenge. High gas fees and slow transaction speeds can hinder adoption.
* '''Security:'''  Smart contracts are vulnerable to bugs and exploits, which can lead to loss of funds. The DAO hack in 2016 is a prime example.
* '''Regulation:''' The regulatory landscape for cryptocurrencies is still evolving, and uncertainty remains.
* '''Competition:'''  Ethereum faces competition from other blockchain platforms, such as [[Solana]], [[Cardano]], and [[Binance Smart Chain]].
* '''Complexity:''' Developing and deploying dApps on Ethereum can be complex and require specialized skills.

== Conclusion ==

Ethereum represents a significant advancement in blockchain technology, offering a platform for building a new generation of decentralized applications.  While it faces challenges, its ongoing development and growing ecosystem suggest a promising future. Understanding its core concepts, architecture, and potential use cases is essential for anyone interested in the world of blockchain and decentralized technologies. Remember to research thoroughly and understand the risks involved before investing in ETH or participating in the Ethereum ecosystem.  [[List of cryptocurrencies]] provides a broader overview of the digital asset space.

[[Decentralized Applications]]
[[Smart Contract]]
[[Proof of Stake]]
[[Proof of Work]]
[[Gas (Ethereum)]]
[[Ethereum Virtual Machine]]
[[The Merge]]
[[Vitalik Buterin]]
[[Blockchain]]
[[Cryptocurrency]]


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[[Category:Ethereum]]