What is Ethereum – [Massive Guide 2017]

Ethereum Logo

You might have woken up to the fact that Ethereum is the latest craze in the cryptocurrency world this year 2017. Ethereum has increased almost 3000 percent in this year. If you are here to read and understand more about what is Ethereum in order to invest in Ethereum, then you have come to the right place. Before we begin though, we need to take a detour and understand blockchains.

With the rise of cloud computing and the widespread use of the Internet, our data, be it personal or professional, is typically hosted in various servers. Most of the Internet servers are controlled by large corporations. Even this article will probably end-up on one of the servers of a data storage firm. The good thing about having large corporations manage these servers is that they can afford to pay for specialists. These specialists will protect and secure the data. Various parties can gain uninvited access to what is your personal data without your consent. Also governments or authorities can force these large corporations to handover access to them.

Cryptocurrencies rely on a platform known as Blockchain networks. These represent decentralized databases stretched across numerous servers online, each regularly updated to remain in sync. The underlying reason is to eradicate the conventional weak-points common with traditional setups.

Blockchains eradicate the need for a central controlling site such as banks and governments that dictate every occurrence. Rather, Blockchains depend on special peer-to-peer technologies in order to function. And operating with numerous computers, the Blockchain then becomes transparent and secure.

Here is a video that should provide you with a better understanding of blockchains.

For years, by relying on blockchain technology, Bitcoin has easily become the most popular global digital currency. However, Ethereum is beginning pose a threat and or could even surpass Bitcoin phenomena.

What is Ethereum?

You might be surprised to hear that Ethereum is not actually a cryptocurrency, but a large decentralised computer. Ethereum is an blockchain based open source platform that can be used to develop and deploy applications known as smart contract.

A smart contract is a piece of code that helps in the transfer of data. The data could be in any form be it monetary, property, or any other thing of value. Smart contracts are applications which run as precisely programmed. Smart contracts are not subject to fraud and any middlemen involvement. Smart contracts are however subject to certain theoretical attacks.

Ethereum basically is an open-source, public ledger platform which is established on a blockchain and subsequently features functionality of smart contract or scripting. This platform is well able to implement contracts through utilizing both the exclusive Ethereum network and public nodes. Ethereum provides a token known as ‘Ether’ which is transferable between various participants and which is utilised as a currency.

Where Bitcoins are limited to only handling  accounts and transaction, Ethereum can also store computer programs like:

– If Bob’s account has $1000
– and if today is 31 July 2017
– then transfer $500 to Alice’s account

The program can be stored in the Ethereum database for ever (because it is stored in thousands of computers around the world) and no one can question the validity of the program.

How does Ethereum work?

This network uses a special internal pricing system called Gas which is used in preventing spam on this network aside from making proportional resource allocation to segments from where significant request numbers are emanating from.

The network had a hard fork around the year 2016 which bore two distinctive blockchains. These particular block chains formed the foundation of both Ethereum and its subsequent Ethereum Classic that utilizes unforked blockchain. Ethereum Classic brings together all users as found in the large Ethereum community that rejected the fork due to several reasons.

It operates on a tailored blockchain-a momentous and potent shared universal infrastructure which not only represents the property ownership but also moves value about. This, therefore, allows developers to establish markets, safeguard debt registries (promises), move funds as per dispatched instructions even given many years back among other things all surprisingly free of middle men and or risk of counter parties.

Why is the price of Ethereum soaring?

With news of Ethereum being adopted by many corporations and startups increasing the price of Ether keeps soaring. The main benefit of Ethereum is that the platform is provides can be used to build a very wide array of applications directly on the blockchain. The types of applications range from currencies to various kinds of financial contracts to domain name registries, identity registries and certificate authority systems and even voting and governance applications.

Where can you buy Ethereum or how to invest in Ethereum?

Ethereum, though the second when it comes to blockchain platform prominence, is surprisingly hard to acquire. Unlike Bitcoins which are easy to buy from many platforms including localbitcoins.com, it is surprisingly quite difficult to locate reliable trading platforms to purchase Ethereum. However, the number of exchanges dealing with Ethereum are increasing such as Poloniex, Kraken, GDAX, and Bitfinex.

What are some Ethereum Wallets?

Ethereum wallets are an interface to the Ethereum blockchain. The wallets contain a Public address and a Private key to access the address. The address is where you can access your Ether – the Ethereum currency. We will explore some below. A more detailed review of Ethereum wallets is on its way.

1. Geth: If you are looking for a simple to use Ethereum, then this is not for you. Geth is basically a standard command line platform for not just using but also creating contracts, sending and receiving Ethereum. It is an amazing choice for programmers.

2. MyEtherWallet: It is a standard open source Client-side Javascript Ether wallet. This wallet makes it simple to establish secure wallets without using a command line on your PC. Through running this wallet on offline computers, you are able to establish safe paper wallets important for your respective Ether holdings. Moreover, MyEther Wallet comes with an exclusive in Chrome extension that creates an enhanced user interface useful in receiving and sending transactions.


3. Ethereum Wallet: The  Ethereum Wallet also known as Mist is the official wallet provided by the Ethereum project and is to be considered as wallet to store Ether securely.  The wallet also stores Ethereum based tokens or other currencies. It also acts as a key to using decentralised applications on the Ethereum blockchain. Using the solidity programming language you can write, deploy and use smart contracts.
Ethereum Wallet

4. EthAddress: This is an open source client-side JavaScript Ether wallet. It supports bulk wallets, single wallets, vanity wallets, and split wallets.

You can read about some other wallets including Bitcoin wallets in this article on the best cryptocurrency wallets.

What is Ethereum mining and how does it work?

With Ethereum blockchains, miners work in an attempt to earn a cryptocurrency known as ‘Ether’ which like ‘Bitcoins’ is purchasable, tradable and can be stored on exclusive platforms such as Ethereum platform.

Ethereum mining is the process by which ETH is acquired and accumulated through network transaction validation. Specifically, mining is basically participation in validation transactions which occur so as to substantiate all activities that occur in Ethereum Blockchains. Mining of Ethereum can be carried out on virtually all platforms inclusive of home computers and tailored rigs. It appears that it is easier to use Unix as opposed to Windows machines for Ethereum mining in particular.

How Ethereum Mining Works:

The process used in mining Ethereum is almost similar to that used in acquiring Bitcoins. With every collection of transactions, subsequent miners use their computers in promptly and repeatedly filling in answers to puzzles and on winning, they are rewarded with currency.

More precisely, miners run the special header metadata of the block through an exclusive hash function, while only altering the special ‘nonce value’ which consequently influences the resultant hash value.

On finding a hash which matches the set target, miners are either awarded Ether and subsequently broadcast that block across the entire network for every node to authenticate and consequently insert to their individual ledger copy. Where Miner C gets the hash, his/her counterpart-Miner B-stops his operations on that block and repeats that process for the other block following.

At this particular game, it is impossible to cheat and as such, it is why this puzzle-solving technique is referred to as ‘proof-of-work’. It takes very little time until the other miners to ascertain that this hash value is right. This is the function for every node.

Every 12 to 15 seconds, a block is found by a miner. This is a fixed timeline and if the miners go slower or faster than this time, the system automatically readjusts to enhance the puzzle difficulty so as to maintain the 12-second time.

Earning Ethereum is a random process and the profitability is dependent on both luck and computing power which they are using. Ethereum uses an algorithm know as ‘ethash’.

How To Mine Ethereum:

Mining of Ethereum is not as easy as it sounds. However, it can be done using any platform including home computers. Miners set their computers loose in order to decipher cryptographic puzzles and get Ether as the reward. They are required to attempt numerous computational puzzles until at least one unlocks the asset.

One interesting bit about their method of acquiring these currencies is that theoretically, virtually anyone can set their respective platform to crack the numerous cryptographic puzzles in efforts to acquire rewards. The catch, however, is that using public Blockchains to acquire rewards continually needs more power since more and more miners invest in better and enhanced hardware.

1. Selecting mining hardware:

Prior to kick starting your venture of acquiring crypto currencies such as Ether, you will, of course, need to have special equipment to dedicate for mining. Mining hardware is classified into two: GPU and CPU.

As opposed to CPUs, GPUs exhibit a significantly advanced hash rate, therefore, meaning that they are faster in solving cryptographic puzzles. These are the most reliable options for anyone seeking to mine Ether.

Choosing the best GPU for your mining venture is a difficult task but there are several factors that determine their efficiency and usefulness. Mostly, the main underlying factors are power consumption, hash rate performance among others.

2. Installing the mining software:

After settling for your preferred mining hardware, the next important and crucial step is the installation of mining software.

First, Miners are required to install an exclusive client to link to the main network. The user can use numerous available software such as Geth to run a typical Ethereum ‘node’.

Once the software has been installed, your installed ‘node’ can interact with other nodes linking to Ethreum network. Other than simply mining, the software offers an interface that deploys your individual smart contracts while also allowing the sending of transactions via the particular command line.

3. Testing:

As a miner, one can also mine ‘test’ the crypto currency Ether while on your individual private network where you can experiment using decentralized applications or smart contracts- all activities which mandate for tokens use

This type of mining when using a test network requires no fancy hardware only needing a simple home computer installed with just mining software. However, fake Ether mining will not seem as appealing.

4. Install Ethminer:

While mining of fake Ether may sound a bit appealing for a while, mining of real Ether is, of course, the real deal. However, for effective mining of such, you need to have legit mining software which you need to install. Once you have downloaded the software and your subsequent node has linked to a network, you can now install Ethminer. Select one that is compatible with your device and install it.

On installing, your subsequent node will work in securing the exclusive Ethereum network.

5. Joining an Ethereum mining pool:

When mining for the cryptocurrency, it is unlikely that you will effectively perform the mining individually. This is why miners come together ‘pool’ and combine their respective computational power in special ‘mining pools’ in order to boost their probability of cracking difficult cryptographic puzzles to earn Ether. Subsequently, they share the profit among themselves in proportional amounts depending on the individual contribution of each miner.

Joining an Ether mining pool requires one to fulfill a number of factors. Each pool may not exist forever and considering the computational capacity of every pool constantly alters, there are several factors that dictate which pool to join. One aspect to consider is that different mining pools come with diverse payout structures. However, to join any of them, you will need to sign up on these websites so as to start mining.

When will Ethereum change to Proof-of-Stake mining?

While Ethereum is acquired through mining, it may not need this technique forever. Developers are planning to ditch the main algorithm used by the Ethereum network- ‘proof-of-work’ that validates and safeguards from tampering with transactions, for one Capser -Proof-of-stake where the Ethereum network is safeguarded by token owners.

If it indeed comes through and the old algorithm is kicked out in favor of the new Proof-of-stake, this could mean attaining distributed consensus which mandates for lesser resources. To a great majority of the Ethereum users, this is a wonderful deal except for the miners. Why? By incorporating Proof-of Stake, mining will no longer be needed because the task of establishing the following block will be afforded individuals that are owners of tokens on the blockchain-which essentially renders miners jobless!

That’s because proof of stake doesn’t rely on mining. Rather, it gives the job of creating the next block to those who own tokens on a blockchain – a move that essentially puts miners out of job.

Who developed Ethereum?

Vitalik Buterin is acknowledged as the leading founder of Ethereum. He wrote a white paper on Ethereum. In June 2014, Buterin was awarded a $100,000 Peter Thiel Fellowship for his work. Soon other developers joined him.

Dr Gavin Wood wrote the Ethereum “technical bible” that outlines how the Ethereum virtual machine (EVM) works. Joseph Lubin focused on building decentralized apps.

Best Ethereum Reddit Channels

If you are interested in discussing more about Ethereum, you should sign up to these active channels on reddit:

r/ethtrader – A very active community of nearly 70,000 that discusses Ethereum news, memes, investing, trading, miscellaneous market-related subjects. The main topic is how to HODL or Hold on to your Ether or ETH.

r/ethereum – Nearly 100,000 subscribers on this official channel. This is where you go to for official discussions.

r/mining – If you are into mining Ether, this is the right channel for you. The mining sub has been going on strong for the past 2 years.


Hope you find this guide useful. Let me know in the comments sections if you wish that I cover some topics that you would find useful.