Staking basics

What Is Ethereum and Ethereum 2.0 ?

Shivendra Singh

Apr 14, 2023 • 8 min read

Ethereum is a Decentralized open-source platform which enables the Blockchain Developers to build and deploy Smart Contracts and decentralized applications (dApps). The transactions made through Smart Contracts are the simple self-executing programs that are executed on the Ethereum Blockchain once the predetermined conditions are met. This enables the transactions to be Trustless and Decentralized without the need of an intermediate.

Ethereum has a wide variety of uses including Decentralized Finance, Gaming, Supply Chain management and others included. In the following article, we’re going to brief you about everything you need to know about Ethereum for you to make informed decisions regarding Ethereum and how you can get rewards through it.

How Does Ethereum Work?

Ethereum is a decentralized, blockchain-based platform that enables the execution of smart contracts and the creation of decentralized applications (dApps). Ethereum works through a network of nodes, which are computers that connect to the Ethereum blockchain and maintain a copy of its entire transaction history. When a user interacts with an Ethereum dApp or smart contract, they broadcast a transaction to the network. This transaction includes information about the user's account, the dApp or contract they are interacting with, and any additional data or parameters required by the dApp or contract. The transaction is then validated by nodes on the network using complex algorithms to ensure that it is valid and conforms to the rules of the Ethereum protocol. Once validated, the transaction is added to a block, which is then added to the Ethereum blockchain. Ethereum uses a consensus algorithm called Proof of Stake (PoS), which enables nodes to validate transactions and add new blocks to the blockchain. In PoS, nodes are selected to create new blocks based on the amount of ether they have staked, which means they have put up some of their ether as collateral to participate in the network. The more ether a node has staked, the higher the chances of it being selected to validate a transaction and create a new block. Ethereum also has its own programming language called Solidity, which is used to write smart contracts. These smart contracts are stored on the Ethereum blockchain and are executed automatically when certain conditions are met, without the need for intermediaries. Overall, Ethereum enables trustless and decentralized transactions by using blockchain technology, smart contracts, and a consensus algorithm to create a secure and transparent platform for building and running decentralized applications.

Ethereum works on a network of nodes which connects to the Blockchain maintaining an entire copy of transaction history. The transaction includes the information about the user’s account.

Also Read: What is Validator

What Is Ethereum 2.0?

Ethereum 2.0 or Serenity is an upgrade to the Ethereum Blockchain which aims at improving the Security, Scalability and the Sustainability of the Platform. The updated version has several significant changes made to the Ethereum Network including the shift to Proof of Stake (PoS) algorithm from the Proof of Work (PoW) consensus algorithm. The upgraded version also includes the implementation of Sharding, which is a technique to break the Blockchain into smaller pieces called the ‘Shards’ which helps in improving Network Efficiency. .

The main goal for Eth 2.0 is to increase the scalability for the platform, in Ethereum the number of transactions was 30 transactions per second but with Eth 2.0 the number can rise to 100,000 transactions per second. Also the energy consumption required to validate transactions on the network is also lesser with Eth 2.0 shifting to Proof of Stake (PoS) algorithm making it more sustainable and environment friendly.

Another important feature that ETH 2.0 implemented was the Staking in Ethereum ecosystem, which gives the users the freedom to stake their ETH in order to support the network and also make staking rewards in return.

Therefore, with Ethereum 2.0, there have been improvements in terms of security, scalability and functionality of the blockchain which makes it a more sustainable and efficient platform for dApps and smart contracts.

What is Ethereum and Ethereum 2.0 | Difference?

The main difference between Ethereum and Ethereum 2.0 is the underlying technology and the improvements made to the platform. Ethereum is the version of the platform, which uses a Proof of Work (PoW) consensus algorithm to validate transactions and maintain the blockchain. Ethereum 2.0, on the other hand, uses a Proof of Stake (PoS) consensus algorithm, which is more energy-efficient and scalable.

Here are some of the key differences between Ethereum and Ethereum 2.0:

Consensus algorithm: Ethereum uses a PoW consensus algorithm, which requires a lot of computational power to validate transactions and maintain the blockchain. Ethereum 2.0 uses a PoS consensus algorithm, which relies on staking rather than mining to validate transactions and maintain the blockchain.

Scalability: Ethereum is limited in its transaction throughput, which can result in network congestion during periods of high demand. Ethereum 2.0 has improved the network scalability by introducing sharding, which enables the network to process multiple transactions simultaneously across multiple shards.

Sustainability: Ethereum's PoW consensus algorithm requires a significant amount of energy consumption, which is a concern for the platform's sustainability while Ethereum 2.0's PoS consensus algorithm is more energy-efficient and environmentally friendly making it more sustainable than the first version.

Overall, Ethereum 2.0 is a major upgrade to the Ethereum platform, with improvements in sustainability, scalability and functionality. While Ethereum continues to operate, Ethereum 2.0 will eventually replace it as the primary version of Ethereum.

Also Read: How to Stake ETH

What are the Benefits of Ethereum

There are many benefits to using Ethereum, which has emerged as one of the most popular and widely used blockchain platforms in the world. Here are some of the key benefits of Ethereum:

Decentralization: Ethereum doesn’t have any central authority which allows the network to be more transparent, increases security, accountability and reduces the risk of any corruption or frauds.

Larger number of use cases: Apart from being used as a digital currency, Ethereum has a large number of use cases including executing smart contracts, transactions, store data with other party applications and others included.

Smart contracts: Ethereum introduced the concept of smart contracts, which are simple self-executing programs that are executed on the Ethereum Blockchain once the predetermined conditions are met. Smart contracts are used to automate a wide range of transactions and processes, including financial transactions, supply chain management, and more.

Programmability: Ethereum is highly programmable, which means that developers can use the platform to create a wide range of decentralized applications (Dapps) and other innovative solutions. The platform supports a wide range of programming languages and development tools, making it accessible to developers with different levels of experience.

Interoperability: Ethereum is interoperable with different blockchain platforms, allowing a seamless integration with other platforms and applications. This enhances the number of use cases of Ethereum as it can collaborate with a variety of other platforms.

Large User Base: Ethereum has a huge number of active community of developers, enthusiasts, and users who together aim to improve the network and explore its potential. The community is known for its innovation, and dedication to open-source principles.

So , Ethereum has emerged as a leading blockchain platform due to its decentralized architecture, programmability, and versatility. Its smart contract functionality, support for decentralized applications, and interoperability with other systems make it a powerful tool for developers, businesses, and individuals alike.

Also Read: What is Liquid Staking

What are the disadvantages of Ethereum

Even though Ethereum is one platform with many advantages but it still has a few disadvantages it needs to work upon. Few of the problems with Ethereum are listed below:

Scalability: Scalability is one of the main issues faced by Ethereum. Due to the use of the current PoW consensus algorithm, the network congestion can be an issue during the time of high demand caused by the limited transaction throughput.

Security: While Ethereum is a secure platform, it is still vulnerable to a lot of security risks such as hacking, phishing, and other cyber threats. Smart contracts are also vulnerable to bugs that can be exploited by attackers.

How to Buy Ethereum

Here are the general steps to buy Ethereum:

Pick a cryptocurrency exchange: Choose your preferred Cryptocurrency exchange that supports the ETH network. Some popular exchanges that you can choose to buy Ethereum are Kraken, Coinbase, Binance, Gemini, etc.

Create your account: After choosing an Exchange, create your account which may require you to provide personal information such as name, government ID proof, email address etc.

Adding money to your account: Add funds to your account in order to buy the Ethereum.

Buy Ethereum: After adding funds to your account, you can use the exchange to buy Ethereum. You will need to specify the amount of ETH that you want to buy and the currency you want to use to make the purchase.

Also Read: Decentralisation in ETHx

Store your Ethereum: After buying Ethereum, it's recommended to store it in a secure wallet. Some exchanges have built-in wallets, but it's generally better if you have a separate hardware wallet for maximum security. It's important to note that the specifics of the buying process can vary depending on the exchange and the payment method you have chosen. Also, it's important to do your own research and understand the risks involved in buying and holding cryptocurrencies before making any investments.

Should You Buy Ether?

Whether or not you should buy Ether (the cryptocurrency used on the Ethereum platform) is a decision that ultimately depends on your personal financial goals and risk tolerance. Here are some factors to consider when deciding whether to invest in Ether:

Market conditions: Before buying Ether, it's important to research market conditions and consider your own risk tolerance. As a very well known fact about the cryptocurrency market, the market is very volatile therefore it’s very important to have a good knowledge of the market.

Diversifying your portfolio: If you have investments in other asset classes, such as stocks, bonds, or real estate, buying Ether can be a way to diversify your portfolio and also make greater returns from them if done with proper market research.

Ethereum's Value: Being one of the most used blockchain platform, Ethereum has the potential to disrupt a wide range of industries which can be a good reason to buy Ethereum.

Regulation: Cryptocurrencies are still largely an unregulated platform, and there is uncertainty on how they will be treated by governments and financial institutions around the world. It's important to be up-to-date on regulatory developments and consider how they might affect your investments.

Overall, Ether can be a good investment for some people, but it's important to do your own research considering your risk tolerance and personal financial goals before making any investment decisions on them.

Also Read: Liquid Staking Derivatives

Frequently Asked Questions on What is Ethereum:

Q) How does Ethereum differ from Bitcoin?
Ans) While there are a lot of differences between Ethereum and Bitcoin but the major difference between Ethereum and Bitcoin is that bitcoin was designed as an online currency that is secured without any central authority, unlike government-issued currencies, whereas main objective for Ethereum as a platform was to facilitate immutable, programmatic contracts and applications.

Q) What is a smart contract on the Ethereum network?
Ans) Smart Contracts are the simple self-executing programs that are executed on the Ethereum Blockchain once the predetermined conditions are met. This enables the transactions to be Trustless and Decentralized without the need of an intermediate.

Q) What is the future of Ethereum?

Ans) Like all Crypto Assets, the future of Ethereum is very hard to predict but with all its use cases we can say that Ethereum can be a good addition to your portfolio. However, it is recommended to have thorough market research on yourself before making any investments on the same.

Q) What is Ethereum and why’s it used?

Ans) Ethereum is a Decentralized open-source platform which enables the Blockchain Developers to build and deploy Smart Contracts and decentralized applications (dApps). Ethereum has a wide variety of uses including Decentralized Finance, Gaming, Supply Chain management and others included.