0.7 Programmability: Ethereum

While Bitcoin introduced the world to decentralized digital currency, Ethereum expanded the concept by creating a platform for programmable smart contracts and decentralized applications (dApps). Proposed by Vitalik Buterin in 2013 and launched in 2015, Ethereum goes beyond simple transactions, enabling complex computational logic on the blockchain.

The Ethereum Virtual Machine (EVM)

Ethereum's core innovation is the Ethereum Virtual Machine (EVM), a decentralized computational engine that allows developers to execute smart contracts. Smart contracts are self-executing programs stored on the blockchain that run when predefined conditions are met. These contracts eliminate intermediaries, making processes more transparent and efficient.

Gas and Transaction Fees

Ethereum introduces gas as a unit of computational effort necessary for executing transactions and smart contracts. Users pay gas fees to incentivize network participants - whether miners in Proof of Work (PoW) or validators in Proof of Stake (PoS) - to process their transactions. The amount of gas required depends on multiple factors, including the complexity of computation. More intricate smart contract operations consume more gas. Additionally, network congestion impacts fees, as higher demand leads to increased costs due to users competing for limited block space.

Ethereum’s Transition to Proof of Stake (PoS)

Originally, Ethereum employed a Proof of Work (PoW) consensus mechanism similar to Bitcoin. However, to enhance scalability and reduce energy consumption, Ethereum transitioned to Proof of Stake (PoS) through the Ethereum 2.0 upgrade. Under PoS, validators replace miners. Their selection is based on the amount of ETH they stake, ensuring a more energy-efficient and secure network. Validators confirm transactions, propose new blocks, and earn rewards for their participation. This shift significantly decreases energy use while improving overall network performance.

Smart Contracts and Decentralized Applications (dApps)

Ethereum’s programmability supports the development of decentralized applications (dApps), which function autonomously on the blockchain without centralized oversight. These applications span multiple industries and offer diverse functionalities:

Decentralized Finance (DeFi) platforms, such as Uniswap and Aave, empower users to trade, lend, and borrow digital assets without intermediaries. The rise of Non-Fungible Tokens (NFTs) has transformed digital ownership, allowing unique representations of art, collectibles, and virtual goods on the blockchain. Additionally, Decentralized Autonomous Organizations (DAOs) redefine governance by enabling token holders to vote on proposals, ensuring transparent decision-making within communities.

Ethereum has revolutionized blockchain technology by introducing smart contracts and enabling a decentralized ecosystem. With its transition to Proof of Stake, Ethereum continues to change through specific gouvernance mechanisms, aiming to achieve greater scalability and sustainability.

In the next chapter we'll look further into the mechanics of account based model.