Ethereum Tutorial for Beginners: Smart Contracts, DApps, Benefits & Limitations

Now imagine yourself in one of these situations.

The platform blocked your e-wallet account for some reason.

You don't trust the client, but your company must work for them.

Hacking took place on your social media accounts.

These situations can be quite painful. Were you aware that there is a technology that can solve all of these problems? This tutorial will help you to get familiar with Ethereum.

Ethereum – A Brief History

Here is a timeline that explains everything you need to know about Ethereum's development.

November 2013, Vitalik Buterin, an original Bitcoin developer, has published a whitepaper about Ethereum.

January 2014 A Swiss company Ethereum Switzerland GmbH announced that the Ethereum software project was being developed by a team including Vitalik Buterin and Mihai Alisie as well as Anthony Di Iorio and Charles Hoskinson.

August 2014 – Ethereum successfully raises US$18.4 Million and ends its ICO

May 2015 Ethereum launches its first testnet, Olympic.

July 2015 Frontier was the first release of Ethereum.

March 2016 Homestead was released, the second upgrade to the Ethereum network.

May 2016- Ethereum gets widespread media coverage after the DAO (Decentralized Autonomous Organization), raised a record 150 million through a crowd sale.

June 2016 The DAO hack results in a $50 million loss of Ether. It accounted for nearly 15% of all Ether then.

July 2016 – The Ethereum network split into two parts: Ethereum Classic (ETC) and Ethereum (ETH).

June 2017, Ethereum surpasses $400, a record-breaking increase of 5001% over January 1, 2017.

What's Ethereum?

Ethereum, a blockchain-based open-source software solution, is used to create its own cryptocurrency, ether. It allows you to create and run distributed applications (DApps), and smart contracts on its platform, without any fraud, downtime or interference by third parties.

Ethereum is a stable platform. It also runs on blockchain. Ethereum is a decentralized platform that you can use for programming digital currencies.

Ethereum is the largest decentralized software app. With its help you can create and publish next-generation DApps.

Ethereum has revolutionized the blockchain industry since its inception. Blockchain-based solutions were not capable of performing many different applications before its introduction. Bitcoin, for example, could only be used as digital currencies. Ethereum was created as a platform to allow developers to create programs on Blockchain.

Ethereum is open to all and allows anyone to create a program on the Ethereum blockchain. Ethereum.org states that Ethereum is the world's most programmable blockchain.

The developers of Ethereum took the basic concepts of Bitcoin and other cryptocurrencies and added additional functionality to create this popular blockchain solution.

September 2019, Ethereum was the second largest cryptocurrency in the world, behind only Bitcoin, the most widely used blockchain application. You can however acquire Ethereum (Ethereum's cryptocurrency) faster than Bitcoin. It takes between 14 and 15 seconds to get ether, while Bitcoin takes almost ten minutes.

You must have a basic understanding of Ethereum in order to fully understand it. These are the main aspects of Ethereum that you need to be familiar with:

Ether

Gas

Ethereum Virtual Machine

Smart Contracts

DApps (Decentralized Applications).

These concepts will be covered in the next sections of our Ethereum Tutorial for Beginners. We'll also explain the inner workings of the blockchain platform.

Ethereum – Important Terms You Need to Know

1. Currency Issuance

The central bank of a country or its monetary authority is responsible for the management and supervision of currency issuance. In India, for example, the RBI is the central bank that oversees all financial institutions and banks.

2. 2.

A Decentralized Autonomous Organisation is a digital organisation that is managed and regulated using a set rules encoded in a computer program. It is completely transparent and controlled and monitored by shareholders. The Blockchain network is used to store financial transaction records and practices of a DAO.

3. Smart Contracts

Smart contracts are computer protocols that facilitate and verify the performance or negotiation of contracts between two or more people. These digital contracts are based on a consensus system, and can be executed without any intervention from any third party.

4. Smart Property

Smart property can be defined as both physical and crypto assets (shares, access to a network, etc.). These are built on Ethereum. The Ethereum Wallet acts as a gateway to DApps and smart property on the Ethereum blockchain.

5. Solidity

Solidity is an object-oriented language that can be used to implement smart contracts in Ethereum. It was inspired by JavaScript, Python, C++ and Python programming languages. It was created to target the Ethereum Virtual Machine.

6. 6.

The Ethereum Virtual Machine is a runtime environment for smart contracts. EVM is basically a layer of virtual computers just above the hardware. These virtual layers provide a layer of abstraction between the executable code and the execution machine. EVM improves the portability and security of software. It also allows applications to be isolated from their hosts.

7. Transaktions

Transactions are messages sent from one account into another. These messages can contain binary data, which is known as Ether. It's a transfer or a collection of value/s to the Ethereum network.

The Ethereum network

You already know that Ethereum is a decentralized, distributed public Blockchain network. There's more to it. Ethereum is the basis for all decentralized P2P apps and organizations that run on the Ethereum network. This network is composed of two distinct nodes: full nodes or lightweight nodes.

Full nodes contain all transactions from the parent block. They keep track of every transaction that is validated and verified in accordance with the Ethereum specifications. Full nodes prove the integrity, security and transparency of the Blockchain network.

Lightweight nodes contain only a small portion of the entire Blockchain, unlike full nodes. Lightweight nodes are not able to verify all transactions and may not have a copy the current Blockchain state. They rely on full nodes for missing details and specific functionalities. Lightweight nodes, as the name implies, are lighter and can run faster on memory-constrained devices. These lightweight nodes are used primarily in e-wallets that are naturally light.

What is Ether?

Ether is the cryptocurrency that you use on Ethereum to make transactions payments. Ether can be used in two ways:

To prevent malicious or broken programs from running on our network, applications require payment in Ether.

To reward miners who contribute to Ethereum's network, the network uses Ether just like Bitcoin.

These applications are not the only ones you have access to. You can also use Ether for Gas purchases, as we will explain in the next section. Ether, a metric unit in Ethereum, allows you to accurately pay for Gas and transactions. Wei is the smallest Ether denomination. One Ether is equal to 1e18 Wei.

What is gas?

Ether isn't the only cryptocurrency available on Ethereum. To execute an Ethereum transaction, you would need to pay Ether to the miner via Gas. Gas is an intermediary token that allows you to calculate the computational effort required for completing transactions or running smart contracts.

Ether is the unit of exchange for Gas. The Gas price is determined by miners. They can refuse smart contracts or process transactions that don't provide the Gas price.

The following equation calculates the transaction fee for Ethereum:

Ether = Gas Limit x Gaz Price

Gas Price refers to the Ether price and Gas Limit refers to the Gas that was used in the calculation. Gas Price and Gas Limit ensure that contracts end at a specific point.

Where does the Gas in Ether go to? It is located in the Ethereum Virtual Machine, (EVM), as we will discuss in the next section.

What's the Ethereum Virtual Machine?

The Ethereum Virtual Machine hosts all transactions in Ethereum. You can develop all your applications from one platform. The EVM can be described as the engine that runs the entire Ethereum network.

Although Ethereum has established protocols for decentralized applications development, the EVM has allowed it to do so. The Ethereum Virtual Machine is isolated from the rest of the world and protected by sandboxing. This means that the code running the EVM does not have access to the file system, network, or other contracts.

Your Solidity code is first sent to the Ethereum Compiler when you enter it into Ethereum. The Ethereum Compiler then sends the EVM Bytecode on to the Ethereum Virtual Machine, which manages the rest.

The EVM is responsible for managing the computations and the internal state. It executes code and maintains an internal database. Additionally, it has many objects called "accounts", which can talk to one another.

What is Smart Contracts?

Smart contracts are computer programs that run automatically. It is a transaction protocol that allows you to exchange goods and money through blockchain. Both parties set conditions for smart contracts. Smart contracts run according to their respective conditions if both parties meet them.

Smart contracts allow you to perform many tasks, such as voting decentralized and much more. A smart contract, in simple terms, is a contract which executes, enforces and manages the payment.

To execute a smartcontract on Ethereum you will need tokens (Ether). You can't use smart contract on Ethereum if you don't have the necessary cryptocurrency.

Solidity is Ethereum's general-purpose programming languages and will be required to create a smart contractual. It was designed to run in the Ethereum Virtual machine and allows you to perform arbitrary computations, store states, or make transactions with digital tokens.

Smart contracts have many advantages that are making them more popular. Smart contracts have the greatest advantage: they eliminate the need for a middle-man.

Smart contracts are completely automated, so there is no room for human error. They can be used virtually and are much more affordable than traditional contracts. There are many potential uses for smart contracts in multiple industries, including:

Healthcare

Finance and banking

B2B Services (IT Services, Marketing Services, etc.)

Also read: Ethereum Project Ideas & Topics

What is DApps?

A DApp, or decentralized app, is a software program that runs on a distributed network. Instead of being hosted on a central server, it is hosted on a peer to-peer network. Any software application, such as a website or mobile app, could be considered a DApp. A DApp is different from a traditional application because it is built on a decentralized network.

The user interface of a decentralized application is the same as any other application's. But, the backend processes for a decentralized app are all based on a distributed network.

Ethereum is a decentralized Blockchain network. When you create an Ethereum-based application, you are essentially creating decentralized applications. DApps are relatively new, but they are rapidly becoming popular.

DApps will become more popular as people become more worried about their privacy and security. It is possible to gain a competitive advantage in your career by learning about them early.

Decentralized applications are similar to Ethereum's autonomous organizations (DAO). These organizations are only accessible on blockchain and can be controlled using the protocols of the blockchain. These organizations exist to keep assets safe and to use a voting system for the distribution of those assets. Learn all you need to know about DApps .

Ethereum Currencies

The Ethereum network is powered by two types of cryptocurrency, Ether and Gas.

1. Ether

Ether is the cryptocurrency used to pay all transactions in the Ethereum network. Apart from general transactions, Ether can also be used to purchase Gas. This is used to pay the EVM for computation services.

Ether, a metric unit that can be used to pay Gas and transactions in exact amounts, has multiple denominations. Wei is the Ether base unit's smallest denomination. Here is a complete list of all Ether denominations.

2. 2.

The code is run by EVM. You may believe that you can run an endless loop on EVM and overload its memory. Gas makes this impossible.

Gas is a measure of the computational resources available on the network. Each contract on the Ethereum network has a limit to how much Gas it can use to compute. This limit is known as the "Gas Limit". There are two other terms that you need to know about Gas:

Gas price - This is the price for Gas in tokens such as Ether or its denominations. Gas Price is a floating price that stabilizes the gas value. The Gas Price adjusts to keep the real value constant, regardless of fluctuations in currency or token costs.

Gas Fee This is the amount of Gas required to execute a specific transaction or program (contract).

If you try to run an infinit code (a program that runs forever), the contract will eventually exceed its Gas Limit, and the entire transaction invoked by the contract will be rolled back to its original state.

What are the Limitations and Benefits of Ethereum?

This section of our Ethereum tutorial is for beginners. We'll be looking at the many benefits of this blockchain platform.

Ethereum allows you to upload and request the execution of programs.

It can store persistent and permanent data.

A tradable token can be created that you can use to create virtual shares or digital currencies.

It provides 100% uptime and DDoS resistance (Distributed denial of Service).

In Ethereum, you can create virtual organizations (DAOs).

You can create highly secure, fault-tolerant DApps.

Ethereum, as with all technologies, has its limitations. These are the disadvantages of Ethereum.

It will be difficult to build applications that require user ID verification on Ethereum because there is no central authority to verify the application.

It can be difficult to update an app or fix bugs because each peer would need to update their node software.

Mining in Ethereum

Ethereum, like all Blockchain technologies, promotes security via an incentive-based model. This is commonly known as the proof of work mechanism. Ethash is the proof-of-work algorithm in Ethereum. It is a hashing algorithm inspired by Dagger-Hashimoto's Algorithm.

These are the steps for Ethereum mining:

One user initiates a transaction via sending Ether value to another user.

The new transaction is added to a new block together with all other transactions in the previous block.

The network has miners competing to validate the block using a set of instructions.

A reward is given to the miner who validates the block and adds it to the network. This reward is called Ether.

Once the transaction has been validated, the user that initiated it earns one Ether.