What is Ethereum?
Link: Intro to Ethereum | ethereum.org
Ethereum is a blockchain with a computer embedded in it. It is the foundation for building apps and organizations in a decentralized, permissionless, censorship-resistant way.
In the Ethereum universe, there is a single, canonical computer (called the Ethereum Virtual Machine, or EVM) whose state everyone on the Ethereum network agrees on. Everyone who participates in the Ethereum network (every Ethereum node) keeps a copy of the state of this computer. Additionally, any participant can broadcast a request for this computer to perform arbitrary computation. Whenever such a request is broadcast, other participants on the network verify, validate, and carry out ("execute") the computation. This execution causes a state change in the EVM, which is committed and propagated throughout the entire network.
Requests for computation are called transaction requests; the record of all transactions and the EVM's present state gets stored on the blockchain, which in turn is stored and agreed upon by all nodes.
Cryptographic mechanisms ensure that once transactions are verified as valid and added to the blockchain, they can't be tampered with later. The same mechanisms also ensure that all transactions are signed and executed with appropriate "permissions" (no one should be able to send digital assets from Alice's account, except for Alice herself).
What is Ether?
Ether (ETH) is the native cryptocurrency of Ethereum. The purpose of ETH is to allow for a market for computation. Such a market provides an economic incentive for participants to verify and execute transaction requests and provide computational resources to the network.
Key Functions of ETH:
- Computation Market: Participants offering ETH as bounty for transaction verification and execution
- Resource Payment: Amount of ETH paid corresponds to computational resources required
- Anti-Spam Mechanism: Prevents malicious participants from clogging the network
Crypto-Economic Security Roles:
- Reward Mechanism: Used to reward validators who propose blocks or identify dishonest behavior
- Staking Collateral: Validators stake ETH as collateral against dishonest behavior—malicious actions can result in ETH destruction
- Consensus Weighting: Used to weigh 'votes' for newly proposed blocks in the fork-choice consensus mechanism
Transaction Process:
- Participants broadcasting transaction requests must offer ETH as bounty
- Network awards bounty to whoever verifies, executes, and commits the transaction to the blockchain
- Payment amount corresponds to computational resources required