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The Ethereum Blockchain & Ethereum Virtual Machine

The interesting thing about the blockchains that came before Ethereum is that their operating systems were only designed to exchange specific coded items over transactions, primarily being the network’s supported cryptocurrency. Vitalik Buterin saw this as a feature that had plenty of room for expansion, and in response he proposed a solution that would allow developers to customize the form of the data they could send and store over a blockchain network. This was made possible with the introduction of the Ethereum Virtual Machine and its corresponding programming language Solidity that allows developers to develop customizable transactions known as smart contracts.

Smart Contracts on Ethereum Blockchain

When Vitalik Buterin expanded on Bitcoin’s secure transaction technology, he found on an abstract level that a transaction in itself is secured with a contract. Simply put, a contract is an agreement between two parties securing the promise of a one- or two-way exchange. Buterin therefore designed the Ethereum Virtual Machine with this in mind; that any transaction over the blockchain network should be self-executed once agreed upon by both parties and should be recorded on a public blockchain ledger. This self-execution is what makes these contracts “smart,” and thereby opened up an entirely new universe for business accountability and in turn a new economy.

Decentralized Applications (DAPPS) on Ethereum Blockchain

So by now you are probably asking yourself about what kinds of applications can be made on the Ethereum blockchain. The answer is truly limitless. Just imagine all of the transactions that you make on a daily basis; whether it be the emails you send your colleagues, the money that you donate to charity, or the rent you pay for your home, all can make use of smart contracts. For convenience sake, we decided to include the examples of potential applications that can make effective use of smart contracts brought to us by the Ethereum whitepaper: token systems, financial derivatives, identity and reputation systems, decentralized file storage and voting systems.

Ether (ETH) and the Economics of Ethereum Gas

Just like the Bitcoin blockchain and all the blockchains that come before, Ethereum requires miners to maintain and secure the network, incentivized by the reward of an Ethereum token, known as an Ether. While Ether can be used just like Bitcoin to send tokens from one address to another, they can also be used to pay for Ethereum gas.

Gas runs the Ethereum Network. Every transaction made on the Ethereum Virtual Machine and every smart contract executed costs gas. The amount of gas required to carry out the transaction is determined by the size of the contract or transaction. This gas system keeps the network from wasting resources on lengthy transactions. If a developer creates a smart contract application that does not supply enough gas to complete the transactions, miners on the network will quit validation on that task. This poses an issue for developers who naively develop applications on the Ethereum Virtual Machine–if the application does not allocate enough gas to specific contracts, those contracts will not be carried out over the network. This will negatively affect the reliability of the application and the overall experience of the application’s user base. Ultimately, this system keeps the computational power contributed to the network by miners working in full economic efficiency.

You can also think of Ethereum gas as the wage for mining contributions. The Ethereum Virtual Machine schedules miners on specific tasks to keep the machine running most efficiently. Despite the number of transactions that happen over the network, this efficiency scheme keeps the transaction validation timely, and thus the velocity of blockchain confirmations much shorter than blockchains who chose not to utilize a gas system.