Ethereum 2021 Explained: What is Ethereum & How it Works (Ultimate Beginner’s Guide)

Hello, I'm Crypto Casey. In this video we
are going to talk about Ethereum. Many people associate Ethereum with Bitcoin
and some people use the words Ethereum Bitcoin and Blockchain interchangeably.
By the end of this video you will know the key differences between Ethereum
and Bitcoin and their relationship with the Blockchain technology. Specifically
we will discuss – What Ethereum is; What Ether is; How they work and What the
future holds for this Blockchain project? I've divided this guide about Ethereum
into seven chapters to make it simple and easy to follow. So feel free to use
the time-stamped table of contents below to jump around this video and stick
around until the end of this video for an interesting bit of information that
most beginners aren't aware of that makes Ethereum an exciting project to
follow. So let's get started. Chapter 1: What is a Ethereum? Vitalik Buterin is a
Russian Canadian programmer and Cryptocurrency researcher who came up
with the idea for Ethereum in 2013 which finally went live in 2015.

The most plain
and simple explanation of Ethereum can be broken down into two words – Software,
Platform. Now what makes Ethereum different from other software platforms
is that it's a Blockchain-based software platform. So what is Blockchain? The most plain and simple explanation of blockchain is that it's records of data
stored on networks of computers and there are three pillars of Blockchain
that make it unique: Decentralization Transparency and Immutability. So let's
break down these three pillars. Number one: Decentralization, the word
decentralization with regard to Blockchain is two-fold.

One it means the
data is recorded and stored on multiple devices in multiple locations around the
world as opposed to one central place and two –
decentralization also means that no one person, Company, Government, Authority or Entity controls the data record and storage process. So instead of
traditional centralized entities like the IRS, JP Morgan, or MIT, recording storing, managing and controlling their data by following their own protocols, deciding
which servers to use, where the servers are located and using their own
proprietary software and security systems to protect their data, blockchain
allows for decentralized record-keeping where data is recorded, stored, and
managed on a network of computers with open source software around the world.
Any changes to the blockchain protocol go through a consensus process that no
one person or entity has control over.

So that is the essence of the
decentralization pillar. Number two : Transparency – the word transparency with
regard to blockchain relates to the way in which transactions are recorded on a
ledger that is available for everyone to see and that is saved on a network of
computers around the world making the data impossible to change or alter. The
best way to see the value of transparency and data recording, storage
and management is by comparing these two scenarios. Currently common citizens of
the United States are not privy to where and how every single tax dollar is spent
by the United States government. We just have to take the Government's word for
it and even if the Government had to show their records it would be very easy
for them to create, forge or manipulate any data they chose to share with us
since they control their own data.

You can see how that scenario is not
transparent and not exactly trustworthy. So let's imagine if everyone in the
United States had the ability to see a live running ledger of where every
single tax dollar was spent by the United States government at any moment
in time. Basically all US citizens could see a
full disclosure of how our government is managing our money and in this scenario
there is more trust and transparency – the second pillar of blockchain technology.

Number 3: Immutability – Immutability simply means that the data recorded and
stored on the blockchain cannot be changed, forged, or altered and this is
achieved through Cryptography and blockchain hashing processes. If you
would like to watch a more in-depth video explaining – What blockchain is? and
Why it was developed ? Click on the link above to check out my blockchain video
guide. So to summarize the three pillars of blockchain technology – blockchains
recording and storage protocols make it such that once new data is verified it
is unmodifiable, it's distributed across a vast network of computers around the
world so it's hard to destroy and no one person or entity
controls the data or network creating a completely transparent environment.
Awesome, now that you're familiar with some of blockchains important features
let's talk about the role blockchain plays in Bitcoin and Ethereum. Bitcoin
and Ethereum are both use cases of Blockchain technology with different
purposes. Bitcoin is simply a digital currency
that people can use as a form of payment to send to and from each other or hold
as a store of value.

While Ethereum is basically a programmable blockchain that
people can build software on to create valuable products and services or just
for fun and due to the decentralized properties of Blockchain technology. The
software people can build on Ethereum are called Decentralized Apps or DAPPS for short and the nature and potential of these Decentralized Applications or
DAPPS has inspired the idea and desire for a crusade towards decentralized
finance or DeFi for short. The DeFi movement aims to transform the current
financial system into a more transparent and trustworthy system like I described
in the scenario we discussed in the transparency blockchain pillar segment.
So how is Ethereum's blockchain based software application able to operate if
it's not owned or controlled by a central entity or authority? The answer to that question leads us to Chapter 2 Chapter 2 : What is Ether? Many people commonly use the words Ether and Ethereum
interchangeably, when they are actually two different things.
Ether is the Ethereum blockchain's native Cryptocurrency.

It operates similarly to Bitcoin and that it's a digital currency that can be
transferred to people around the world, used as a form of payment, or act as a
store of value. However Ether was created for an
entirely different purpose. So why does Ether exist? In previous videos, I explained
the similarities between Bitcoin and Gold.
So if Bitcoin is digital gold, Ether could be described as digital Oil. Ether
was designed with the intention of fuelling the Ethereum Network. Going back
to the decentralized pillar of blockchain technology, we discussed how
open source software is distributed across a vast network of computers
around the world.

To incentivize people to host and maintain
the data on the blockchain Ether was created as a form of payment to fuel the
Ethereum network. So anyone who wants to build a software application on the
Ethereum network has to pay for the computing power and space required using
Ether. And the amount of Ether required for network fees is determined by a
built-in pricing system known as GAS. Two other key differences between Bitcoin
and Ether is that Bitcoin has a fixed supply and halving events, while Ether
currently does not. A fixed supply and halving events protect Cryptocurrencies
from inflation. In a cap on the supply of Ether may or may not be implemented in
the future.

We shall see what the future holds. If you would like more information
about Bitcoin halving, you can click on the link above to check out my video
about the Bitcoin Halving event in 2020. Nice. Next, let's talk about how Ethereum
network fees are calculated. Chapter 3: What is GAS? GAS considers the bandwidth and space requirements as well as the computational difficulty of each
transaction to calculate the amount of fees it will take to complete. The term
GAS was created to differentiate the cost of performing transactions on the
Ethereum network from the actual value of the Ether currency. So when executing
transactions on Ethereum you will see GAS prices denoted GWEI, which stands
for Giga Wei.

Giga Wei which is also referred to as Nano Ether or just Nano
simply represents a fraction of Ether to the 9th power. You can think of Giga Wei is
to Ether as pennies is to the US dollar. Similar to how US dollars have pennies,
nickels, dimes, and quarters that represent fractions of one US dollar,
Ether has multiple denominations of fractional values: the smallest
denomination being Wei or W E I. Here's a chart showing all of the different
denominations of Ether. So if we look at one Giga Wei of Ether – it's depicted as a
decimal point followed by 8 zeros and a one in the ninth place. You can see how
it would be difficult to determine the amount of Ether transactions will cost
with all of the decimal places to keep track of.

So instead of the GAS price for a transaction being let's say zero point
zero zero zero zero zero zero zero zero three Ether you can simply say three
Giga Wei. And since the most common unit of Ether reflected in GAS prices is Giga
Wei that's what denomination of Ether is
used to represent GAS prices. So when initiating a transaction on the Ethereum
network, you will see what's called a GAS limit. In this field you can choose to
increase or decrease the amount of Ether you are willing to spend to complete the
transaction. The higher the GAS price the faster the transaction will be processed.
And if there's not enough Ether to complete the transaction you desire, you
will receive an "Insufficient funds for GAS" notification or similar. Currently
network processes on Ethereum are completed by miners via a proof-of-work
protocol which involves performing computational work on computer hardware
to complete transactions. And miners which are actually called nodes are
simply computers with software installed on them that connects them to the
Ethereum network.

Then using computing power they process and validate
transactions in exchange for Ether. So using the built in GAS system, miners
or nodes are able to set minimum amounts of GAS prices they are willing
to accept to process transactions. And if you don't have enough Ether to cover
the GAS costs, then node miners will perform the computational work required
to complete the transaction. Great. Now when you use Ethereum you will
understand the difference between Ether and Gas as well as the reason why Gas
prices are denoted in Giga Wei. And now that we have a basic concept of what
Ethereum is and the roles ether and gas play in the network, let's get into more
detail about how the Ethereum software platform works.

Chapter 4: How the
Ethereum network works? Let's break down the Ethereum network into three simple
layers so that we can understand how it works in a nutshell conceptually. Imagine
the base layer of Ethereum consists of a vast network of computers called nodes.
These nodes are connected to the internet with software installed on them
that runs the Ethereum Blockchain. And this base layer of nodes is where
transaction data is processed, validated, broadcasted, and stored. And as these
nodes perform the computational work required to process transaction data,
they are rewarded with Ether dictated by the Gas prices we discussed earlier.
These rewards incentivized nodes to maintain the Ethereum network by
processing transaction data. Transaction data can contain value in the form of
Ether and information in the form of code. And these codes can transmit data
and trigger actions in the next layer of the Ethereum network.

So imagine another
layer on top of the base hardware layer as a software layer. This software layer
supports a programming language library that consists of languages like solidity,
viper, bamboo, and more. Using these computer languages developers can write
what are called smart contracts. The term smart contract was actually coined back
in 1998 by an American computer scientist named Nick Szabo who invented
the digital currency bitgold ten years before Bitcoin was created.
Sabo's idea was to basically use computer code to execute terms of
sophisticated contracts in the buying and selling of securities like options
and futures. So smart contracts are just lines of code
that dictate the terms of a contract and control the execution of the contract.

And with the nature of Ethereum's Hardware layer and its blockchain based software,
this creates the perfect trustworthy digital environment for building and
executing smart contracts. Smart contracts have the unique ability to
authorize transactions and carry out terms of contracts within a trusted
environment which eliminates the need for a central authority like a
government, bank, or a legal system. So smart contracts make transactions
trackable, transparent, and permanent. Awesome!!! So we have the hardware layer in the software layer of Ethereum which combined basically creates a global
decentralized super computer known as the Ethereum virtual machine or EVM. In
computing, virtual machines or VM's are simulations of computer networks that
can be used for many different cases. In the case of the Ethereum virtual machine
or EVM, a very basic and general idea of its role in the ecosystem is to improve
the flexibility of the software and ensure separation of each software host
in each software application.

And software applications bring us to the
final layer of Ethereum. The application layer is where developers can build and
launch third party decentralized applications or DAPPS for short. These
applications are decentralized because they operate on Ethereum's decentralized
blockchain based platform. Popular examples of DAPPS,
that have been created are crypto kitties which is a game in Augur which
is a prediction market platform. At the time of this video a total of 2772
DAPPS have been launched on the Ethereum network of which around 1500
are alive. There are several different DAPP categories including games, exchanges, identity, health, property, and much more. At the time of this video the categories
with the most transactions are games and exchanges, while the categories with the
most active users are finance and exchanges.

If you want to check out all
of the current DAPPS out there, you can go to HTTPS colon forward slash forward
slash state of the and filter by the Ethereum platform. Cool,
now another popular element of the Ethereum ecosystem and DAPPS brings us to the next chapter. Chapter 5: What are our c20 tokens if probably heard the term
ERC 20 before and before we talk about ERC 20 let's talk about what ERC means
ERC is simply an acronym that stands for aetherium requests for comments and it
is similar to BI P which stands for 15 improvement proposal since aetherium and
Bitcoin are blockchain based technologies there is no one person or
entity in charge of deciding what new features
to add changes to make or fixes to implement to the protocols so ERC is a
process that was created as a way for people to contribute information about
aetherium or introduced features to the etherium Network ERC's or aetherium
requests for comments are basically how developers can propose improvements to
the network so the number 20 of ERC 20 represents the unique ID number
of that particular proposal so let's talk about what ERC 20 is all about the
ERC 20 is a token standard which is simply a list of rules that any tokens
issued on the etherion block chain must follow so what are tokens in the context
of etherium tokens are types of cryptocurrencies with different
functions that represent an asset or are intended for specific use that operate
on the ethereum blockchain so the etherium ecosystem allows for the
creation deployment and circulation of virtual currencies or tokens and ERC 20
proposed the implementation of rules and regulations developers must follow on
creating tokens to issue on the etherium network these rules can dictate how the
tokens can be transferred transaction approval methods user access to the
tokens in the total supply or number of tokens available so ERC 20 basically
ensures compatibility of new tokens issued on the etherium network tokens
that currently run on the ethereum blockchain are referred to as GRC 20
tokens currently over two hundred forty two thousand different tokens have been
issued on the etherium network some of them are popular ERC 20 tokens include
tether chain link v chain and be 80 and each token has a different function or
utility for example tether is a token that is tethered to the US dollar in
that it maintains the same value as the US dollar
this makes the token price stable staying at $1 per tether
which is why tokens with this function are called stable coins stable coins
were designed to bridge the gap between fiat currencies and crypto currencies by
allowing people with the token to hold an amount of cryptocurrency with a
stable value for example when you look at a crypto currency exchange
you can see how Bitcoin and etherion prices are constantly in flux
one minute Bitcoin can be worth 10,000 300 and the next it can be worth 9600
with tether you can hold ten thousand dollars of the token and minutes a
minute and day by day the value will remain unchanged
which gives the token a lot of utility an example of another token with
different utility is BA t bi T stands for basic attention coin and it was
created to be used as the currency for a web browsing DAP called brave ba t was
designed as a form of payment to be traded between users advertisers and
publishers in exchange for users attention to advertisements and content
creation pretty neat stuff another popular utility of tokens has been to
raise capital to finance cryptocurrency projects which brings us to our next
chapter chapter 6 what Ric OS ICO stands for initial coin offering which operates
similarly to an IPO or initial public offering an initial public offering
refers to when a privately held company decides to offer shares of their company
to the public and the form of stock on the stock market an initial coin
offering is the cryptocurrency world's application of this process by issuing
tokens that are similar to stocks that sometimes depending on the utility of
the token have a function within the product or the service icos are used to
raise capital through crowdfunding in order to build a product or service
typically a startup company wants to bring to market in fact aetherium raised
18 million dollars worth of funds and only 42 days from conducting an IC o—-
back in 2014 at that time either was worth about 30 cents per ether now at
the time of this video ether is worth around 270 dollars
so while ICS can be a great way for companies looking to build and offer
blockchain based products and services to secure funding investing in ICS is
extremely risky since there is no regulation of the IC o—- process many
investors risk losing any funds they allocate towards ICS due to fraudulent
projects scams legitimate projects being shut down for one reason or not
or legitimate projects failing many times an ICA raises so much capital that
the team loses any incentive to go through with the project and instead
decides to take the money and abandon the project altogether for that reason I
do not highly recommend investing in icy OS until more regulations have been
implemented that protect investors interests awesome now that we are
familiar with the ICO process GRC 20 tokens and how the etherium ecosystem
works conceptually let's take a look at what the future holds for this
blockchain project chapter 7 aetherium 2.0 later this year Nerium will start to
undergo a major Network update it has been nicknamed the OEM 2.0 ETH – and
serenity aetherium 2.0 is the final iteration of the etherium networks
evolution and is set to launch later this year in 2020 which will
coincidentally be a few months after the Bitcoin having event if everything stays
on schedule this update will involve switching from miners processing
transactions through proof of work protocols to validators processing
transactions through what is called proof of State in addition the update
will feature sharding a new virtual machine and much much more one of the
main goals of this update is to improve the etherium networks efficiency and
ability to scale aetherium 2.0 will allow the platform to handle the growing
demand for DAPs and the defy movement at large there are
many phases to this massive upgrade so if everything stays on schedule it will
be a few years until the upgrade is 100% implemented and complete we will break
down the phases of the etherium 2.0 upgrade and get into more of the
conceptual and technical details in another video in the meantime there is a
lot of room for growth in this project as it's still in its infancy
developmentally widespread and real-world use of aetherium is quite
feasible at this point in time which brings us to the fun bit of information
I promise to share at the beginning of this video
the EEA or the enterprise etherium alliance so what is the enterprise
aetherium alliance the principles inherent in aetherium platform due to
its blockchain foundation are not principles normally adopted by large
corporations these principles relate to the pillars of blockchain we discussed
earlier namely decentralization and transparency as you may have realized
throughout this video the etherion platform offers many solutions to issues
a lot of businesses other types of entities in entire industries at large
face on a daily basis to reconcile the disconnect between old-school practices
in these new principles blockchain technology brings to the table the
enterprise etherium Alliance was born the enterprise etherium Alliance or EA
was created to facilitate the conversion of enterprise grade software to etherium
x' decentralized watch-chain based platforms members of this Business
Alliance include a diverse mix of both large and small organizations some of
the bigger players you are probably familiar with include JP Morgan
Microsoft and FedEx you can check out the EEA website at HTTP colon 4 slash
forward slash int eth Alliance org if you are interested in learning more
about the Alliance so essentially the enterprise aetherium Alliance will be a
key driver in the mass adoption of the etherium network around the world
if the theorem seems like something you would be interested in investing in
scroll down to the description area below and click on the link to the
coinbase exchange you will receive $10 worth of free Bitcoin once you invest
$100 and cryptocurrency on coinbase if you are new to cryptocurrency check
out my updated ultimate guide that walks you through the process of buying
cryptocurrency like ether from start to finish
step-by-step by clicking on the link above now thank you for taking the time
to watch my video if you found this video helpful please click on the like
button and click the subscribe button if you are interested in learning more
about blockchain and cryptocurrency technology so what do you guys think
about aetherium is it a project you would consider investing in do you think
it has the potential to overtake Bitcoin and market cap in the near or distant
future what other questions do you have a theorem I can answer for you let me
know in the comments below be safe out there

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