Ethereum Fundamentals

In order to get started with Ethereum we first of all need to

clarify what exactly is Ethereum and what are the main
building blocks of the Ethereum technology. Ethereum
describes itself as a technology that’s a home to digital
money, global payments, and applications.
Ethereum
• When compared to a blockchain technology like Bitcoin Ethereum
differs in many important aspects.
• The Bitcoin network was build to only support one specific
application: a peer-to-peer digital currency.
• The Ethereum network supports many different applications and
enables you to not only implement and run you own digital currency
on the network but also enables you to build your own decentralized
applications (DAPPs) on the Ethereum blockchain.
• Furthermore the Ethereum blockchain hosts its own native digital
currency which is called Ether.
Ethereum
• The Ethereum blockchain can be described as a decentralized database
which holds the single source of truth for the state of the Ethereum
network.
• This means that the blockchain keeps track of all transactions which are
executed (e.g. is Ether is send from one wallet to another wallet) and of
the execution state of applications running on the blockchain.
• As the name already suggests a blockchain is built of blocks. A block is an
entity which groups together several transactions.
• A block is then distributed to the decentralized Ethereum network and
validated by the network Nodes before it is attached to the blockchain at
the end.
The Ethereum Network

• So before diving deeper into the concept of the Ethereum blockchain

we first need to get an understanding of the Ethereum network itself
which is essential to operate the blockchain.
• The Ethereum network is fully decentralized which means that there
is no single instance or organization which is operating or hosting the
blockchain. Instead the decentralized network is operated by multiple
Nodes which are operated independently from each other and are
connected over the internet. In the following you can see an
illustration of the Ethereum network with Nodes connected to each
other:
what exactly is a Node?
• So what exactly is a Node? Nodes in the Ethereum network are
computers which are connected over the internet with the purpose to
participate in running the decentralized and distributed Ethereum
network. The main tasks of Nodes are:
• Validation of blocks and verification of transaction data
• Storage of blockchain data
• Creating and attaching blocks to the blockchain
A real-time overview of the current Nodes
• A real-time overview of the current Nodes in the Ethereum network
can be seen at https://etherscan.io/nodetracker.
https://etherscan.io/nodetracker
Ethereum Node Tracker
• The Ethereum Node Tracker website list all Nodes which are running
on the Ethereum network at the moment. Here you can get even
more insights into the network, e.g. discovering in which countries
Nodes are running and how the network structure is changing over
time.
Ethereum Clients

• As the Ethereum network is distributed and connected over the

internet everybody can join the network by setting up a node and
therewith participating in the network. To setup you own node on
your computer you need an Ethereum client software.
• Many Ethereum clients exists and you can choose clients which are
implemented in a variety of programming languages. A list of actively
maintained Ethereum client projects can be found at
https://ethereum.org/en/developers/docs/nodes-and-clients/#execut
ion-clients
.
Type of Nodes

• The Ethereum network supports different kind of Nodes:

• Full Node
• Light Node
• Archive Node
Main differences of these three Node types
• Let’s examine the main differences of these three Node types.
• First of all a Full Node is the standard node type which is used. It
contains a full set of the full Ethereum blockchain data. A Full Node:
• Stores the full blockchain data on disk and can serve the network with
any data on request.
• Participates in block validation.
• Verifies blocks and states.
Cont..
• In contrast a Light Node:
• Doesn’t store the entire blockchain data on disk. Instead it stores only
the header information of each block and only retrieves additional
information if needed from Full Nodes accessible in the network.
• Requires less storage capacity on the computer.
• An Archive Node:
• Stores everything which is kept in a Full Node and builds an archive of
historical states.
• Is needed if you want to query a historian state of the blockchain like an
account balance at a specific block number.
Transactions & Blocks

• From the first chapter you’ve already a basic understanding of the

decentralized structure of the Ethereum network. In this part we’ll
move on and learn about the details which happens in the network
when a user (a wallet) starts interacting with the Blockchain network.
Therefore we need to understand the concept of transactions &
blocks.
Transactions

• By using the term transaction we’re referring to an action with is

initiated by an external-owned account and sent to the Ethereum
network and you can see in the following:
transaction
• An external-owner account is an account which is managed by a user
(e.g. by using an Ethereum wallet). A transaction can be initiated to
achieve various outcomes in the Ethereum network. E.g. a transaction
can be used to transfer Ether (ETH) from one account to another
account. This is a transaction which changes the state within the network
because the sender account is being reduced by the amount of Ether and
the receiving account is being increased with the same amount of Ether.
• The external-owner account who is initiating the transactions connects to
a Node in the Ethereum network and sends the transaction. Afterwards
the transaction is distributed across the other Nodes in the network like
you can see in the following illustration:
Blocks

• As transactions are distributed across the network the next question

which comes into mind is: what is each node doing with the
transactions that are being received?
• To provide an answer to that question we need make ourselves
familiar with the concept of Blocks.
• So what are Blocks? Blocks are batches of transactions. Nodes are
grouping together transactions in Blocks in order perform a state
change of the Ethereum network by adding the batch of transactions
to the blockchain:
cont
• By building Blocks and combining multiple transactions the Ethereum
network ensures that a state change of the network can be
performed by validating the Block with a consensus mechanism and
then adding this new block to the blockchain. The following figure
illustrates the state change in the network by adding a new Block:
validating the Block with a consensus
mechanism
• Once a new network state is available the new state is distributed across all
Nodes in the network, so that it is ensured that the network state is
synchronized.
• Blocks and transactions are strictly ordered. This means that the transaction
history is always preserved in the Blockchain. To make sure that blocks are
ordered every new Block which is created contains as an additional
information a reference to its parent block. The reference is a hash value
which is generated from the data which is contained in a Block. The hash
value which is calculated for a block is specific to the content which is
available inside the block. Each block comprises of transactions and header
data. If anything of that changes, the calculated hash value changes as well:
Hash Function:
• A hash function is used to generate a hash value. This function maps
data of arbitrary size to a fix-size value. There are different kind of
hashing algorithms which can be used. Ethereum uses the SHA-256
hash algorithm to generate hash values which are of 256 bit size.
##Mining

• The process of putting a new Block together, validating this Block, and
finally adding it to the Ethereum Blockchain is called Mining. This
process is started and performed by the Nodes in the network. Any
Node which succeeds in putting together a block, getting it validated,
and added to the Blockchain is rewarded in Ether.
 BITCOIN VS ETH
Feature Ethereum Bitcoin

A decentralized platform for smart contracts and

Purpose A digital currency and a store of value
decentralized applications (DApps)

Consensus mechanism Proof-of-work (PoW) Proof-of-work (PoW)

Block time 15 seconds 10 minutes

Scalability Can be improved with sharding Limited

Transaction fees Can be high, especially for small transactions Relatively low

Energy consumption High Very high

Market capitalization $234.2 billion (as of March 8, 2023) $827.8 billion (as of March 8, 2023)

Price $2,920 (as of March 8, 2023) $46,226 (as of March 8, 2023)

•As you can see, Ethereum and Bitcoin have different purposes and design
goals. Ethereum is more focused on enabling the development of DApps,
while Bitcoin is more focused on being a digital currency and a store of value.
•Ethereum is also more scalable than Bitcoin, but it has higher transaction
fees. Bitcoin is more energy-intensive than Ethereum, but it has a lower
market capitalization.
•Ultimately, the best cryptocurrency for you will depend on your individual
needs and preferences. If you are looking for a digital currency with a high
market capitalization and a low energy footprint, then Bitcoin may be a good
choice for you. If you are looking for a platform for developing DApps, then
Ethereum may be a better choice.
•It is important to do your own research before investing in any