Ethereum, like Bitcoin, is a blockchain that allows the transfer of cryptocurrencies between individuals without the need for a third party – such as a bank or international remittance company – to guarantee the transaction. In addition, it is also a programmable platform on which developers can create decentralized applications (dApps, its acronym in English) from various segments, such as finance, media and games. This is possible because the network works through smart contracts , a technology that has been revolutionizing the market.
In practice, these contracts are computer programs that automatically execute pre-established rules. An example is a loan. One person could lend money to another without the need to resort to an entity to guarantee the transaction – all terms and conditions could be programmed.
Ethereum kickstarted the emergence of a new digital economy, with new crypto assets, Decentralized Finance (DeFi), Cryptocurrency Initial Offerings ( ICOs ), Non-fungible Tokens ( NFT ) and metaverse games such as Decentraland ( MANA ) and The Sandbox ( SAND ).
Ethereum was the brainchild of Russian-Canadian programmer Vitalik Buterin in 2013. Buterin’s relationship with cryptocurrencies, however, began a few years earlier. He came across Bitcoin in 2011 while “looking for meaning in life,” he wrote on his blog. At first, despite understanding programming (his mother is a computer scientist), he could not see much value in the idea of Satoshi Nakamoto , the pseudonym of the creator of BTC.
After a while, however, he was hooked by technology, and started to get involved in market projects. In 2012, he co-founded Bitcoin Magazine, a website specializing in BTC coverage. It was also in that year that he entered the computer science course at the University of Waterloo, in Canada. In 2013, Buterin left graduation and went out into the world to meet people who were working in cryptocurrency. It was in these meetings with industry experts that he realized that it would be possible to use the Bitcoin blockchain not only to transfer money over the internet without the intermediation of third parties, but also to decentralize other segments.
In November of that year, using the BTC code as a basis, he published the project’s initial white paper. Several people were interested and offered to collaborate, including computer scientist Gavin Wood, who co-created the project alongside him. In July 2014, to raise money and effectively “start” Ethereum, the platform launched an ICO, managing to raise $18.5 million in just over a month. However, it was not until July 2015 that the blockchain finally came to life.
Ethereum 2.0 is an upgrade of the project’s blockchain. The purpose of this change is to increase the scalability, speed and efficiency of the network, which is often congested and has expensive fees. The change is being made in stages, and the main change will take place in the mining engine (the process of validating and creating new cryptocurrencies) of the system. Today, Ethereum uses the Proof of Work (PoW) protocol, the same used by Bitcoin. This algorithm requires miners to run computers to solve mathematical problems and validate transactions. The one who finds the solution first gets cryptocurrencies as a reward. This format is the target of criticism because it generates high energy expenditure.
During the upgrade, Ethereum will replace PoW with a mechanism called Proof of Stake (PoS), which bypasses miners. Under the rules of this new protocol, any network user with 32 ETH deposited in a specific smart contract will be able to help validate transactions on the blockchain. On December 22, 2020, that amount was around US$128,000 (R$731,000). The first phase of Ethereum 2.0 was implemented on December 1, 2020. In short, the developers created a blockchain called “Beacon Chain”, which already has the PoS mechanism in its code, and put it to “run” parallel to the network core of Ethereum.
The two chains will only merge in the second phase of the update, called “Merge”, scheduled to take place in June 2022. To force current miners to adopt the new format, Ethereum must implement in its mainnet code, still in 2022, a mechanism called “difficulty bomb”. In practice, this pump requires more computational power to mine ETH, reducing the profitability of the business. Finally, the last step of the update is the creation of “Shared Chains”. In this phase, programmers will subdivide the Ethereum mainnet into 64 chains. The purpose of this, according to Ethereum.org.
How to mine Ethereum
Mining is the name given to the process of validating and adding new transactions to the blockchain. Those who carry out this activity, carried out using computers, are the miners. As a reward, they receive new cryptocurrencies. To participate in the process, it is necessary to acquire PCs with powerful video cards. As mining involves solving mathematical calculations, the greater computational power, the greater the chances of being able to validate transactions and get cryptocurrencies.
After purchasing the equipment, it is necessary to connect to a mining software. In short, it is a program installed on the computer that controls the entire process of validating and manufacturing new coins. Some examples are the following: EasyMiner, CGMiner and BFGMiner. Finally, it is also essential to have a cryptocurrency wallet. Wallets are software or physical devices that give users access to these digital assets stored on the blockchain. In addition, they also allow the sending of digital currencies without the need for intermediaries.
It is worth emphasizing, however, that after the upgrade to Ethereum 2.0, the way to mine Ether will change, and it will be worth the PoS. After the network “upgrade”, only those users who deposit 32 ETH in a specific contract will be able to receive rewards in cryptocurrencies.