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Ethereum Architecture Sept2022

Ethereum is a decentralized, open-source blockchain that allows users to build decentralized applications and transfer value without intermediaries. It was created in 2013 by 19-year old Vitalik Buterin and first implemented smart contracts, which are programs stored on the blockchain that execute automatically based on predefined conditions. Ether is the cryptocurrency native to the Ethereum network and is used to pay transaction fees called gas. Smart contracts enable many applications like insurance payouts if flights are delayed and secure global voting by citizens.

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MRIDUL GOEL
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43 views16 pages

Ethereum Architecture Sept2022

Ethereum is a decentralized, open-source blockchain that allows users to build decentralized applications and transfer value without intermediaries. It was created in 2013 by 19-year old Vitalik Buterin and first implemented smart contracts, which are programs stored on the blockchain that execute automatically based on predefined conditions. Ether is the cryptocurrency native to the Ethereum network and is used to pay transaction fees called gas. Smart contracts enable many applications like insurance payouts if flights are delayed and secure global voting by citizens.

Uploaded by

MRIDUL GOEL
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Introduction to Ethereum

Sept 2022
What is Ethereum?

● Ethereum is the community-run technology powering the cryptocurrency ether


(ETH) and thousands of decentralized applications.
● Ethereum is a technology for building apps and organizations, holding assets,
transacting and communicating without being controlled by a central authority.
● There is no need to hand over all your personal details to use Ethereum - you
keep control of your own data and what is being shared.
● Ethereum has its own cryptocurrency, Ether, which is used to pay for certain
activities on the Ethereum network.
● Ethereum is a decentralized, open-source blockchain with smart contract
functionality.
History of Ethereum

● Ethereum was a college project by 19-year-old boy Vitalik Buterin in 2013


● Ethereum raised 18.4 million $ in ICO for development.
● Ethereum is the first blockchain protocol to successfully implement “Smart
Contracts”
● Today, Ether is ranked # 2 in terms of cryptocurrency valuations.
Rationale for Ethereum

● A decentralized system for various applications and not just as a payments


alternative.

● Build on the inefficiencies of bitcoin

● Avoid the potential centralized nature of bitcoin mining

● Also used Proof of Work (PoW) consensus algorithm but recently changed to
Proof of Stake (PoS)
What is Ether

● Ether is the cryptocurrency native to Ethereum protocol.


● Ethers are not capped like Bitcoin
● Ether is not meant to be a store of value but a means to pay fees within the
network. It is the main fuel and currency internal to Ethereum platform
● With every block formation , some new Ethers are minted and some are also
burnt (Ether may get deflationary in times to come)
● Current market cap of all Ethers is approx. $150 billion. (@$1300 / Eth)
● Current total supply of Ether is approx. 120 million.
● It is a form of payment made by the clients of the platform to the machines
executing their requested operations
Ether Denominations

● ‘Wei’ is the smallest unit of Ether, where 10power18 wei equal 1 Ether.
● Thus 1 wei = 10power(-18) Eth
● An Ether can therefore be written in 18 places of decimal.

● Another popular unit of Ether is gwei, where 10power9 gwei equal 1 Ether.
● Thus 1 gwei = 0.000000001 Eth.

● Conversion from wei to gwei would therefore be, 1 gwei = 10power9 wei.
● Or 1 wei = 10power(-9) gwei.
Transaction Fee - GAS

● Every computation that occurs as a result of a transaction on the Ethereum


network incurs a fee. This fee is paid in a denomination called ‘Gas’.
● Gas is the unit used to measure the fees required for a computation
● Gas price is the amount of Ether you are willing to spend on every unit of Gas
and is measured in ‘gwei’ ( 1 gwei = 10 power (-9) Eth).
Transaction Fee – GAS Limit

● With every transaction, a sender sets a Gas limit and Gas price.
● The product of gas price and gas limit represents the maximum amount of Wei that
the sender is willing to pay for executing a transaction.
● 50,000 x 20 gwei = 1,000,000,000,000,000 Wei = 0.001 Ether

Gas Limit Gas Price Max Tx Fee


50,000 x 20gwei
= 0.001Eth

● If limit set is less than actual Gas requirement, then transaction runs ‘out of gas’ and
is considered invalid. All the Gas is considered spent is no Gas is refunded back to
sender. A record is maintained where the transaction failed.
Transaction Fee – GAS for Storage

● There is fee for storage too.


● Not only is gas used to pay for computation steps, it is also used to pay for
storage use.
● Imposing fees prevents users from overtaxing the network.
Transaction Fee – Intrinsic GAS requirement

● The transaction’s gas limit must be equal to or greater than the intrinsic gas
used by the transaction.

The intrinsic gas includes:


• a predefined cost of 21,000 gas for executing the transaction.
• a gas fee for data sent with the transaction (4 gas for every byte of data or code
that equals zero, and 16 gas for every non-zero byte of data or code).
• if the transaction is a contract-creating transaction, an additional 32,000 gas
Ethereum Accounts

● There are two types of accounts :


○ Externally Owned Accounts (EOA), which are controlled by private keys and have no code
associated with them.
○ Contract Accounts (CA), which are controlled by their contract code and thus have code
associated with them.

● Each account has a state associated with it and a 20-byte address which is
usually the public key of the account owner.

● EOA do not have any code and CA do not have a private key.
Ethereum Accounts

● An EOA can send messages to other EOAs or to other CAs by creating and signing a
transaction using its private key.

● A message between two EOAs is simply a value transfer.


● But a message from an EOA to a CA activates the CA’s code, allowing it to perform various
actions (e.g. transfer tokens, write to internal storage, mint new tokens, perform some
calculation, create new contracts, etc.)

● Unlike externally owned accounts, contract accounts can’t initiate new transactions on their
own.

● Instead, contract accounts can only fire transactions in response to other transactions they
have received (from an externally owned account or from another contract account).

● Any action that occurs on the Ethereum blockchain is always set in motion by transactions fired
from externally controlled accounts.
What are smart contracts?

● Smart contract are programs that have their code stored on a blockchain.

● The code of smart contract is immutable

● The code can be executed by an Externally owned account (EOA) or another


Contract account (CA)

● Since the code is immutable, thus users can predict the outcome of a
transaction, based on the inputs and other variables.

● This helps generate trust in transactions.


Use of smart contracts – Public Blockchain?

Airlines vs Passengers Insurance in case of flight delay


● Business Problem statement- Reduce customer dissatisfaction due to lengthy
processes and paperwork for claiming flight delay insurance.
● Involved parties – Passenger , airline, insurance co & Airport Auth
● Prerequisites (Oracle) – Access to flight information from airlines database,
airport records.
● Trigger event – Flight delay of more than ‘x’ hours.
● Business logic – If passenger has insurance, initiate the claim process and
credit money to his/her account.
Use of smart contracts – Public/Private Blockchain?

Government vs citizens in voting in a democratic world


● Business Problem statement- Govt wants to enable citizens around the globe
to vote for a candidate of their choice via a secure mechanism
● Involved parties – Candidates, voters and election commission
● Prerequisites – Voter registration for all citizens with details of age & location.
● Trigger event – Vote is cast by an eligible voter.
● Business logic – If voter specifies the criteria of age / location then can cast
only one vote to his/her preferred candidate. Counter of candidate
incremented by +1
Thank You

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