BITCOIN

WHAT IS BITCOIN?

Bitcoin is peer-to-peer cryptocurrency whose transactions are logged on a public, decentralized,

immutable ledger. This ledger, the blockchain, allows everyone to be witness to the transactions and to
how they are verified.

Who invented BTC?

No one really knows, but person most directly responsible used the pseudonym Satoshi Nakamoto when
they authored a white paper in October 2008 called „Bitcoin: A Peer-to-Peer Electronic Cash System“

BTC caractheristics

Bitcoin had qualities that no previous form of digital cash had ever gotten quite right:

 Decentralized – no one person or group owned or controlled it

 Peer-to-peer – no third party needed to confirm and approve
 Borderless – bitcoing could be moved easily accross the world, for smalled fees and at faster
speeds than traditional money transfers
 Immutable – its nearly impossibe to change or tamper with blockchain transactions
 Prevents double-spending

What is double spending?

Double spending is a potential exploit in crypto that allows malicious actors to spend the same coins two
or more times. To do this, fraudsters can send a transaction with a minimum fee and then immediately
override it by increasing the fee (so miners will be incentivized to verify the more profitable new
transaction first) and redirecting funds to a different address.

WHY BITCOIN WAS INVENTED?

Satoshi's stated goal in launching Bitcoin was to create an electronic payment system which utilizes
cryptographic proof rather than the traditional trust-based model. Such a system allows any two parties
to transact directly and does not require a third party. Likewise, Bitcoin transactions would be non-
reversible, doing away with the need for costly security and anti-fraud measures.
Bitcoin is still struggling in one of its goals: to be considered legal tender. So far, El Salvador and the
Central African Republic are the only countries that officially recognize Bitcoin as currency.

BITCOIN IS DECENTRALIZED: WHAT DOES THAT MEAN?

A core element of a decentralized network, in contrast with a centralized one, is that ownership or
control of the network is not given to anyone individual or entity. In traditional financial and monetary
systems, most often there is a central owner or controller. This could be a central bank, a government or
agency, a credit card or other payments company. In each of these cases, other participant sin the
network may engage in a variety of ways with one another – by transferring funds, by completing
purchases and sales, etc. – but the central authority will always oversee the broader system and will
sometimes even act as an intermediary in these interactions.

Decentralized networks, on the other hand, have no single owner or controller. In the case of Bitcoin,
the way that this is achieved is by sharing control of the broader Bitcoin network over thousands of
computers around the globe called nodes. Nodes act as individual repositories of the entire Bitcoin
network's transaction history. Because of this, even if you remove nodes from the system, Bitcoin can
continue to function. In addition, nodes are responsible for adopting any changes or updates to the
Bitcoin network, with the vote of a majority of nodes necessary to complete any change.

Why is Bitcoing Decentralized?

Supporters of Bitcoin argue that its decentralization makes it more resilient – again, if some of the nodes
go offline, the network continues to function without downtime. Decentralization also boosts anonymity
and resistance to censorship. No single entity is in charge of the Bitcoin network, so no central authority
can be particular transactions. No participant can shutdown the network, and the fact that transactions
in Bitcoin are verified by groups of computers in the network means that no one relies on any individual
entity to faciliate the completion of a transaction.

WHAT IS BLOCKCHAIN

A blockchain is a growing set of records, bunched together into blocks which are linked together using
cryptography.

Blockchain is the distributed ledger system (DLT). In a distributed ledger, a record of every transaction is
held in many places at the same time. As a result, every time something in the blockchain is changed
everyone in the network is notified about-and has to agree on-changes. This makes a blockchain
fiendishly difficult to hack into and change records as it would require someone to change every single
record at the exact same time.
Why is everyone so excited about blockchain?

Key factors:

 It's decentralized – data lives on the network, instead of in one place

 It's a trustless system – blockchain doesn't require so much trust, allowing anyone to exchange
goods or services without a third party
 No more middlemen – in a blockchain, there is no centralized control, which can lead to lower
costs and speedier transactions
 Transparency – in a public blockchain like Bitcoin anyone can see transactions, making it easier
to track the flow of goods and services
 No one is in control – because blockchain is a decentralized system, it means no one person or
group can control the system, meaning things can only change via consensus

WHAT IS PROOF-OF-WORK
The blockchain technology that powers Bitcoin and many other cryptocurrencies is essentially a
database, but it's far different from a typicial, centralized ledger. It's decentralized and powered by peer-
operated nodes distributed around the world, with no supervising authority to call the shots.

In combination with public key cryptography , the proof of work consensus algorithm secures the
distributed ledger and protects the network from „double spend“ attacks, all while adding new blocks of
transactions to the chain and generating BTC rewards.

The proof-of-work mechanism requires Bitcoin miners compete to solve complex mathematical
equations using computers – a very energy-intensive process. Proof-of-work is essentia to Bitcoin's
continued operation, but its energy consumption has received considerable scrunity, and some other
cryptocurrencies have embraced a very different proof-of-stake model instead.

What is a consensus mechanism?

Unline a traditional database overseen by an administrator, a public blockchain is a peer-to-peer

decentralized network that any participant can potentially contribute to. Consensus is essentual for such
a network to function, given the potentially thousands of node operators: They all must agree on the
state of the network for it to work properly.

A consensus mechanism is the process by which the network reliably and automatically determines
which participant's submitted block – a record of recent transactions-will be added to the chain, thus
minting and rewarding them with new cryptocurrency in the process.

What is proof-of-work, and how does it work?

Proof-of-work is the consensus mechanicsm designed for Bitcoin by its creator, Satoshi Nakamoto. In the
proof-of-work model, miners run hashing software on their computers, which harnesses their
hardware's power to solve complex math equations.
Ulimately, the math is arbitrary: Miners are doing work for the sake of it, to spend precious computing
resources in exchange for a potential reward. It's and intentionally difficult process to prevent potential
attacks on the network, but that means that more powerful computers have an advantage. Initially, they
used their computers CPUs to mine Bitcoin, but then they moced on to high-end graphic cards and
finally dedicated ASIC mining hardware.

Bitcoin users broadcast transactions to the blockchain, and miners collect them up in a block and
compete in proof-of-work to be the first to solve the equation via a process called hashing. The miner or
mining pool whose block is accepted earns Bitcoin as reward.

Why is it important?

Proof-of-work is a critical component of the Bitcoin network. Without such an energy-intensive process,
it would be easy for bad actors to attack the network and „double spend“ Bitcoin. That's called a 51%
attack, in which a mining group commands a majority of the network's total hash rate (computing
power), thus allowing it to manipulate blocks and take advantage of the system. However, because
Bitcoin's proof-of-work is so resource intensive, it's nearly impossible for any miner or group to
command that much total power.

„The proof-of-work chain is the solution to the syncronisation problem, and to knowing what the globally
share view is without having to trust anyone.“

Which cryptocurrencies use proof-of-work?

Proof-of-work is the dominant consensus model among cryptocurrencies, with Bitcoin, Dogecoin, Bitcoin
Cash, and Monero. Ethereum is moved to proof-of-stake in 2022.

What are the disadvantages of proof-of-work?

The biggest disadvantage of Bitcoin's proof-of-work model is the sheer amount of energy required for
mining.

Proof-of-Stake

A proof-of-stake system relies on validators to hold large amount of the native cryptocurrency within
the network, and those users validate transactions and earn rewards. Coins like Cardano, Algorand,
Cosmos and Binance Coin all use some form of a proof-of-stake model. As mentioned earlier, Ethereum
transitioned to that approach with its Ethereum 2.0 upgrade in September 2022; the new network is
estimated to consume 99.95% less energy than the previous one.

Proof-of-stake doesn't require high-powered computers or mining rigs, so the overall network uses
vastly less energy than a proof-of.work system.
WHAT IS BITCOIN MINING?
Bitcoin mining is the process by which blocks of transactions are added to the public blockchain and
verified. It's also the process by which new Bitcoin is created – a mechanism that both secures the
integrity of the blockchain and incentivizes participation in the network.

Miners compete to add new blocks to the blockchain. Mining Bitcoin demands a substantial
commitment on the part of miners; it's a costly, time-consuming task, and one that's necessary for the
cryptocurrency to work and for people to have faith in its legitimacy.

What is Bitcoin mining?

Miners are those individuals or companies that sustain and audit the blockchain network that supports
the cryptocurrency. They do so by completing „blocks“ of verified transactions, which are added to the
blockchain; when a miner completes a block, they are rewarded with Bitcoin.

The block reward of Bitcoin is the incentive that powers cryptocurrency transactions trough legitimizing
and monitoring the network. Because responsibility is carried out by many users throughout the world,
Bitcoin is decentralized cryptocurrency, meaning that it relies on no central authority such as a
government or bank for its trustworthiness.

Why does Bitcoin need miners?

Mining is, in effect, a process of auditing and verifying Bitcoin transactions to prevent the problem of
„double-spending“. Bitcoin uses a consensus mechanism called proof-of-work.

Process of mining Bitcoin works as follows:

 A miner's computer, called a node, collects and packages individual Bitcoin transactions from
the last ten minutes into the block
 This node competes with other nodes in the network to solve a complicated cryptographic
problem to be first to validate the new block for the blockchain
 The first miner to solve the problem broadcasts their success to the entire network
 Other nodes then check if their solution is correct. If correct, the new block is added to the
blockchain and the whole process starts again
 As the miner was first to solve the problem, it gets rewarded with Bitcoin

Bitcoin mining hardware runs a cryptographic hashing function on a block header.

What that means is that each miner creates a „candidate block“ with unconfirmed transactions from the
node's memory pool, or mempool. This block includes a block header that summarizes the data inside
the block, along with a reference to an existing block in the blockchain and a nonce („number only used
once“). In Bitcoin, the nonce is a whole number somewhere between 0 and 4,294,967,296.

This block header is then put through the SHA256 hash function; if the resulting number is higher than
the current target hash, the miner adjusts the nonce and tries again. Miners do this many thousands of
times per second. The difficulty target is a 256-bit number; it is adjusted every 2016 blocks (roughly
every 2 weeks), to ensure that a block is mined on average once every 10 minutes. When a lucky miner's
hash function spits out a result that's lower than the current target hash, the block is broadcast to the
network. Each node checks that the block header hashes to meet the target, and if confirmed the newly
mined block is added to the blockchain. The miner receives a reward of Bitcoin; this transaction, which
creates new Bitcoin out of thin air, is known as the „coinbase transaction“ and is included in the
candidate block.

The rate at which coins are issued is set by the mining code, ensuring that the time it takes for a miner
to win a block is always approximately 10 minutes. This is to protect the system and prevent miners
from creating their own Bitcoin.

Every time Bitcoin is mined, the cryptographic problem becomes harder to solve, meaning that miners
will require a higher hash rate to succeed in earning block rewards.

WHAT IS THE BITCOIN HALVING

The inventor of Bitcoin believed scarcity could create value where there was none before. The Halving
also known as the Halving is occured in May 2020.

What is Bitcoing Halving?

Inside the code that Bitcoin is built on, is a rule that says no more than 21 million Bitcoin can ever be
produced. New Bitcoin is released through mining as block rewards. Miners do the work of maintaining
and securing the Bitcoin ledger and as a reward; the system sends them new Bitcoin.

However, about every four years, the mining reward is halved-hence „the Halving“. Each halving reduces
the rate of new Bitcoing entering into the supply until no more new Bitcoin is created at all in the year
2140.

Who Invented the Halving?

The Halving was programmed into Bitcoin's code by Satoshi Nakamoto. This extremely simple
mechanism of reducing the total supply over time is one of the main reasons why Bitcoin is the world's
most valuable crypto asset.

A brief History

2009 – Bitcoin mining rewards start at 50 BTC per block

2012 – The first Bitcoing Halving reduces mining rewards to 25 BTC

2016 – In the second Halving, mining rewards go down to 6.25 BTC

2020 – In the third Halving, mining rewards go down to 6.25 BTC

2140 – the 64th and last Halving occurs and no new Bitcoin will ever be created
What's so special about it

Bitcoin is supposed to be decentralized and trustless-no one in control and no one to trust. Since Bitcoin
is not controlled by any one person or group, there must be hard and set rules about how many Bitcoin
gets created and how they are released.

By writing a total supply and Halving event into the Bitcoin code, the monetary system of Bitcoin is
essentially set in stone and practically impossible to change. This „hard cap“ means Bitcoin is a kind
„hard money“ like gold, which has a total supply that i salso practically impossible to change.

WHAT MAKES THE BITCOIN BLOCKCHAIN SECURE

Bitcoin has proven remarkably resilient to shocks and stresses throughout its history. And while crypto
exchanges have been hacked with depressing frequency, and their stores of Bitcoin redistributed,
actually compromising and taking control of the Bitcoin network itself is a far more daunting prospect.
That’s because Bitcoin is cryptographic, irreversible, distributed, and public.

Public Key Cryptography

Bitcoin is the original cryptocurrency. Crypto is short for cryptography, more specifically, “public key
cryptography”. That means it uses a private and a public key to ensure the authenticity and integrity of
transactions. Bitcoin’s digital signatures are signed using something called the Elliptical Curve Digital
Signature Algorithm (ECDSA).

The only way for someone to derive a private key from a given public key would be via a brute-force
search – trying every possible value for a private key and seeing if it generated the corresponding public
key.

Transactions are irreversible

The clever thing about Bitcoin is that it’s run on a blockchain. A “block” is just a batch of newly
processed transactions. Each block is connected to the previous batch of transactions by a one-way
cryptographic function, forming a “chain”.

Blockchains are write-only ledgers. You can add information to them, but the blocks, once written, can’t
be modified. It’s as if all the transactions are buried beneath the weight of the other blocks. That means
people can’t simply reverse a transaction from a week ago.

Distributed ledger

Blockchains are type of distributed ledger. Instead of your money sitting in a centralized database,
vulnerable to a single point of failure, it’s kind of everywhere (or, more accurately, the record of
transactions is distributed among many separate parties).
Everyone running the Bitcoin software with a “node” – a computer – is responsible for verifying
transactions. The majority of nodes must more or less agree that the record of transactions is accurate
before they can be approved.

For someone to hijack the blockchain, would require the acquisition and coordination of resources
beyond even the most powerful countries. With so many different people running the software – and a
collective interest in keeping the valuable coin secure – that’s not likely to happen. It’s simply too
expensive and difficult to coordinate.

Public blockchain

Everyone can see the transactions on the Bitcoin blockchain. It’s a public ledger. While that means
someone can see what’s in your wallet, they don’t know it belongs to you because your funds are in a
pseudonymous address. Moreover, they can’t take your money; only the person who holds the private
key to a Bitcoin address can move the funds.

Crucially, because of this transparency, everyone can see the ledger of transactions and verify
everything is on the up and up. Anyone is able to audit the system, which breeds trust.

WHAT DETERMINES THE PRICE OF BITCOIN

The Bitcoin blockchain went live on January 3d, 2009. At its inception, the Bitcoin network started
releasing its own eponymous currency or money. Every ten minutes, the network released 50 BTC to a
tiny community of cryptography enthusiasts.

At first, Bitcoin didn’t have a set monetary value because there wasn’t a marketplace for it. Without
goods and services being offered for Bitcoin, it was difficult to determine its price in a fiat currency such
as the USD.

Bitcoin Price Markets: Then and Now

On May 22, 2010, 10.000 BTC were exchanged for two pizzas in what is widely considered the first BTC
purchase (at the time, one BTC was worth 0.004$). Subsequently, others started accepting goods and
services in exchange for Bitcoin which created a market big enough for robust price discovery – which is
simply the free market method for determining an asset’s price. Since then, people have purchased
everything from luxury goods to real estate.

Since 2010, the price has risen dramatically as demand has typically outpaced supply. From July 2020
onwards, the Bitcoin price has remained above 10.000 $ and reached an all-time high price of 69.990,90
$ in November 2021. Eschewing BTC-to-pizza markets, price discovery is now determined primarily on
centralized crypto exchanges (CEXs) where BTC is traded for fiat (USD, EUR) and a variety of other
cryptocurrencies such as ether and Litecoin.

Why is BTC in Demand

Put simply, many who purchase and use BTC view it as a fiat currency and payment system alternative.
With its limited supply and decentralized nature, some purchase it as an inflation hedge, store of value,
or as an investment.

BITCOIN IMPROVEMENTS AND TWEAKS: A BRIEF HISTORY

Bitcoin has undergone numerous improvements and tweaks since 2009, both in an effort by developers
and users to improve Bitcoin0s functionality and in order to keep up (and remain competitive) with
technological developments of later cryptocurrencies. It’s worth noting that Bitcoin’s open source code
allows anyone to make changes. However, the key factor is that network consensus is required to
implement any of these changes, and network consensus for Bitcoin is notoriously difficult to achieve.

Bitcoin Foundation

First improvement was update focused on public relations, branding, and development adjustment. In
2012, after early associations with black market websites like Silk Road, the Bitcoin Foundation
launched. The Foundation’s mission includes advocating on behalf of Bitcoin to legislators and
governments around the world. It has played a crucial role in expanding and improving Bitcoin’s
reputation as well as general awareness of the cryptocurrency space. It also provided key funding to
developers early in BTC history.

SegWit

As Bitcoin’s popularity grew into the mid-2010s, the network ran up against the issue of scalability. The
fact that the Bitcoin network validated a new block of transactions only every 10 minutes meant that the
Bitcoin blockchain was severely constrained in the speed at which it could process transactions.
Especially as newer altcoins emerged with dramatically faster transactions processing times, the Bitcoin
network saw an urgent need to scale Bitcoin’s processing.

The Segregated Witness (SegWit) protocol was adopted in August 2017. SegWit reorganized the data in
a block to separate out the signatures from the transaction data, leaving space for more transactions per
block. SegWit roughly quadrupled the effective size of each block (from 1MB to 4 MB). It also aimed to
increase blockchain security by preventing transaction malleability, or the altering of bits of information
withing a block. SegWit also served as a foundation for the Lightning Network. SegWit implementation
led to a splitting of a Bitcoin network and the launch of the Bitcoin Cash token.

Lightning Network

The Lightning Network attempts to bypass the problem of block limitations in the Bitcoin blockchain by
using smart contracts and channels between individual participants off the blockchain using
microtransactions. The idea is that multiple transactions can be completed between participants in
these channels before the aggregated transactions are sent back to the main network for processing
together. The Lightning Network is not without concerns as some have pointed to routing fee concerns,
malicious attacks, the potential for fraud, and other concerns.
Taproot

Taproot is latest major upgrade to the Bitcoin network, activated as a soft fork in November 2021.
Taproot primary concerns are upgrading the efficiency and the privacy or security of the Bitcoin
network. It allows for multiple transactions and signatures to be grouped together in batches, thereby
reducing verification time on the network. Collaborators can create a single signature – called a Schnorr
signature, which is valid for an entire block of transactions, rather than having to have the transactions
verified individually. By removing the distinction between single-signature and multi-signature
transactions, identification of a participant’s transaction inputs becomes more difficult, and thus more
secure.
 ETHEREUM
WHAT IS ETHEREUM
Ethereum, the second-biggest cryptocurrency after Bitcoin, is a blockchain-powered platform for
creating decentralized applications (dapps). Where Bitcoin was designed as a currency and a store of
value, Ethereum is a decentralized network for running smart contracts – code that runs on a peer-to-
peer network and is verified by Ethereum’s blockchain. The idea is to create applications that are secure,
transparent and censorship-resistant, since they don’t rely on centralized platforms. Ethereum has been
used as the underlying software layer for everything from decentralized finance (DeFi) applications, to
“play-to-earn” games using non-fungible tokens (NFTs). Ultimately, many believe that Ethereum could
underpin a re-imagining of how the internet works, dubbed “Web3”, in which control of the Internet is
disintermediated away from big companies such as Amazon and Facebook.

What is Ethereum

What Ethereum has proven, is that blockchain can provide so much more than just a store of value. It
can be used to organize people, ideas, companies, money, services…. If anything can be written into
code and used by a smart contract, it can be built on Ethereum. That simple idea has prompted people
to use Ethereum to manage property and shares, create social networks and financial applications,
develop games, and even build a new nation.’

Who invented Ethereum

A Russian/Canadian computer programmer called Vitalik Buterin wrote the white paper Ethereum is
based on. However, the building of the network and community was helped along by a number of co-
founders: Anthony Di Loria, Charles Hoskinson, Miha Alisie, Amir Chetrit, Joseph Lubin and Gavin Wood

A brief history of Ethereum

November 2013 – Vitalik Buterin writes a whitepaper explaining the concept of Ethereum

January 2014 – Ethereum is publicly announced

July 2014 – Ethereum launches an ICO using BTC to buy Ether

June 2016 - $50m of Ether is stolen from a crowdsale and Ethereum developers agree to reverse the
decision by creating a “hard fork”

March 2017 – A group of companies including Toyota, Samsung, Microsoft, Intel, and J.P. Morgan
established the Enterprise Ethereum Alliance, a non-profit designed to make Ethereum suitable for big
business

December 2020 – The Beacon Chain goes live, the first phase of a sweeping upgrade known as Ethereum
2.0 that will eventually see the network switch over to a proof-of.stake consensus mechanism
March 2021 – Visa begins using the Ethereum blockchain to settle stablecoin transactions

April 2021 – The Berlin hard for goes live, reducing gas costs on the network

August 2021 – The London hard fork introduces base fees to every transaction and burns transaction
fees rather than allocating them to miners

September 2022 – The “Merge” moves Ethereum from proof-of-work to proof-of-stake

April 2023 – The Shanghai Upgrade (aka Shapella) allows validators to withdraw stakes tokens

What’s so special about Ethereum

Ethereum is taking the technology Bitcoin is built on and making it into more than a currency. It allows
developers to build apps – they are called daps or “decentralized applications” in the Ethereum world –
out of smart contracts.

What is Ether and how is it produced

Ether is a crypto Ethereum uses to build and maintain its network. In a similar way to how Bitcoin works,
miners create Ether by creating blocks and solving puzzles, a technique known as mining. Roughly every
15 seconds, a new block is added to the Ethereum blockchain, with the computer or miner that solves
the puzzle at the heart of the block being rewarded with Ether. These fees are called gas fees.

Ethereum previously used the same proof of work mining technique as Bitcoin. However, in
September2022 it moved to a different technique known as proof of stake in an upgrade widely referred
to as Ethereum 2.0 or the Merge

What applications have been built on Ethereum

Social Networks – get paid for your posts on social media dapps

File Storage – decentralized file storage as a fraction of the price

Overseas Payments – dramatically reducing the cost of sending cash overseas

Payments Cards – contactless debit card to pay in Ethereum and other cryptocurrencies

Online advertising – cutting out the middlemen in online ads. Users get paid directly for watching online
advertisements

Exchanges – decentralized exchanges (DEXs) such as Uniswap enable users to trade cryptocurrencies
peer-to-peer, without middlemen

Loans – blockchain backed loans with no credit checks

WHAT CAN ETHEREUM DO THAT BITCOIN COULD NOT
Bitcoin introduced a trustless, peer-to-peer system for transferring value, separate from any central
financial institution or authority. This was revolutionary, particularly at the time of Bitcoin’s launch in
2009 just after the financial crisis of the years before, but since that time other cryptocurrencies have
followed in Bitcoin’s footsteps and dramatically expanded the possibilities of crypto.

A Digital Store of Value VS A Digital Universe

Ethereum fundamental purpose is different from Bitcoin’s. Ethereum has been referred to as a “digital
universe”, because the Ethereum network is designed to facilitate the creation of decentralized
applications (dApps) through the use of self-executing smart contracts. Ethereum utilizes its own
programming language that runs on the blockchain to facilitate this.

Turing Completeness

Another way to think of the differences between Bitcoin and Ethereum is in term of each system’s
Turing-complete status. A system of rules for manipulating data is considered to be Turing-complete (a
reference to pioneering computer scientist and mathematician Alan Turing) if it can read programming
language with a set of information and can be used to solve any computation problem.

There is debate as to whether cryptocurrency networks are Turing-complete. Bitcoin scripts, for
example, cannot run in infinite loops, meaning that Bitcoin is not a program that doesn’t terminate.
Many have cited this as a primary reason why the Bitcoin network is not Turing-complete. Ethereum, on
the other hand, is at least closer to being Turing-complete because of the Ethereum Virtual Machine, a
state machine which executes a stored program while reading and writing other data to memory.

The limitation to the Ethereum Virtual Machine, and why it may be considered quasi-Turing-complete, is
its metering mechanism, gas. When the Ethereum Virtual Machine executes a smart contract, each
individual instruction comes with a pre-set cost in terms of gas. The Virtual Machine will only be able to
complete the execution if there is sufficient gas available. Because the number of computation steps in
an execution process on Ethereum is bounded by a finite amount of gas, the Virtual Machine is not fully
recursive and is therefore not truly Turing-complete.

A simpler way to think of the above is that Bitcoin is not designed to complete complex computational
processes beyond its basic functions as a currency and store of value. Ethereum is, but it is limited by
the gas fees to execute smart contracts.

ETHEREUM’S MANY USES: AN OVERVIEW

Ethereum is the second-largest cryptocurrency by total market value after Bitcoin, and it is often
compared to its iconic and better-known predecessor. But while Bitcoin revolutionized decentralized
networks and launched the cryptocurrency space as we know it, Ethereum’s contributions are in many
ways broader. In addition to decentralized payments system, Ethereum also provides a global network
of decentralized applications, or dApps. The breadth of use cases of dApps and the Ethereum network
more generally could eventually lead it to surpass Bitcoin in adoption around the world.

Cryptocurrency

Ethereum refers to the broader network which is powered by the crypto token ether, although the latter
is often called Ethereum as well. In addition to a host of other applications across industries, Ethereum
makes available a very popular cryptocurrency with a total market value of over $144 billion as of
Nov.20, 2022.

Smart Contracts

A key feature of Ethereum from time of its founding is smart contracts. These are self-executing
contracts which do not require outside verification and which can be used to verify and facilitate
transactions on the Ethereum blockchain. Smart contracts execute by themselves when preset
conditions are met, eliminating the need to an intermediary in the process and increasing efficiency.
Smart contracts also make possible the creation of dApps, which exist on Ethereum’s decentralized
blockchain.

Non-Fungible Tokens (NFTs)

NFTs are digital assets characterized by being unique and scarce. An NFT allows its owner to prove
ownership over a digital asset. Fungible tokens are those that can be exchanged for and identical
alternative – Bitcoin and many other crypto tokens are fungible because it doesn’t make a difference
which specific Bitcoin you hold. NFTs are not fungible, which means that each is verifiably unique.
Ethereum has been widely considered to be the blockchain of choice to facilitate the launch of the NFT
marketplace.

Initial Coin Offerings (ICOs)

ICOs proliferated in 2017 and 2018 as a huge number of new altcoins were launched, and a large
number of these offerings were facilitated on the Ethereum network. Similar in principle to initial public
offerings for publicly traded stocks, ICOs are a means of crowdsourcing funding to launch a new token,
dApp, or other blockchain-related technology. Smart contracts have been key in making ICOs possible.

Decentralized Finance (DeFi)

DeFi is a movement to adapt traditional financial products and markets to new technology available
through blockchain and Ethereum. These new offerings include aspects of decentralization, censorship
resistance, and smart contract programmability that is possible on the Ethereum network. DeFi products
include peer-to-peer borrowing and lending platforms, stablecoins, decentralized exchanges, and more.
DeFi also aims to avoid the risk of government-related market interference, of the limitation of trading
hours based on time zones, and of the denial of access to financial services to any individual.
Web3

After the read-only Web 1.0 which included static websites and limited user-to-user interaction, Web
2.0 emerged in the mid-2000s. This version of WWW can be characterized as “read-write”, in that it
provided opportunities for users to interact with one another through websites that were still centrally
organized and managed. Many Ethereum supporters advocate for its role in the development of Web
3.0, which is “read-write-own”. It builds off of Web 2.0 to include blockchain and cryptocurrency
technologies in an effort to facilitate ownership by individuals, rather than central companies. Web3 has
deep ties to Ethereum, including the fact that the term itself was first coined by an Ethereum co-
founder.

Metaverse

The idea of the “metaverse”, or a virtual reality supplementing the non-digital world, has been massively
popular in recent years. Many crypto enthusiasts believe that the Ethereum network is among the best
situated to facilitate the creation of the metaverse. The idea of the metaverse is closely linked with
Web3, and advocates of a blockchain-based metaverse may see a conflict between one created with
Ethereum and one launched by a central company such as Meta Platforms.

WHAT IS ETHERMAIL? THE “READ-TO-EARN” WEB3 EMAIL

SERVICE
EtherMail is a company seeking to transform email to be compatible with Web3. It claims to be first
Web3 email solution, and aims to deliver “anonymous and encrypted wallet-to-wallet communication”.
The shift to Web3 is among the most anticipated developments in the worlds of blockchain,
cryptocurrency, and business more broadly. This next generation of the internet seeks to recover control
of the web from central organizations and companies, returning power to individual users. One goal for
many Web3 advocates is that this reallocation of authority will come alongside renewed user security,
privacy, and anonymity.

Communication in Web3

EtherMail utilizes blockchain technology and allows users to connect their digital wallets, facilitating the
real-time management of the user’s digital assets. Emails between Ethermail users are always end-to-
end encrypted, so no one on the EtherMail team has access to emails or other data.

Read-to-earn

In legacy email systems, users may be targeted by advertisers or spam mailers with little recourse other
than to block those individuals. EtherMail takes a cue from the cryptocurrency space by providing the
opportunity to earn rewards as a user, depending on how valuable your account is to advertisers.

EtherMail features a platform called the “Paywall”, where users are able to define what kind of content
they’re willing to read in exchange for rewards. Advertisers, on the other hand, have to pay in order to
be able to access a user’s inbox. This provides the double bonus of rewarding users while also further
protecting against spam.

What are EMC and EMT

EMC is EtherMail’s reward token. Eventually, the company will launch a native utility token, $EMT, and
all EMC will be converted to $EMT. Users can earn EMC by performing one or more of the following
actions:

 Reading certain emails on the EtherMail platform

 Connecting a digital wallet in order to access an EtherMail account
 Leaving a secondary email
 Completing IMAP connection
 Inviting friends to join EtherMail

ETHEREUM’S ARCHITECTURE: ERC-20 TOKENS, GAS, ETH

To understand how the Ethereum network functions, you need to understand these three elements:
ETH, gas and ERC-20 tokens.

What is ETH

The cryptocurrency ETH is the digital fuel for Ethereum. To power your car, you need to buy gasoline. To
power your transaction on the Ethereum blockchain, you need ETH.

On Ethereum, that ETH is an amount of computer power required in order to make your transaction
work. And in order to calculate how much ETH is needed to make a transaction work, the developers
behind Ethereum created gas.

What is gas on Ethereum

Gas is the cost the network charges in order to process your transaction. If you want to send ETH,
interact with a smart contract, or anything else that needs to be recorded on the Ethereum blockchain,
you have to pay for it. The payment is calculated in gas, and paid in ETH. That gas price rises and falls,
depending on how busy the Ethereum network is, i.e. how many transactions need to be verified.

What are ERC-20 tokens

Ethereum is not just a blockchain, like Bitcoin; it is a platform. This means that other tokens can run on
top of it, and decentralized applications (dApps) can be build on top of it using smart contracts. As
Ethereum’s popularity grew, and people started creating their own smart contracts, a problem arose:
How do you get these different contracts to interact with each other?

The answer was ERC-20. This is a standard, or set of rules that make it easier for contracts to interact.
The ERC-20 token standard allows developers to create their own tokens on the Ethereum network. It
has provided an easier route for companies to develop blockchain products instead of building their own
cryptocurrency.

Some tokens, like Uniswap’s UNI token, are set to remain ERC-20 tokens; other cryptocurrencies, such
as Binance Coin, have jumped over to their own blockchains.

What are the properties of ERC-20 tokens

ERC-20 tokens are the most commonly used tokens on the Ethereum network. They are designed to be
used for paying for functions and are known as utility tokens. They can also be used to pay for goods and
services.

These tokens are:

 Fungible – the code of each individual token is the same as any other, though transactions
histories can be used to identify and separate out the tokens involved
 Transferable – they can be sent from one address to another
 Fixed supply – a fixed number of tokens must be created so that developers cannot issue more
tokens and raise the supply

How to buy and store ERC-20 tokens

Many ERC-20 tokens are tradable on cryptocurrency exchanges such as Coinbase and Binance. You will
also need a crypto wallet that can store Ethereum tokens; either a software wallet such as MetaMask, or
a hardware wallet.

Which cryptocurrencies are based on the ERC-20 standard

Since the ERC-20 token standard was finalized, over 500,000 tokens compatible with ERC-20 have been
issued. Some of leading ERC-20 tokens include:

 Uniswap (UNI) – a decentralized exchange (DEX) that enables users to swap tokens peer-to-
peer, without relying on a centralized intermediary. Decentraland (MANA) – the token
underpinning metaverse platform Decentraland, MANA is burned in order to acquire non-
fungible LAND tokens representing plots of virtual land
 ApeCoin (APE) – the utility and governance token for the Bored Ape Yacht Club ecosystem,
based on the popular PFP NFT collection
 Aave (AAVE) – native token od decentralized finance (DeFi) lending platform Aave
 Wrapped Bitcoin (WBTC) – an ERC-20 token that’s backed 1:1 by Bitcoin, which can than be
used as collateral, boosting liquidity in DeFi applications
What are disadvantages of ERC-20 tokens

 Low throughput – the Ethereum network has been clogged up when dApps have experienced
high demand, such as CryptoKitties. When this happens, the network slows down and
transactions become more expensive
 Slow transactions – the block time is around 14 seconds, so transactions can take up to a
minute to process. This may be adequate for some uses or too slow for others
 ETH – when transactions are made involving ERC-20 tokens, a second cryptocurrency is needed
to pay for the transaction fees. This can add both time and cost, as it can result in dust on
different platforms

What other Ethereum standards are there

Other standards are:

 ERC-721 – this is the token standard for NFT’s. Each token is unique and has its own code, which
has led to a burgeoning market for crypto collectibles including trading cards and digital
artworks
 ERC-1400 – these are for security tokens so the tokens can be sold as securities. This requires
more control over who can access the coins and introduces know-your-customer protocols
 ERC-223 – when you make a transaction, fees are currently paid in Ether. This standard allows
for the transaction fees to be paid using the tokens involved. This means a transfer of Augur
would be paid in Augur tokens, with the ticker symbol REP.
 ERC-777 – it aims to be an improvement on the ERC-20 standard by lowering overheads and
adding new feauters. It is backwards-compatible, which means it might be more widely adopted

WHAT IS ERC-721