Module 4
Ethereum
Ethereum is like a decentralized computing
network.
It allows developers to create and run
applications on its blockchain using smart
contracts.
Ethereum was initially released in 2015.
Within two years of its release, it was ranked
the second-best blockchain network, Bitcoin is
the first.
Ethereum is a Blockchain network that
introduced a built-in Turing-complete
programming language that can be used for
creating various decentralized applications(also
called Dapps).
The Ethereum network is fueled by its own
cryptocurrency called ‘ether’.
Ethereum is often called Blockchain 2.0 since it
proved the potential of blockchain technology
beyond the financial sector.
The consensus mechanism used in Ethereum
is Proof of Stakes(PoS), which is more energy
efficient when compared to that used in the
Bitcoin network, that is, Proof of Work(PoW).
History of Ethereum
• 2013: Ethereum was first described in Vitalik
Buterin’s white paper in 2013 with the goal of
developing decentralized applications.
• 2014: In 2014, EVM was specified in a paper by
Gavin Wood, and the formal development of the
software also began.
• 2015: In 2015, Ethereum created its genesis
block marking the official launch of the platform.
• 2018: In 2018, Ethereum took second place in
Bitcoin in terms of market capitalization.
• 2021: In 2021, a major network upgrade
named London included Ethereum
improvement proposal 1559 and introduced a
mechanism for reducing transaction fee
volatility.
• 2022: In 2022, Ethereum has shifted from
PoW( Proof-of-Work ) to PoS( Proof-of-State )
consensus mechanism, which is also known as
Ethereum Merge. It has reduced Ethereum’s
energy consumption by ~ 99.95%.
Features of Ethereum
• Smart contracts: Ethereum allows the creation and
deployment of smart contracts. Smart contracts are
created mainly using a programming language called
solidity. Solidity is an Object Oriented Programming
language that is comparatively easy to learn.
• Ethereum Virtual Machine (EVM): It is designed to
operate as a runtime environment for compiling and
deploying Ethereum-based smart contracts.
• Ether: Ether is the cryptocurrency of the Ethereum
network. It is the only acceptable form of payment for
transaction fees on the Ethereum network.
• Decentralized applications (Daaps): Dapp has its
backend code running on a decentralized peer-to-
peer network. It can have a frontend and user
interface written in any language to make calls and
query data from its backend. They operate on
Ethereum and perform the same function irrespective
of the environment in which they get executed.
• Decentralized autonomous organizations (DAOs): It
is a decentralized organization that works in a
democratic and decentralized fashion. DAO relies on
smart contracts for decision-making or decentralized
voting systems within the organization
Type of Ethereum Accounts
Ethereum has two types of accounts:
1) Externally owned account (EOA)
2) Contract Account
(EOA) :
They are controlled by private keys.
Each EOA has a public-private key pair.
The users can send messages by creating and
signing transactions.
Contract Account:
Contract accounts are controlled by contract
codes.
These codes are stored with the account.
Each contract account has an ether balance
associated with it.
How Does Ethereum Work?
• Ethereum implements an execution
environment called Ethereum Virtual Machine
(EVM).
• When a transaction triggers a smart contract
all the nodes of the network will execute every
instruction.
• All the nodes will run the EVM as part of the
block verification.
• All the nodes on the network must perform
the same calculations for keeping their ledgers
in sync.
• Every transaction must include:
– Gas limit (amount of processing time for
transaction)
– Transaction Fee (that the sender is willing to pay
for the transaction).
The Ethereum blockchain
• Ethereum can be visualized as a transaction-
based state machine.
• In the following diagram, the Ethereum state
transition function is shown, where a
transaction execution has resulted in a state
transition:
Figure 11.1: Ethereum state transition function
Ethereum – a user's perspective
1. First, either a user requests money by
sending the request to the sender, or the
sender decides to send money to the
receiver.
(Jaxx Ethereum wallet software is used here)
• For example, there are two users, Bashir and
Irshad.
• If Irshad requests money from Bashir, then she
can send a request to Bashir by using a QR
code.
• Once Bashir receives this request he will
either scan the QR code or manually type in
Irshad's Ethereum address and send the ether
to Irshad's address.
• This QR code can be shared via email, text, or
any other communication method:
Figure 11.2: QR code as shown in the blockchain wallet application
2. Once Bashir receives this request he will either scan this QR
code or copy the Ethereum address in the Ethereum wallet
software and initiate a transaction
3.The request is then broadcasted to the
Ethereum network.
(The transaction is digitally signed by the sender
as proof that he is the owner of the ether)
4. This transaction is then picked up by nodes
called miners on the Ethereum network for
verification and inclusion in the block.
5. Once it is verified and included in the block,
the PoW process starts
6. Once a miner finds the answer to the PoW
problem, this block is immediately broadcasted to
the rest of the nodes, which then verifies the block
and PoW.
7. If all the checks pass then this block is added to the
blockchain, and miners are paid rewards
accordingly.
8. Finally, Irshad gets the ether, and it is shown in her
wallet software. This is shown in the following
screenshot:
Figure 11.4: The transaction received in Irshad's blockchain wallet
• On the blockchain, this transaction is
identified by the following transaction hash:
0xc63dce6747e1640abd63ee63027c3352aed8
cdb92b6a02ae25225666e171009e
• The details of this transaction can be
visualized on the block explorer at
https://etherscan.io/, as shown in the
following screenshot:
Figure 11.5: Etherscan Ethereum blockchain block explorer
The Ethereum network :
is a peer-to-peer network where nodes
participate in order to maintain the blockchain
and contribute to the consensus mechanism.
Networks can be divided into three types:
1) The mainnet
2) Testnets
3) Private nets
The mainnet:
It is the current live network of Ethereum.
Its network ID is 1 and its chain ID is also 1.
The network and chain IDs are used to identify
the network.
This can be used to explore the Ethereum
blockchain.
.
Testnets
The aim of these test blockchains is to provide a
testing environment for smart contracts and
Dapps before being deployed to the production
live blockchain.
They also allow experimentation and research.
The main testnet is called Ropsten, which
contains all the features of other smaller and
special-purpose testnets that were created for
specific releases.
Private nets
These are private networks that can be
created by generating a new genesis block.
a private group of entities start their
blockchain network and use it as a
permissioned or consortium blockchain.
Components of the Ethereum ecosystem
• At the core, there is the Ethereum blockchain running on
the peer-to-peer Ethereum network.
• Secondly, there's an Ethereum client (usually Geth) that runs
on the nodes and connects to the peer-to-peer Ethereum.
– It provides various functions, such as mining and account
management.
– The local copy of the blockchain is synchronized regularly with the
network.
• Another component is the web3.js library that allows
interaction with the geth client via the Remote Procedure
Call (RPC) interface.
Figure 11.6: Ethereum high-level ecosystem/ Ethereum Ecosystem
Architecture
Elements of the Ethereum blockchain
1. Keys and addresses
2. Accounts
3. Transactions and messages
4. Ether cryptocurrency/tokens
5. The EVM
6. Smart contracts and native contracts
The Ethereum Virtual Machine (EVM)
• The EVM is a simple stack-based execution machine that
runs bytecode instructions to transform the system state
from one state to another.
The word size of the EVM is set to 256-bit.
The stack size is limited to 1,024 elements and is
based on the Last In, First Out (LIFO) queue.
• The EVM is a Turing-complete machine but is limited by
the amount of gas that is required to run any instruction.
• The EVM also supports exception handling.
There are three main types of storage available for
contracts and the EVM:
• Memory:
The first type is called memory or volatile memory,
which is a word-addressed byte array.
When a contract finishes its code execution, the
memory is cleared.
write operations to the memory can be of 8 or 256
bits, whereas read operations are limited to 256-bit
words.
• Storage:
The other type is called storage, which is
a key-value store and is permanently persisted
on the blockchain.
Keys and values are each 256 bits wide.
As a security measure, storage is only
accessible by its own respective CAs.
• Stack:
EVM is a stack-based machine, and thus
performs all computations in a data area
called the stack.
It has a maximum depth of 1024
elements and supports the word size of 256
bits.
The following diagram shows the design of the
EVM where:
The virtual ROM stores the program
code that is copied into the main memory
using the CODECOPY instruction.
The main memory is then read by the
EVM by referring to the program counter and
executes instructions step by step.
The program counter and EVM stack are
updated accordingly with each instruction
execution.
Figure 11.11: EVM operation
Standard fields in Ethereum transactions:
1) Nonce:
The nonce is a number that is incremented by one
every time a transaction is sent by the sender.
It must be equal to the number of transactions sent
and is used as a unique identifier for the transaction.
A nonce value can only be used once.
This is used for replay protection on the network.
2) Gas price:
The gas price field represents the amount of
Wei required to execute the transaction.
In other words, this is the amount of Wei you
are willing to pay for this transaction.
(Wei is the smallest denomination of ether;
therefore, it is used to count ether)
3) Gas limit:
The gas limit field contains the value that represents the
maximum amount of gas that can be consumed to execute the
transaction.
It is the fee amount, in ether, that a user (for example, the
sender of the transaction) is willing to pay for computation.
4) To:
As the name suggests, the To field is a value that represents the
address of the recipient of the transaction.
This is a 20 byte value.
5) Value:
Value represents the total number of Wei to be transferred to
the recipient.
6) Signature:
The signature is composed of three fields, namely V, R, and
S.
These values represent the digital signature (R, S)
and some information that can be used to recover the
public key (V).
7) Init:
This represents a byte array of unlimited length that
specifies the EVM code to be used in the account
initialization process.
The code contained in this field is executed only
once when the account is created for the first time, it
(init) gets destroyed immediately after that.
8) Data:
If the transaction is a message call, then the
Data field is used instead of init, and
represents the input data of the message call.
It is also unlimited in size and is
organized as a byte array.
• This structure is visualized in the following
diagram, where a transaction is a tuple of the
fields mentioned earlier, which is then
included in a transaction trie (a modified
Merkle-Patricia tree(MPT))
• Finally, the root node of the transaction trie is
hashed using a Keccak 256-bit algorithm and is
included in the block header along with a list
of transactions in the block:
Figure 11.7: The relationship between the transaction,
transaction trie, and block header
1. Contract Creation Transaction
It is used to create smart contracts on the blockchain.
The parameters required are :
• The sender
• The transaction originator
• Available gas
• Gas price
• Endowment, which is the amount of ether allocated
• A byte array of an arbitrary length
• Initialization EVM code
• The current depth of the message call/contract-creation stack
(the number of items that are already present in the stack)
• the result of a contract creation transaction is
either a new contract with its balance, or no
new contract is created with no transfer of
value.
2) Message call transactions
A message call requires several parameters for execution, as
follows:
• The sender
• The transaction originator
• The recipient
• The account whose code is to be executed (recipient)
• Available gas
• The value
• The gas price
• An arbitrary-length byte array
• The input data of the call
• The current depth of the message call/contract creation stack
A message call is the act of passing a
message from one account to another.
If the destination account has an
associated EVM code, then the EVM will start
upon the receipt of the message to perform
the required operations.
If the message sender is an autonomous
object (external actor), then the call passes
back any data returned from the EVM
operation.
