Bitcoin, Ethereum, and all other headline-making crypto assets are based on a virtual infrastructure called a blockchain.
To understand the blockchain at its core, try to visualize the difference between a Microsoft Word and a Google Doc. If somebody needs to modify your existing Word document, you’ll first have to send it to the recipient and wait for an updated version. More importantly, every time you save an edited document, all working history disappears, leaving only the last version available for the next user. On the other hand, a Google Doc gives all involved participants simultaneous access and full insight into the document’s history at any point of its creation.
Similarly, the blockchain enables full transparency allowing all users to have a copy of the complete ledger and all the recorded transactions. The main difference is that G-Suite uses cloud storage to handle its virtual existence, while the blockchain needs to be downloaded by each user individually. As a result, the blockchain’s size can become a critical concern now that the number of crypto transactions has multiplied tenfold.
For this reason, today, we’re discussing Ethereum, one of the busiest blockchain networks alive, through the lens of the blockchain’s physical magnitude.
How Does the Blockchain Work?
There are thousands of cryptocurrency systems running on an open blockchain today. Blockchains can vary widely from one to another to a great extent in terms of their operational setup and algorithms, but they all have decentralization as a core value.
Generally, blockchain is unlike any other technology for interaction and data storage, so we often use a database analogy, which can help demystify the concept. Thus, we can say the way this very decentralized database is maintained and updated creates a new transaction system that is transparent, immutable, and superbly secure.
However, blockchain technology doesn’t disrupt the notion of databases but rather the way a database stays synchronized across multiple users. The blockchain is envisioned as an open ledger, distributed and simultaneously replicated across multiple participating computers called nodes. It contains the full history of all recorded transactions in chronological order stored on network nodes instead of a central server, always open for review. The system operates in a P2P (peer-to-peer) manner and is capable of maintaining security without a trusted third-party intermediary involved.
Hence, all active participants have to approve each modification on the blockchain. Once they give “a green light” the blockchain gets updated across all nodes within the network.
Bitcoin — The Original Blockchain
Bitcoin appeared at the end of 2008 as an innovative P2P (peer-to-peer) electronic cash transaction system whose purpose was to eliminate all intermediaries necessary for completing a transaction. Since Bitcoin has established the basis for the development of the entire blockchain industry, all other blockchain networks are analyzed through Bitcoin’s features, even though active blockchains today can have a totally different utility.
Bitcoin utilizes a Proof-of-Work (PoW) consensus that makes all nodes compete in solving complex mathematical equations in order to decrypt a secured transaction. When a certain number of Bitcoin transactions gets verified, the block of data is added to the blockchain. For each completed block, miners гeceive a certain amount of Bitcoin for contributing to the verification process with their computing power. Due to the huge demand for Bitcoin, this process nowadays requires a ridiculously huge amount of power to process operations.
On average, the Bitcoin blockchain generates a new block every 10 minutes, and the reward amount is halved after 210,00 blocks (approximately 4 years). That is how the blockchain regulates the supply of new coins, which is strictly limited to 21 million Bitcoin units.
What Is Ethereum?
Ethereum is an open-source, public network built on blockchain that facilitates crypto trading and smart contracts without an intermediary. Similarly to Bitcoin, Ethereum employs the PoW consensus for generating new coins, called Ether tokens (ETH). However, Ethereum is currently transitioning to the Proof-of-Stake (PoS) model as a solution for unsustainable energy consumption. The second ETH version is designed to split up the workload into many smaller blockchains running simultaneously through a process called sharding.
Ethereum was released in 2014 under the leadership of the passionate crypto developer Vitalik Buterin, who believed that blockchain has greater potential than what Bitcoin could offer. Thus, Vitalik and co-founder developers introduced a brand new system based on self-executing programs called smart contracts.
Smart contracts are written in Solidity and Vyper programming languages, compiled into bytecode by the Ethereum Virtual Machine (EVM) and executed on the very blockchain. On the surface, these contracts aren’t controlled by a person or centralized authority but are automatically deployed to the network after their participants meet certain conditions.
Therefore, the utility of Ethereum can go beyond verifying transactions and exchanging crypto assets. Users can conclude contracts on a decentralized basis in other areas, such as real estate, lending services, travelling, and entertainment. All these actions take place on decentralized applications (dApps), which operate autonomously without oversight by a centralized body.
Ether (ETH) — The Native Cryptocurrency of Ethereum
As mentioned above, the Ethereum network also produces its own native currency that serves as fuel for executing Ethereum transactions. Ether is also the second-largest cryptocurrency by market cap and an attractive tradable asset across renowned crypto exchanges — available for both instant purchases on Coinbase, spot trading on Binance and Kraken, and welcome on almost all margin derivates pro-platforms like BitMEX.
In terms of technical properties, new blocks on the Ethereum blockchain are created every 10-20 seconds, which is an instrumental factor in the ability of Ethereum-based dApps to perform multiple tasks and establish smooth interaction between each other.
Finally, unlike BTC, ETH tokens don’t have a strictly defined supply. Instead, a group of contributing Ethereum developers are continuously working on maintaining the flow of tokens on par with the optimal deflation level.
Use Cases of Ethereum
Ethereum is justifiably called the greatest digital invention after the internet — the diversity of its network is about to reshape the traditional digital market into a decentralized domain.
Decentralized Autonomous Organizations (DAOs)
A DAO is perhaps the oldest application field that Ethereum developers unearthed immediately after the inception of this network. They are virtually-based organizations that are based on smart contracts and managed collectively by all members. DAOs have built-in vaults, and if someone needs access to its treasuries, they have to get approval from the entire group. Interestingly, DAOs don’t even have a regular staff structure scheme with a CEO and CFO in front of the organization but they involve all members in the organization management through proposals and voting to ensure full decentralization. The votes are counted automatically as a necessary condition that triggers the smart contract.
The first DAO — called simply The DAO — was launched in 2016 as an investor-directed venture fund but ended up with a 3.6 million ETH hack later that year. It’s important to note that the attack didn’t result from an inherent flaw of the Ethereum blockchain but from a coding loophole that was caught by a shrewd hacker. The disputes that followed amid the critical theft resulted in launching the first rival hard fork of Ethereum called Ethereum Classic (ETC).
Despite the unfortunate beginning, DAO remained in use as an open-source management concept. Today it has found application in various freelancer communities, ventures, and charity organizations such as MetaCartel and MolochDAO.
Initial Coin Offerings (ICOs)
Ethereum token offerings run the same as the traditional Initial Public Offerings (IPOs), giving investors an opportunity for purchasing newly-invented products at a favourable price before they’re officially launched on crypto exchanges.
Ethereum itself started as a crowdfunding project to boost the development of its network in 2014 was novel. However, a real ICO boom happened several years later, becoming a common method for innovative Ethereum-based startups to raise initial capital. The 2017 ICO boom brought to life amazing ideas such as Brave, Alias, and Stratis but also left room for numerous scams, where fake entrepreneurs collected investors’ ETH and disappeared.
Ethereum-Based Non-Fungible Tokens (NFTs)
NFTs are unique (or very limited) and scarce digital assets that represent a form of art in the virtual world. The first NFTs appeared in 2014, but the real hype started in 2017, with the release of the CryptoKitties collectibles. Unexpectedly, NFTs have grown into mainstream culture, and many popular brands like NBA and LVMH have launched their own token collectables.
In fact, the NFT business today is gaining notoriety because people are willing to pay such an amount for unusable collectables amid a global financial crisis. For illustration, passionate collectors spent a total of $41 billion worth of crypto on the NFT marketplaces in 2021.
The majority of NFT tokens are created on top of Ethereum (using ERC-721 and ERC-1155 standards) because the Ethereum network allows developers to seamlessly deploy NFTs with high compatibility with the wider ecosystem, such as crypto exchanges and digital wallets like MyEtherWallet (MEW) and MetaMask.
Decentralized Finance (DeFi)
DeFi is the latest trend in the myriad of Ethereum-based applications. They represent financial products and services that are unconditionally approachable to anyone who uses Ethereum. DeFi systems are totally free from centralized authorities, and they don’t require any form of user registration or KYC verification. They are usually-open source software solutions that rely on the automatic features of smart contracts for full transparency.
In some ways, DeFi platforms are re-creating traditional financial services where you can trade/swap tokens or earn passive income by lending and staking cryptocurrencies but without their common drawbacks such as:
- Denying access to users because of unfulfilled platform requirements;
- Delayed or cancelled payments;
- Working hours different from users’ timezones.
Successful DeFi projects include Aave, Compound, MakerDAO, PancakeSwap, and many more. The DeFi world is living its best times thanks to the recognition of both billionaire investors and encouraged causal traders. Only in 2021, this field showed an increase in its market value to $78 billion.
What’s the Ethereum Blockchain Size?
Because of the uncapped supply and the continuous expansion in diverse areas, the size of the Ethereum blockchain can’t be precisely tracked. You can best see these size fluctuations in real-time on websites like Ycharts. For illustration, in 2021, the Ethereum blockchain size varied between 600 GB and 1.2 TB. Compared to Bitcoin, the Ethereum chain size is growing at 3x the Bitcoin.
Now that you have a basic understanding of Ethereum as a decentralized system, we can focus on the importance of the blockchain size for a node or participant in different Ethereum activities. Many experts argue about the impact of the data storage requirements imposed by blockchains. Some claim that a larger blockchain means better usage of the network, while others openly signal their concerns with blockchains getting bigger and hence, bigger the challenges a beginner node may face while downloading it.
When it comes to Ethereum, it all depends on what type of node you’re planning to become. Therefore, let’s take a look at Ethereum nodes and the role they’re having in the native ecosystem.
Types of Ethereum Nodes
Don’t get confused by the term node — it’s actually you or, more specifically, the computer representing you in front of the Ethereum network. So, nodes are computers running software, capable of verifying, storing, or creating blocks on Ethereum. On the other hand, the software is called a client, and it’s actually the medium that enables you to interact with the Ethereum network. The most popular Ethereum clients are Geth (Go), Nethermind (C#, .NET), Besu (Java), OpenEthereum (Rust), and Erigon (Go/Multi).
Depending on your specific use of the network — whether you’ll be using it for building a dApp or simply running a wallet — there are 3 types of nodes that any client can run. Before going through their distinctive characteristics, you should know that each type of node has its own methods for blockchain data interpretation and synchronization. The term synchronization refers to the node capacity and speed of retrying updated information given to the client for further interpretation:
- Full node — has to download the complete Ethereum blockchain, which requires enough local storage to accommodate the growing blockchain. The full node takes part in verifying and validating new blocks (mining) and delivers full service to network clients. Besides, it can directly deploy smart contracts into the blockchain.
- Light node — stores only the blockchain headers, which is enough to provide data validation but not to get involved in the network in a direct way as a full node. This node is most frequently used with low-power systems or mobile devices.
- Archive node — similar to a full node, it stores the entire blockchain and provides the same network-related services. However, the archive node also keeps all data on a block-level, building an archive of the historical state. These data occupy terabytes, which makes archive nodes more popular among professional services, such as blockchain analytics and explorers.
A Few Words Before You Go…
Size metric isn’t the most relevant factor in measuring the performance of a certain blockchain. However, it is useful to know why the Ethereum network has grown to immense heights — its boundless utility for creating a diverse range of products, tokens, and services.
This doesn’t mean that the ledger size doesn’t matter at all. After all, blockchain technology is a relatively young industry, which is expected to grow in the year to come. So, we can’t estimate whether the chain size will ultimately affect the performance of large networks such as Bitcoin and Ethereum.
On the other hand, the prices of hard disk storage are likely to decrease with time, and hopefully, the blockchain size won’t overcome the rate at which the storage gets cheaper. Certainly, it’ll be discouraging if miners and other Ethereum users need to pay $1,000 for external storage equipment to run their nodes.
Finally, the release of Ethereum 2.0 will be a substantial upgrade to the system, especially the transition from the PoW to the PoS consensus mechanism, making ETH 2 more compact, scalable, and sustainable.