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Ethereum Wallets Explained Simply (Smart Contracts, Gas, Transactions) - YouTube
Channel: 99Bitcoins
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What are the best
Ethereum wallets out there?
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How do Ethereum wallets work
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and whatâs their purpose?
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What is Gas
and how is it calculated?
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Well stick around,
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in this episode of
Ethereum whiteboard Tuesday
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weâll answer
these questions and more.
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Hi, Iâm Nate Martin
from 99Bitcoins
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and today weâre going to
talk about Ethereum wallets -
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those pieces of software,
or hardware,
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that allow us to interact with
the Ethereum network.
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At its core,
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an Ethereum wallet,
also known as a client,
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holds your private key -
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the âsecret passwordâ
that gives you control
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over your coins.
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It also supplies you with
a public Ethereum address
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which people can use
to send you Ethereumâs currency
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known as Ether.
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This is almost as far as
Bitcoin and Ethereum go
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in terms of similarities.
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Many non technical users
think of Ether as a currency
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in the same sense
they view Bitcoin.
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They buy Ether in hopes
its price will rise,
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they pay for stuff with Ether
and more.
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However,
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Ether wasnât designed
for the same purpose as Bitcoin.
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If youâve watched
our previous video
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âWhat is Ethereum?â
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and if you didnât you should,
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you know that Ethereum is
a network of independent computers
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working together
as one supercomputer.
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This super computer
executes pieces of code
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known as contracts
or smart contracts.
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Interacting with contracts
requires more complex communication
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than to just send X amount of money
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from Y to Z like Bitcoin does.
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Ethereum wallets
are the tool we use
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for this communication .
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So in order to truly
understand Ethereum wallets
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we need to first understand
how Ethereum is built.
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In Ethereum there are
two types of accounts:
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The most basic type of account
in Ethereum is called
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an EOA or Externally Owned Account.
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Similar to how
a Bitcoin wallet operates,
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EOAs have an Ethereum address
that is controlled by a private key.
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A person can open
as many EOAs as he likes.
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In addition to sending
and receiving Ether,
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EOAs have the ability to
create contracts and trigger them.
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The second type of account
is the Contract account.
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These are accounts that have code
associated with them.
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Every contract deployed to
the Ethereum network
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has its own account which includes
a unique Ethereum address.
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However,
unlike an external account
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a contract account doesnât have
a private key that controls it.
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So how is a contract account controlled?
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Well, the code that
defines the contract
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includes a set of
predefined triggers
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which control the account.
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In other words,
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the conditions to control
how the contract operates
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are hard coded from the get-go.
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Similar to EOAs,
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contract accounts
can receive Ether,
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and if triggered,
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send Ether or even create
additional contract accounts.
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Itâs important to note that
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contracts canât be changed
once theyâve been launched,
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so the author
must be very thorough
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in drafting the conditions
for each trigger.
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EOAs can interact with other EOAs
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and with contracts
through messages.
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These messages are
âwrappedâ inside transactions
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which are paid for in Ether.
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So while in Bitcoin
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transactions are used
only to transfer value,
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Ethereum transactions
are used for a variety of reasons:
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First, transactions are used for
the transfer of value.
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This is the simplest
form of transaction,
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meaning sending Ether
between accounts.
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You can also use transactions
to create a new Smart contract.
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Creating a new contract
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is done by sending a transaction
that includes the contractâs code.
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And finally,
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transactions can be used
to trigger a contract.
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For example -
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when you send money to
an ICOâs contract account address,
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youâre actually
activating a contract
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that sends you tokens in return.
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Now that you understand
how Ethereum is built
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and that transactions
are in fact used to help accounts
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talk to each other
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we can move on to
Ethereum wallets.
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Some Ethereum wallets
will only allow you to transfer value,
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or send Ether between accounts.
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Other wallets will allow you to
also deploy or trigger a contract.
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These wallets are known as
âSmart contract walletsâ.
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Similar to Bitcoin,
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wallets are sometimes
referred to as clients or nodes.
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There are two types of clients -
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full clients and light clients
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A full node is
a computer that holds
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the entire Ethereum
blockchain history,
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since its inception until this day.
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Running a full node
has disadvantages like
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increased memory
and computer usage,
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however it allows you to
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verify transactions on
the Ethereum blockchain
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without needing to
trust anyoneâs word for it.
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Full nodes are an integral
part of the Ethereum network
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as they are
the âmusclesâ of the network,
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that help execute contracts
in a decentralized manner.
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Each node that receives
a new block of transactions
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also executes the code
inside these transactions.
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There are different programs
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to help you run
an Ethereum full node.
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We won't discuss all of 'em,
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however we will talk about
the most common clients:
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The first on is Geth -
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Short for Go Ethereum.
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Developed by
the Ethereum Foundation,
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a non-profit organization
established to develop
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the code and community
for Ethereum.
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Geth is the most popular
and widely used program.
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The second is Mist -
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Since Geth is a tool
made for developers
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Mist was created
in order to allow
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non technical users
to interact with it.
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So while technically
youâre using Geth,
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Mist provides you with
an easy user interface to talk to it.
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And finally, Parity â
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which is a private company
based in London
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whose mission is to enable
businesses and organizations
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to capitalize on
blockchain technology.
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They developed software to run
full nodes for Ethereum
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and are considered
the second most popular full client.
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Just for reference,
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at the time of releasing this video
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there are 9713 nodes
running Geth
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and 4069 nodes running Parity.
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All full nodes
are smart contract wallets -
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meaning they can deploy
smart contracts
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to the Ethereum network.
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If you donât want to run
a full node
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you can use a light node.
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Light nodes,
similar to Bitcoinâs SPV wallets,
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are programs that rely on
3rd party full nodes
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in order to get information
when needed
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rather than holding
a full copy of the blockchain.
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This means
they require less space
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and can operate on
devices with limited space,
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such as mobile phones.
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Being the second largest currency
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by market cap
on the crypto market,
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Ether has caught
the eye of day to day users.
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These users will usually
use light nodes as their wallet
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since itâs easier to
install and operate.
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If you donât intend to write
smart contracts any time soon
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you can use any of
the light nodes
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listed on our website
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for the most user
friendly experience.
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Letâs talk a bit about
Ethereum hardware wallets
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If you're serious about security
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I suggest storing your Ether
on a hardware wallet.
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While being the most secure way
to store your coins,
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hardware wallets cost money.
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Also, hardware wallets are not
smart contract wallets by design,
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they can only send
and receive Ether
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and ERC-20 tokens.
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Now letâs move on to
transaction fees and Gas;
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trust me, youâll understand
in a few minutes.
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While Bitcoin can be divided into
100,000,000 units
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with the smallest unit called a Satoshi,
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Ether can be divided into
one quintillion units,
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thatâs a 1 with 18 zeroes after itâŠ
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with the smallest one called Wei.
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Wei is named after Wei Dai,
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a cryptography activist
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who is known for supporting
widespread use of strong cryptography
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and privacy-oriented technologies.
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Fees for transactions,
are usually calculated in Giga Wei.
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So 1 quintillion Wei equals 1 Ether
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and 1 billion Wei
equals one Giga Wei.
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There are also other names
for different amounts of Wei,
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all named after
famous cryptographers,
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as shown in this table.
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In Bitcoin,
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to send a transaction
we need to add a miner's fee to it.
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This way, we incentivize the miners to include it in a block.
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In Ethereum,
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we must keep miners incentivized as well,
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for their contribution of computing power
to the Ethereum supercomputer.
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Just like a car,
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the Ethereum network runs on Gas.
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Each line of code that
needs to be executed by the network
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will take up a certain amount of gas.
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Run out of Gas
and the code stops running.
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You specify how much Gas
youâre going to use upfront,
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and you canât refuel on the way.
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If your contract runs out of Gas
because itâs written inefficiently
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or you miscalculated,
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it will just stop
in the middle of the road.
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This system motivates
Smart contract programmers
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to keep their code
lean and optimized,
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since Gas costs money
as we will soon learn.
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The Gas you pay goes to the miners,
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as they are the ones
investing computing power
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in order to update
the ledger of Ethereum transactions,
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similar to what goes on in Bitcoin.
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Keep in mind that
Gas isnât something you can own,
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itâs just a unit of account
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to measure how much work
is needed to run a line of code.
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Think of it as
the equivalent of hours of labour.
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Gas is paid in Ether,
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Now I know what youâre thinking -
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why not just price
execution of smart contracts in Ether,
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why do we need
another virtual currency?
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Well, Etherâs price
is constantly changing,
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and if we priced contracts in Ether
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the price would be different
each time we calculated it
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due to the fluctuating exchange rate.
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Imagine weâd price
painting our house at 2 Ether,
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sometimes it would cost us $1000
and other times $2000.
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With Gas,
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running the same contract
several times
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will always bring back
a fixed amount of Gas to be paid
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just like painting the same house
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takes the same
amount of hours every time.
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So how much gas do you need
to run a line of code?
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Easy... there are predefined amounts
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for each action
you want to run in your code.
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For example,
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sending Ether from
one address to the other
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requires 21,000 gas units.
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Now comes the tricky part.
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How much do you actually pay for a unit of gas?
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The price of 1 gas unit
changes all the time
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depending on how crowded
the network is.
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The same way an hour of labor
would cost more
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if many people are
looking for employees
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the Gas price rises
when the network is crowded.
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The âstandardâ gas price
is around 20 GiGa wei.
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You can consider this
the average salary on the market
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for an hour of labor.
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If the Ethereum network is very busy
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and you want your contract
to get priority in execution
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over other contracts
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you may over bid the gas price
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so that miners will have
an incentive to include your contract
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in the next block.
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Youâre basically saying
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Iâm willing to increase your pay
per unit of labor
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so youâll give my work priority.
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This is similar to
how Bitcoin transaction fees rise
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when the network is crowded.
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When you send a transactions in Ether
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you also need to specify a gas limit -
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meaning how much gas
are you willing to use at maximum
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for running your lines of code.
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This is done in order to protect you
from depleting your funds
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in case your code has an error
and runs endlessly or inefficiently.
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You pay the full amount
for your gas limit upfront
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and thereâs no option for ârefuelingâ.
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This can cause certain things
to go wrong, for example:
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If you overpaid and your contract
ended up using less gas -
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youâll get refunded for the gas not used.
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However, if an operation
ran out of gas mid way
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it will halt, just like your car,
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and no Ether will be returned to you
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just like a gas station
doesnât refund you
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even if you didnât have enough gas
to get where you want to go.
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This can happen if, for example,
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your contract needs to do
some recurring function
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that keeps on consuming gas
and finally runs out.
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If you donât include enough
gas units for running your code
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no miner will pick up your transaction
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since it doesn't have
enough gas from the get go.
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And finally -
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If you choose
enough units of gas
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but pay very little for each unit
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it may take a lot of time
for your transaction to go through
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since miners will prioritize
higher paying transactions.
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To conclude,
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in Ethereum fees are
a general term that refers to
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the gas used multiplied by
the gas price
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you were willing to pay.
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In other words -
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the hours of labor worked
times the wage per hour.
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The higher youâre
willing to pay per gas unit
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the more miners will compete
for running your code,
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and the faster your transaction
will be included in the blockchain.
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Thatâs it for todayâs video.
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Hopefully by now
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you have a better understanding
of Ethereum's wallets,
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Ethereum accounts,
gas, transaction fees
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and also the various wallets
you can choose from.
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As you probably noticed
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Ethereum is a lot
more complicated than Bitcoin
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mainly because itâs intended on
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executing much more complex functions
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than just sending money
from A to B.
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Donât worry, it gets worse,
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but weâll walk you through it as always
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in our upcoming videos.
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You may still have some questions.
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If so, just leave them
in the comment section below.
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And if youâre watching
this video on YouTube,
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and enjoy what youâve seen,
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donât forget to hit the like button.
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Then make sure to
subscribe to the channel
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and click that bell
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so that youâll be notified
as soon as we post new episodes.
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Thanks for joining me
here at the Whiteboard.
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For 99Bitcoins.com,
Iâm Nate Martin,
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and Iâll see you⊠in a bit.
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