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Ethereum Virtual Machine Basics

Understanding the Power and Potential of the EVM

Article by Hiro Kennelly Edited by Tomahawk & Trewkat Cover Art by Tonytad

Let’s get this part out of the way: not all blockchains are created equal.

The native functionality of all blockchains that existed prior to 2014  — including Bitcoin and its hard-fork copycats  —  was largely limited to peer-to-peer payments. Although Bitcoin developers are slowly adding functions atop its network, Bitcoin will never be like its younger, more nimble blockchain cousins which have functionality enabled by programmable smart contracts.

The Ethereum Virtual Machine (EVM) provides this enhanced operability, and it is the key feature that transforms the technology for a relatively simple decentralized ledger, like Bitcoin, into the ecosystems of Ethereum, Binance Smart Chain, Avalanche, and dozens of others  —  virtual computers running the decentralized applications that will power the next generation of the internet.

What Is the Ethereum Virtual Machine?

As a teenager, Vitalik Buterin became active in the Bitcoin community, even co-founding Bitcoin Magazine. During this time, Buterin came to believe that blockchains could (and should) do more than just transfer money. He began to develop his initial ideas for a blockchain that would be Turing-complete. Put simply, a system is Turing-complete if it can compute and solve any given algorithm, assuming that it has the computational resources necessary to perform the task. In 2013, Vitalik Buterin began working on this idea in the Ethereum Whitepaper, and the rest is history.

When Ethereum launched in 2014, it was dubbed the ‘World Computer’ because of the capabilities unlocked by the decentralized Ethereum Virtual Machine. Up until that time, blockchains were really just distributed ledgers, shared databases of credits and debits. Granted, they were cryptographically secured ledgers, but they could do no more than record wallet balances and the flows of the native digital currency through the network.

The EVM brings additional functionality to distributed ledger technology by layering a virtual computer on top of the blockchain, a critical unlock that has enabled a proliferation of new use cases for nearly a decade. If before we thought of blockchains as distributed ledgers, now we can think of them as distributed virtual computers. The EVM keeps track of balances and transactions like a ledger does, but it also runs code, the smart contract functionality on which web3 is based.

Why Is the EVM Important?

EVM turned the blockchain into what’s called a ‘runtime environment’. This is where code (or smart contracts) can be executed, independent of the underlying blockchain architecture. In a practical sense, EVM is important because without it, we wouldn’t have decentralized applications, and without these dApps, we wouldn’t have web3.

To be clear, there are now other blockchain-based virtual computer networks, but none of them come close to the robustness, breadth of functionality, and widespread adoption of the EVM. The Ethereum Virtual Machine is simply the gold standard for an on-chain runtime environment.

How Does the EVM Work?

On an EVM-enabled blockchain, each node in the network runs a copy of the entire EVM. In simple terms, the EVM is used to read and execute computer code in an environment isolated from the actual blockchain network. In more techy terms, EVM mirrors the general state of the blockchain, which is sort of like taking a snapshot of the network ledger as each block is added to the chain. In order to power the EVM engine so that it will execute the transaction, users must pay gas, which is essentially the fee to use the network.

For every transaction, the EVM does three things:

  1. It confirms that the data underlying the transaction is correct and the signature is valid.

  2. It calculates the gas fee required to execute the transaction.

  3. It executes the transaction.

The EVM functions by breaking down instructions from the smart-contract programming language Solidity, into opcodes, which are the most basic form of computer instructions. So long as the network is allocated enough gas, the EVM can solve any computational problem thrown at it. But beware, the more complex a calculation is, the more opcodes will be required to solve it and the higher the transaction (gas) fee will be.

What Are the Benefits of the EVM?

The EVM is a revolutionary piece of network architecture. In particular, the benefits of the EVM include:

  1. Evolving decentralized ledger technology in all of its immutable and trustless glory into a decentralized virtual computer capable of running any computation for which the user can afford the network fees.

  2. The EVM code is open source, so anyone can build a dApp (or a blockchain) using publicly available software libraries.

  3. Protocol teams can take advantage of the EVM architecture to seamlessly build on Ethereum scaling solutions, such as Optimism, Arbitrum, and Polygon.

What Are the Limitations of the EVM?

Although the EVM changes how we use blockchains, its design does have particular drawbacks, including:

  1. It is inefficient to require every node to execute all instructions on the network.

  2. When the network is busy, the EVM environment gets bogged down, increasing confirmation times and network fees for transactions.

  3. The EVM cannot access any data held outside the network, so smart contracts will always be dependent on oracles or other architecture to bring off-chain data on chain.

Not All EVMs Are Created Equal

Some EVM implementations are EVM-equivalent, while others are EVM-compatible. EVM-equivalent environments are just that, fully equivalent to the Ethereum Mainnet EVM. Smart contracts or dApps that run on Mainnet can also run on an EVM-equivalent protocol or chain. In a more literal sense, EVM equivalence means that the protocol fully complies with the Ethereum formal specification, known as the Yellow Paper. The Layer 2 scaling solution Optimism, for example, is EVM-equivalent.

In contrast, EVM-compatible environments are limited in terms of which dApps can successfully run on the protocol or chain. Binance Smart Chain and Polygon are EVM-compatible blockchains. Applications designed for EVM-equivalent environments might first need to be tweaked a bit to run on an EVM-compatible network, depending on the actual needs of the protocol and whether its core functions remain supported.

EVM Is the Future of the Internet

Ethereum owes the bulk of its success as an application-heavy blockchain to the EVM. The Ethereum Virtual Machine was the breakthrough that transformed blockchains from secured ledgers to virtual computers running advanced algorithms on chain. Ethereum remains the leader in smart contract development and on-chain dApps, and the power of the EVM has enabled a vast array of new technologies in decentralized finance, digital identity, and digital property. Simply, Ethereum gives developers the tools to build whatever they can dream.

As we slowly build the systems that will enable a transition from the centralized infrastructure and business models of web2 to the possibilities unlocked by blockchain technology, the EVM will continue to play a pivotal role. We’ll need many of these ‘world computers’ to run all of the dApps (and yet-to-be-invented tech acronyms) that will power a web3 economy. Barring a major technological breakthrough or seismic shift in current and anticipated blockchain adoption, the EVM will largely be the technology upon which the future of the internet is built.

Author Bio:

Hiro Kennelly is a writer, editor, and coordinator at BanklessDAO and the Editor-in-Chief at Good Morning News. He is also an Associate at Bankless Consulting, and is helping to build a grants-focused organization at DAOpunks.

Editor Bios:

Tomahawk has been writing and editing at BanklessDAO from inception, and entered the crypto space as an investor in 2017. He’s a big believer in the power of tokenized mission-aligned communities and the massive potential Ethereum offers to solve humanity’s most pressing coordination failures.

Trewkat is a writer and editor at BanklessDAO. She’s interested in learning about applications for blockchain and NFTs, with a particular focus on how best to communicate this knowledge to others.

Designer Bio:

Tonytad is a graphic designer who has worked locally and internationally with organisations and firms on over 200 projects, which includes branding, logo, flyers, cards, and covers.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

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This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

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