What is Ethereum?
In terms of market valuation, Ethereum, which was founded in 2015, is second only to Bitcoin. However, unlike Bitcoin, it was not designed to function as a digital currency in the first place. As a result, Ethereum’s creators set out to create a new type of global, decentralized computing platform that extends the openness and security of blockchains to a wide range of different applications.
As of now, the Ethereum blockchain powers everything from financial products to video games to massive databases. Its future potential is only constrained by the creativity of the programmers who create it. Ethereum, according to the Non-profit Ethereum Foundation, “can be used to codify, decentralize, secure, and trade just about anything.”
Ethereum has grown in popularity as a means of wealth accumulation and investment (and can be used, like Bitcoin, to send or receive value without an intermediary).
There are a wide range of apps that may be built and run on the Ethereum blockchain, ranging from simple games and databases to more complex decentralized financial instruments.
Smart contracts are used to build Ethereum-based applications. The details of an agreement are laid out in smart contracts, just as they are in traditional paper contracts. Contracts in the old-fashioned sense require both parties to know who is on the other side of the bargain; smart contracts, however, execute when the requirements are met automatically without this requirement.
Ethereum, like Bitcoin, is a decentralized open-source project run by many people. To use Ethereum, all you need is a computer with an internet connection.
Smart contracts running on Ethereum’s decentralized blockchain allow developers to build complex applications that should run exactly as programmed, without downtime, censorship, fraud or third-party interference, much like Bitcoin’s decentralized blockchain allows any two strangers, anywhere in the world, to send or receive money without the involvement of a bank in the middle.
Stable coins (like DAI, which is tied to the dollar by smart contract) and other decentralized apps are popular Ethereum-based developments, such as DeFi (collectively known as DeFi) (or Dapps).
What’s the difference between Ethereum, Ether, and ETH?
The network’s name is Ethereum. The native cryptocurrency token of the Ethereum network is called “Ether”. However, the token is commonly referred to as “ETH” (or simply “Ethereum”) in everyday usage. ETH is quite similar to Bitcoin in terms of how value is sent, received, or stored. In addition to its general purpose, it plays a unique role on the Ethereum network. You may think of ETH as the fuel that keeps the whole system going because users pay fees in ETH to execute smart contracts.
ETH is like “digital oil” in comparison to Bitcoin, which is “digital gold.”
Is Ethereum secure?
The Ethereum blockchain currently protects ETH in the same way that Bitcoin’s blockchain protects BTC. Every transaction is verified and secured using a massive amount of computing power provided by the network as a whole, making it nearly difficult for a third party to intervene.
Due to their permissionless system and open-source nature, cryptocurrencies have been thoroughly scrutinized by computer scientists and cryptographers from all over the world, contributing to their inherent safety.
Ethereum blockchain apps, on the other hand, are only as safe as their creators make them. For instance, a flaw in the code may result in a financial loss. The user bases of individual Ethereum apps are far smaller than Ethereum’s as a whole, thus there are fewer eyes on them despite the fact that their source code is also open to anyone. If you’re going to use a decentralized app, make sure you do your homework first.
Right now, there are updates to the Ethereum protocol aimed at speeding it up and making it safer. For more information, see the section on Ethereum 2.0 below.
How does Ethereum work?
For some, the Bitcoin blockchain resembles a bank’s ledger, while for others it’s more like an electronic cheque book. Since the network’s inception, it’s kept a running tally of every transaction that has taken place, and all computers connected to the network pool their computing power to help keep it up to date and safe.
Although it accomplishes the same job as Bitcoin’s blockchain in documenting and protecting transactions, the Ethereum blockchain is far more versatile. A wide range of tools can be built by developers on the Ethereum blockchain, from logistics management software to games and everything in between (which span lending, borrowing, trading, and more).
With a ‘virtual machine,’ Ethereum can do all of this on the global scale because it’s composed of many little computers each running the Ethereum software. In order to keep all of those machines up and running, each participant must invest both in hardware and electricity. The network makes use of Ether, a cryptocurrency similar to Bitcoin, to pay for these expenses (or, more commonly, ETH).
ETH is the engine that powers everything. The Ethereum network allows you to pay for the execution of smart contracts by sending ETH to the network. ETH costs are hence known as “gas.”
When the network is busy, gas prices rise and fall. Ethereum 2.0, a more efficient version of the Ethereum blockchain, began rolling out in December 2020. A new blockchain will be implemented during the next two years.