What is Ethereum?
Ethereum is a decentralized global software platform that supports blockchain technology. Ethereum is also known as Ether or ETH for its digital currency.
Anyone can use Ethereum to create any secure digital technology. This token is designed for use on the blockchain network but can also be used by investors to pay for work on the blockchain.
Ethereum is designed to be scalable, programmable, secure, and decentralized. The Ethereum blockchain is the network of choice for developers and companies building on its technology to change how many industries operate and how we live our daily lives. In addition, Ethereum directly supports smart contracts and decentralized applications. Many decentralized finance (DeFi) applications involving smart contracts use blockchain technology.
In this article, we’ll tell you about Ethereum, its ETH token, and how the network is an integral part of non-fungible tokens, decentralized finance, decentralized independent organizations, and the metaverse.
Key points about Ethereum
Ethereum is a blockchain-based platform known for its digital currency, ETH. The blockchain technology that powers Ethereum will publicly enable the creation and maintenance of a secure digital ledger. Bitcoin and Ethereum have many similarities but different views and limitations. Ethereum is transitioning to an operating protocol that offers incentives to those who hold the ETH token for processing transactions. Ethereum is the foundation of many emerging technological developments.
How does Ethereum work?
Vitalik Buterin, known as the creator of Ethereum, published an article introducing it in 2014. The Ethereum platform was launched in 2015 by Buterin and Joe Lubin, founders of blockchain software company ConsenSys. The founders of Ethereum were among the first to consider the full potential of blockchain technology beyond enabling a secure virtual payment method. Since the launch of Ethereum as a digital currency, Ether has become the second most popular digital currency after Bitcoin in market capitalization.
Ethereum blockchain technology
Like other digital currencies, Ethereum uses blockchain technology. Imagine a very long chain of blocks. All the information in each block is added to each newly created block with new data. A similar version of the blockchain is distributed throughout the network. This blockchain is verified by a network of automated programs that reach a consensus on the validity of transaction information. As a result, no changes can be made to the blockchain unless the network runs an agreement. Such a system has made the blockchain network very secure. Consensus is achieved using a protocol called a consensus mechanism. Ethereum uses a proof-of-work protocol, where a network of participants runs software to verify the validity of an encrypted number. This process is called mining. The first miner to prove the number’s validity will be rewarded in Ether. During this process, a new block is opened on the blockchain, the information of the previous block is encrypted and placed in the new block along with the latest data, and the mining process will start again.
Proof of stake protocol
Ethereum currently uses the Proof-of-Work consensus protocol. At some point, it moves to another consensus protocol called proof-of-stake, where ETH owners share a certain amount of their Ether. The Ether stick prevents it from being used in transactions. Such performance acts as an incentive and collateral for the mining privilege. The mining process will work differently under this protocol, as it will not require everyone on the network to compete for rewards. Instead, the protocol randomly selects users with Ether to confirm transactions. These validators are then rewarded in Ether for the activity they have done.
Ethereum investors use wallets to store their Ether. A wallet is a digital interface that allows you to access Ether stored on the blockchain. Your wallet has an address similar to an email address because users send or receive a certain amount of Ether using this address, just like an email. Ether is not stored in your wallet. Instead, your wallet holds private keys that you use, like a password, when you initiate a transaction. You get a private key for every Ether you have. This key is required to access your Ether. You should be well informed about securing your keys using different storage methods.
One of the notable events in Ethereum is the hard fork or the split of Ethereum and Ethereum Classic. In 2016, a group of network participants gained majority control of the Ethereum blockchain to steal more than $50 million worth of ether raised for a project called The DAO. The attack’s success was attributed to a third-party developer’s involvement in the new project. As a result, most Ethereum communities decided to reverse the theft by invalidating the existing Ethereum blockchain and verifying a blockchain with a modified history. However, some of the community preferred keeping the Ethereum blockchain’s original version. As a result, that unmodified version of Ethereum was permanently separated from the original version and became Ethereum Classic (ETC).
Ethereum compared to Bitcoin
Ethereum is often compared to Bitcoin. While these two digital currencies have many similarities, some crucial differences between them cannot be ignored. The organization describes Ethereum as the “programmable blockchain of the world,” which presents itself as a programmable electronic network with many applications. In contrast, the Bitcoin blockchain was created solely to support the Bitcoin digital currency.
The maximum number of bitcoins that can be circulated is 21 million. But the amount of Ethereum that can be created is unlimited, although the processing time of an Ethereum block limits how much Ethereum can be mined each year. The number of Ethereum coins in circulation is more than 120 million.
Another essential difference between Ethereum and Bitcoin is how the respective networks deal with transaction processing fees. These fees, known as Gas on the Ethereum network, will be paid by participants in Ethereum transactions. Conversely, the more comprehensive Bitcoin network absorbs fees associated with Bitcoin transactions.
One of the similarities between Ethereum and Bitcoin is that both blockchain networks consume large amounts of energy. This similarity is because each of these blockchains operates using a proof-of-work protocol. At the same time, the Proof of Stake algorithm consumes much less power.
Application of Ethereum in the game
Ethereum has also been implemented in gaming and virtual reality. Decentraland is a virtual world that uses the Ethereum blockchain to secure its contents. Land, avatars, various tools, buildings, and environments are all tokenized through blockchain to create ownership.
Axie Infinity is another game that uses blockchain technology and a digital currency called Smooth Love Potion (SLP) for in-game rewards and transactions.
Application of Ethereum in non-fungible tokens
Non-Fungible Tokens (NFTs) are gaining popularity in 2021. In general, tokenization gives a digital asset a unique digital token that identifies and stores it on the blockchain. This creates ownership because it stores the encrypted data of the owner’s wallet address. NFT can be traded. This transaction is considered a transaction in the blockchain. The transaction is verified, and the network transfers ownership. NFTs are being developed for a variety of assets. For example, fans can buy sports tokens, also called fan tokens, from their favorite athletes, which can be treated like trading cards. Some of these NFTs will be images that look like trading cards, and some will be videos of a memorable or historical moment in an athlete’s career.
Development of DAOs
Decentralized Autonomous Organizations (DAOs) are a collaborative decision-making method across a distributed network. For example, imagine that you have created a venture capital fund and raised some capital or money, but you want decentralized decision-making and distributions to be automated and transparent.
A DAO can use smart contracts and applications to collect votes from fund members, buy investments based on a majority of the group’s votes, and then automatically distribute any returns. All parties can see the transactions, and there will be no third-party involvement in the proceedings. The role that digital currency will play in the future is still unclear. However, Ethereum looks set to play an essential and future role in personal and corporate finance and many aspects of our modern lives.
The future of Ethereum
Ethereum’s transition to the Proof-of-Stake protocol, which enables users to validate transactions and earn new Ethereum based on their Ether holdings, is part of a significant upgrade to the Ethereum platform. This upgrade, which was called Eth2, is now known as the consensus layer.
The upgrade will also add capacity to the Ethereum network to support its growth, which will help address network congestion issues that have driven up Gas costs. Adoption of Ethereum continues, including by high-profile companies. For example, in 2020, computer chip maker Advanced Micro Devices (AMD) announced a joint venture with ConsenSys to build a network of data centers on the Ethereum platform.
Since 2015, Microsoft has partnered with ConsenSys to develop Ethereum Blockchain as a Service (EBaaS) technology on Microsoft’s Azure cloud platform.
How to invest in Ethereum?
Investors can use one of the digital currency exchange platforms to buy and sell Ether. Ethereum is supported by reliable cryptocurrency exchanges, including Coinbase, Kraken, Gemini, Binance, and brokerages such as Robinhood.