Heard all the talk about Ethereum but have no idea what it is or how it works? In this blog we will simply define and explain it.
A Simple Definition Of Ethereum
Ethereum is the world’s second largest cryptocurrency behind Bitcoin. The currency is used on the Ethereum blockchain which was designed to execute “smart contracts”. Smart contracts allow users to transact with each other, safely, credibly and almost instantly, without the need for a third party or central authority.
The Origins Of Ethereum
Bitcoin was designed as an alternative to fiat currencies and a method of exchanging money worldwide on a decentralized platform. Ethereum takes that framework to the next level with a platform that facilitates more elaborate transactions and an infinite range of other applications via the use of smart contracts. Smart contracts are immutable, verifiable records securely distributed across the network that are stored on the blockchain and executed when a predetermined set of conditions are met. Users pay to execute these contracts in Ether, Ethereum’s native cryptocurrency. Ethereum can be used to run any software applications on the blockchain, safely and securely housing sensitive data, rather than relying on a server owned by a third party such as Google.
Practical Applications
Ethereum defines itself as “a global, decentralized platform for money and new kinds of applications”. Broadly, there are no limits to the kinds of applications Ethereum can be used for. Some of the leading ones are:
Decentralized Finance (DeFi) – one of Ethereum’s biggest uses, DeFi is a network of financial applications built on the blockchain. It is open and programmable and operates without any central authority. It includes lending, borrowing and investing in cryptocurrency.
Non-Fungible Tokens (NFTs) – a rapidly emerging market which involves unique digital tokens representing the ownership of digital or physical items. It could be a song file, a work of art, a ticket to an event, pretty much anything. But there can only be one owner at any time with that record secured on the Ethereum blockchain.
Supply Chain Management – Smart contracts are revolutionizing supply chains around the world, allowing businesses and customers to track the movement and quality controls on goods around the world to their door.
Gaming – more than 80% of gaming on blockchain is on the Ethereum platform. Crypto gaming allows players to use rewards across multiple games, as well as introducing a play-to-earn model.
Web Browsing – Chrome, Firefox, Edge and Tor already support the MetaMask extension, turning them into Web3 browsers which can interact with Ethereum dApps (decentralized applications).
Advertising – Crypto advertising promotes crypto products and strategies as well as other products and is comparatively cheaper than traditional advertising by promoting cost transparency and offering deeper insight into audience interaction.
Benefits Of Ethereum
Trusted network – Ethereum is a large, trusted network that has operated since 2015, safely and securely handling billions of transactions.
Cost effective – the network’s decentralized platform allows users to sidestep expensive third-parties such as government agencies, banks, financial intermediaries and even lawyers.
Multiple applications – Besides being a traded cryptocurrency, smart contracts on Ethereum mean its uses are really only limited by your imagination.
Evolution – Ethereum is constantly evolving with the full rollout of version 2.0 expected to be completed in 2023. The biggest change is the adoption of a more environmentally friendly “Proof of Stake” consensus mechanism.
DRAWBACKS OF ETHEREUM
Rising fees – Transaction costs on Ethereum have risen as it has grown in popularity. These “gas” fees can prove expensive.
Potential for inflation – Unlike Bitcoin, there is no set limit on the amount of Ethereum coins that can be minted, opening it up to inflationary fears.
Technical difficulty – Developers can find writing code for the platform challenging as they leave centralized networks.
Ethereum 2.0
Ethereum 2.0 is the next phase of the platform which has been necessary as it deals with more traffic. It is launching in three phases and is specifically designed to cope with greater scalability as well as claiming to be even more secure and sustainable. The Beacon Chain launched in 2020 and brought Proof of Stake verification to the platform. The Merge in 2022 combines the Mainnet with the Beacon Chain, to mark the end of Proof of Work for Ethereum. While Sharding will roll out in multiple stages from 2023, expanding Ethereum’s data storage capacity.
The History Of Ethereum
2013 – Programer Vitalik Buterin writes the Ethereum whitepaper conceiving a new cryptocurrency.
2014 – Development begins via crowdfunding.
2015 – Ethereum launches on 30 July at a price of $0.311.
2018 – Ethereum’s price breaks the $1000 barrier in January.
2019 – Ethereum becomes the second largest cryptocurrency.
2020 – Ethereum 2.0 launch begins over a 3-4 year period to expand the network.
2021 – Ethereum price reaches a record high of more than $4800.
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