What is Ethereum?
Have you ever wondered what the big deal about cryptocurrency is? Everyone seems to be investing in a cryptocurrency wallet, but maybe you haven’t yet figured out why you should switch to crypto, and which platform to use. If this sounds like you, read on below for a comprehensive guide to Ethereum, one of the largest pioneers of blockchain technology, and get ready to take the next step to have great finances.
What is Ethereum?
Ethereum was first brought into conception in 2013 by Vitalik Buterin, one of the pioneers of cryptocurrency. After a lot of corrections and crowdfunding, Ethereum was ready for use by the end of July 2015. Since then, it has become the second-largest form of cryptocurrency after Bitcoin.
So, what is Ethereum? Ethereum works as a decentralized and open-source blockchain platform where the main currency is the individual unit called ether. Ethereum provides two types of accounts- externally owned accounts (EOA) and contract accounts. The main difference is that only an externally owned account can initiate transactions.
How Does Ethereum Work?
Ethereum runs on programming languages such as Solidity and Vyper. In Ethereum, transactions refer to any non-centrally authorized data message from one account to another. This transaction will be characterized by the smart contract bytecode. The sender will also have to include a transaction fee as proceeds towards the platform in itself for utilizing network validators and blockchain technologies.
As mentioned before, the main currency used is Ether. Ether can be collected from two sources:
- By converting fiat currency applications such as Coinbase and Kraken.
- By Ethereum mining, which comes in three types of pool, solo or cloud mining.
However, cryptocurrency mining, performed by computers through complex mathematical computations, has received its fair share of backlash, considering that it consumes a lot of electric energy and might not be profitable in the long run.
The process is slightly different for digital applications. Ethereum makes use of blockchain technology through the Ethereum Virtual Machine process. As a part of the EVM process, all smart contracts must be verified, and this, in turn, triggers the nodes of the network to simultaneously perform calculations and maintain a ledger.
Ethereum vs. Bitcoin-Overcoming Bitcoin’s Limitations
Bitcoin and Ethereum are quite similar, considering that they are both cryptocurrencies based on blockchain technology and formed as a white paper. However, there are several points of difference, many of which arise due to Ethereum being formed seven years after Bitcoin. The major differences between Ethereum and Bitcoin are described below:
|Origin||Satoshi Nakamoto, 2009||Vitalik Buterin, 2015|
|Purpose||To form a globally decentralized finance wallet, as an alternative to fiat currency||A platform to run digital applications and mine ether|
|Smallest unit||1 Satoshi||1 Gwei|
|Programming language||Prescriptive||Turing complete|
|Usage fees||Transaction fees||Gas fees|
|Algorithm||Proof-of-work||Proof-of-work, moving towards Polygon Proof-of-stake|
However, one point which greatly differentiates the two is scalability. On average, Bitcoin handles seven transactions per second, whereas Ethereum handles 30 transactions per second. However, both Bitcoin and Ethereum are hurtling towards their capacity limitations and are on the lookout for technologies that improve platform scalability.
Bitcoin has been using a technology called Segregated Witness, shortened to SegWit. With the inclusion of SegWit, there is scope of more efficiently utilizing each Bitcoin block. Researchers and developers have also started working on a layer-2 scaling solution called the Lightning Network, which offers faster transaction processing time by deviating the transaction in itself, away from the base blockchain technology.
On the other hand, Ethereum has also begun working on improving its own platform scalability issues through a process called Sharding, through which the base blockchain in itself is expanded. This means that the complaint of network congestion can be improved upon with a scope for a greater number of transactions per second.
Ethereum is not one to be left behind, and they have also invested in layer-2 scaling solutions, namely, sidechains. Sidechains specifically help transfer tokens from one network to another, thus reducing the gas fees paid in using multiple applications. As such, the former is rising to the challenge of Ethereum vs. Bitcoin.
Advantages Of Ethereum
Whether you are an individual or a business, Ethereum can be a great choice for you because it is:
- Hard to fake
Scams and counterfeit money pose a threat to numerous financial transactions. Ethereum has unique identifiers and commerce guarantees that make it impossible for anyone to fake it.
There are no third parties involved, and your money is not going to waste. It is profitable to use Ethereum for transactions, compared to other means of payment that are in currencies or other digital transactions.
- Guaranteed security
Smart contracts are the main objective, so the theorem has the platform supporting that. The transaction remains between you and the recipient without any third-party involvement.
Ethereum Blockchain and Applications
Ethereum Blockchain acts as a form of online currency. Having an account on Ethereum is quite like maintaining a cryptocurrency wallet with the transfer of ether taking place instead of currency for goods and services. However, there is obviously much more security, and you can be assured that your money won’t be wasted.
- It uses smart contracts
Ethereum supports smart contracts through which the focus of any transaction can be shifted away from a central authority, and participants can transact with each other without a need for access permissions
- It allows the use of NFTs
NFTs stand for non-fungible tokens, are a unique and non-interchangeable unit of data maintained by blockchains. Non-fungible tokens are well known for the sale and purchase of easily reproducible objects such as digital art, in-game collectibles, virtual real estate, and much more.
- It’s an example of decentralized financing
A major concern that many people have is that central authorities such as the government may be overlooking all transactions and thus utilize their private information. Ethereum provides decentralized financing, a concept that takes away the need for authorizing transactions, including the movement of money and other assets. Thus, transactions, though maintained on blockchain ledgers, can be almost 100% anonymous.
- It allows the transfer of tokens
A special feature of Ethereum is that participants can send and receive tokens from one account to another using specific smart contracts, which are a part of the ERC-20 Token Standard.
- It supports DApps
Ethereum can help you connect to the outside world in ways you have never imagined. For example, Ethereum supports digital applications that allow the user to spend that time and money in a variety of outlets such as gaming and investment such as the ones spoken about here. Ethereum provides in-depth accessibility in the form of tracking your investment portfolio, checking up on your social media, making purchases during the games, and much more.
What is Ethereum 2.0?
With changing times, we have changing requirements, and the makers of Ethereum have recognized this need, addressing it through staking Ethereum 2. Also known as Serenity or ETH2, the new and upgraded form has been developed to be “More Scalable, More Secure, More Sustainable”. This is a direct response to growing issues of energy and resource conservation, as well as a segue into providing better usability and platform scalability than Bitcoin.
ETH2 is formulated by several phases, namely the Beacon Chain, the Merge, and Shard Chains, each of which has independent uses but co-dependent timeframes. For example, while the merge and shard chains technology are estimated to be introduced somewhere around 2022, the Beacon Chain, responsible for laying the groundwork, has been live since the end of 2020. To know more, check out the official website.
Benefits of ETH2
ETH2 comes with 3 features that make switching over one of the best financial decisions you’ll ever make.
- From POW to POS
ETH1 used proof-of-work, a power-intensive transaction mechanism that was inefficient by design. However, ETH2 uses proof-of-stake, which means validators are chosen proportional to their quantity of holdings.
- Incorporates sharding
As mentioned before, the use of sharding as a platform scalability solution helps spread load, thus reducing bottlenecks and increasing efficiency.
- From EVM to eWASM
ETH2 is purported to use eWASM or Ethereum WebAssembly, which focuses on redesigning smart contract systems with additional programs like C, C++, and Rust. This is a step up from the former Ethereum Virtual Machine system.
Invest in Ethereum today!
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