30 Aug Understanding Ethereum: Everything there is to know about its features and offerings.
Ethereum is a name you most likely will come across if you’re looking into the cryptocurrency world. It’s software that is based on blockchain technology. With its open-source platform, it is distributed all along its network.
This technology has its own cryptocurrency by the name of Ether and functions on the Solidity program. Using blockchain technology keeps a clean list of records that are tamper-proof and permanent. Ethereum has built a decentralized application that enables miners to pay usage fees with its tokens on the network. Their platform also caters to smart contracts which can be classified as a type of digital contract.
Ethereum’s features make it the leading competitor to Bitcoin. Let’s go through everything that has contributed to its success in such a short time.
How did it come about?
To develop Ethereum, the developers used crowdfunding by conducting a crowd sale. This is funding done by providing cryptocurrency tokens and began in 2013. By the mid of 2015, Ethereum went live.
The working of Ethereum
As discussed previously, Ethereum uses blockchain operation for its system. Its functions on the Proof-of-Work consensus which ensures that the information on a block is valid before it joins the chain. Its network is made of nodes which essentially are the computers who volunteer to mine the cryptocurrency for rewards. Mining contributes to cryptography which is the basis of the currency. As mining cryptocurrency requires a great deal of computational power and resources, the miners are rewarded with Ether.
Ethereum offers Ethereum Virtual Machine (EVM) which distributes scripts globally across its network of public nodes. These nodes then generate enough processing power for the decentralized application to run effectively. The developers can buy or mine Ether to pay for using the network. Its internal system, Gas, sets the pricing for all transactions on the network.
Smart contracts are also a part of the same blockchain that caters to Ether cryptocurrency. It has a built-in mechanism to send an alert when the conditions are not met. These contracts can be used to exchange assets such as properties, stocks, and money on the basis of an Ether token.
Ethereum or Ether?
Ethereum is a network based on a blockchain. It can be further developed and used to build applications such as smart contracts and NFTs.
Ether (ETH) is Ethereum’s very own cryptocurrency. You may buy or sell it using the Ethereum network. They can also be acquired as a reward when it is mined. Ether financially supports the Ethereum network and pays for the service and applications that are built on it. It can be described as the fuel Ethereum runs on.
Ethereum Uses: Its Applications
Ethereum prides itself on offering decentralized, secure, and coded services. It can be used to trade pretty much everything. A few of its main functions include:
- Financial exchange
- Domain names
- Intellectual property and assets
- Smart property
- Company Management or Governance
- Buy and sell cryptocurrencies like Ether and other fungible.
- Host decentralized applications
- Exchange and trade NFTs
- Play games and gain rewards in cryptocurrency.
These are a handful of the key uses that Ethereum is most commonly used for.
Pros to Ethereum
There are many benefits when a user chooses the Ethereum network, all of which provide stability to its operations.
Ethereum is a decentralized network, hence there is no interference from third-party networks whatsoever. As it operates on a blockchain, it enables direct transactions. Users are able to store data without any mediator which is the common practice with other networks.
- It’s Available
Since it is decentralized, no one computational power controls or enables it. This makes the network stable, with everlasting availability.
When users make transactions, they are not required to input their details. They may choose to remain anonymous which protects their privacy.
Ethereum is designed to be untraceable and unhackable. It’s impossible to compromise the network as hackers would need to be in control of the majority of the nodes. That is unlikely due to the network’s decentralized nature.
- No Permissions Needed
No one needs any permission to partake in the network. There are blockchains that are designed for authorized users only, however, Ethereum is not one of them.
- Minimum Ambiguity
The smart contracts are hard coded and serve as the basis for any agreement between the two parties. The conditions are more transparent than a traditional agreement and don’t require any follow-through.
Cons of Ethereum
You won’t find many drawbacks to being on the Ethereum network, however, let’s have a glimpse at some criticism it has received over time.
- Requires great computational power
Since Ethereum uses the PoW mechanism, it becomes an energy-intensive protocol to ensure the validity of the blocks. This results in miners needing to require a great amount of computational power in order to mine cryptocurrency. Ethereum addresses this issue and plans on shifting to a Proof-of-Stake mechanism soon.
- Smart Contact Security
Since the blockchain is public, if there is a vulnerability in a smart contract, it will be visible on the network. It may take a while before it gets fixed.
Ethereum does take this criticism into consideration as it moves to develop its network further. Its strategy includes shifting from PoW to PoS, which wouldn’t require miners to invest in special equipment like ASIC miners.
Ethereum has become a common term in the crypto industry. If you’re looking to seep into this market, it’s best to be equipped with all the information regarding it. Ethereum was initially developed to complement and support Bitcoin. Eventually, with its gaining popularity, it became Bitcoin’s tough competition. In the next few years, experts predict it to grow bigger than it already is!