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What Is Ethereum? - A Comprehensive Guide

 

By Nerly Shammah Sep 30, 2022

 

Ethereum

 

 

Ethereum is a lot of things but is most commonly known as the cryptocurrency blockchain with smart contract compatibilities, the first of its kind.

 

Ethereum is an enhancement to the meritable structures of Bitcoin, taking the idea of a "decentralized payment system" to build a limitless network of a wider range of financial services.

 

At Glance

 

● Ethereum is an open-source cryptocurrency and blockchain technology with smart contract capabilities.

 

● Ethereum is programmable, the network allows for further building and deployment of applications on the chain without compromising its functionality or sacrificing security.

 

● As a cryptocurrency, Ethereum allows for peer-to-peer transactions, individuals can utilize the network to facilitate global transactions within minutes.

 

● Ethereum is decentralized, with the transition to proof-of-stake (PoS) protocol, Ethereum is governed via a consensus mechanism by the holders of the network's native asset - Ether(ETH).

 

● Ether is the native currency of the Ethereum blockchain, it is used as a gas fee or transaction cost on the network.

 

 

Understanding Ethereum

 

Since the inception of Bitcoin, the first cryptocurrency and blockchain to prove the possibility of peer-to-peer money transactions with a security bridge, several other cryptocurrencies have pulled through with diverse network designs and capabilities.

 

Ethereum as the very first cryptocurrency second to Bitcoin to be the native network for smart contracts brought advancement to how cryptocurrencies and blockchain can be used.

 

Related: What Is Bitcoin and How Does It Work?

 

What are smart contracts?

 

Typically, smart contracts are programs running on the Ethereum network, they are triggered when the specified rules are met. Put simply an account or another smart contract initiates a transaction that meets the initial smart contracts rule set.

 

Take for instance you have to press the power button for your phone or devices to come on, similarly, smart contracts are the underlying programs that rely on a power trigger to perform the associated function.

 

That said, due to the range of possibilities on the Ethereum blockchain, developers, investors, and creators on the network have grown rapidly. Currently, there are over 71 million accounts holding Ether with over 50 million smart contracts associated with about 2970 projects built on the network.

 

Why Was Ethereum Created?

 

The history of Ethereum and cryptocurrencies' success trials back to Bitcoin, the first ever successful cryptocurrency with a decentralized structure. Via proof-of-work, Bitcoin attains network security as computational power is expended to create blocks via bitcoin mining.

 

This keeps the network secure and is the only way new bitcoins can enter circulation. However, aside from being a secure network with decentralized algorithms enabling safe peer-to-peer transactions, Bitcoin has no more network functions as it is not programmable.

 

Looking at the financial markets and the economic system, there is obviously more to what money should do that the Bitcoin network doesn't support. 

 

This includes building automated financial services with decentralized algorithms, this is enabled on the Ethereum blockchain via smart contracts.

 

Thus, Ethereum was created to enable cryptocurrency usage to be more flexible, via smart contracts this is achieved as companies and individuals can customize services to meet the market demand.

 

 

 

The programmable nature of Ethereum makes it a fit for the broader markets and today there are thousands of decentralized applications on Ethereum offering a range of services including DeFi - Decentralized Finance, Play-To-Earn Blockchain Games, Decentralized Marketplaces for cryptocurrency trades called Decentralized Exchanges (DEXs) and many more.

 

What Is Ether?

 

Ether is the native currency of the Ethereum blockchain, it is likewise the governance token and is required to perform transactions on the Ethereum blockchain.

 

Ether is a gas token that is spent when transactions are initiated on the network, this fee varies based on the network state, in congested atmospheres, miners or validators tend to prioritize transactions spending more to get processed, these fees are calculated in gwei, a smaller unit of Ether.

 

Related: How Does Bitcoin Mining Work?
 

Governance - Ethereum Proof-of-Stake (PoS)

 

Previously based on the proof-of-work protocol, Ethereum transitioned to proof of stake in an event commonly called the merge.

 

Proof of stake consensus mechanism requires validators to stake tokens or coins to participate in governance and block production as opposed to Bitcoin proof-of-work where running heavy hardware is required and governance is based on hash rates.

 

Governance on Ethereum is based on the number of tokens validators hold, meaning that a miner's chances of producing blocks and earning block rewards are based on how many network tokens he holds.

 

This is considered a better alternative to Bitcoin proof-of-work considering that it requires 99.9% less energy consumption. Also, it is economically incentivizing as validators directly contribute to the value of the entire ecosystem via token acquisition in addition to block validation.

 

 

 

Related: What Is Proof of Work and How Does It Apply To Bitcoin?
 

Is Ethereum Secure?

 

As notably pointed out, the Ethereum blockchain has suffered no downtime since it was created and is hosted by thousands of individual nodes collectively storing and updating the blockchain data.

 

Ethereum is decentralized and this adds another layer of security to the network. Based on a distributed ledger technology, Ethereum is immune to attacks as the blockchain ledger is distributed across different computers worldwide, ensuring that each data passed through the network is unique and not a duplicate that would result in double-spending.

 

What Can You Do With Ethereum?

 

As an individual, there are numerous things you can do on the Ethereum network. Primarily, you can make payments anywhere in the world via the network in a matter of minutes.

 

Transactions on the Ethereum network are handled in a peer-to-peer manner, meaning that there is no intermediary or middleman, making the process decentralized and immune to attack vectors that come with centralized payment systems.

 

Also, as an individual, you can do way more by browsing through the numerous DApps or decentralized applications built on the Ethereum blockchain. This could be Defi platforms, blockchain games, NFT marketplaces, or even Domain Naming Systems.

 

As a developer you can build limitless applications on the network, via compatibility with smart contracts, Ethereum is a building environment where developers can bring their ideas to life via blockchain technology.

 

Smart contracts allow for several developments that are often automated once deployed.

 

Related: What Is Blockchain Technology?

 

What Are The Difference Between Ethereum and Bitcoin?

 

The primary difference between Ethereum and Bitcoin is smart contracts, Ethereum is compatible with while Bitcoin isn't.

 

As such, Ethereum is an ecosystem for builders where several applications can be built and deployed on the chain whereas, with Bitcoin, direct integration on the mainnet isn't possible.

 

Following this, Ethereum has several utility structures ranging from the thousands of applications and decentralized applications built on the network, making it the largest blockchain in terms of applications built and deployed, the second largest cryptocurrency and blockchain-based on market cap, second to Bitcoin.

 

When was Ethereum Created and By Who?

 

Ethereum was launched by two core developers Vitalik Buterin and Gavin Wood on July 30, 2015. However, Ethereum has since been a community-run project where the investors are fully involved in the building and transition phases of the network.

 

What Programming Language Is Ethereum Written?

 

Ethereum is written in solidity. 
 

Is Ethereum Open Source?

 

Yes, Ethereum is open source thus anyone can copy the code and duplicate or create an enhanced or tweaked version of the chain.

 

Where to buy Ethereum-Ether(ETH)?

 

You can buy ether on the top altcoin market Kucoin

 

To learn more about Ethereum see their official website: ethereum.org

 

 

 
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