Everything you need to know
Ethereum is decentralized software, based on blockchain technology that has smart contract functionality. Also, it is open source and is used initially to support the second largest cryptocurrency known as Ether.
Ethereum enables applications and smart contracts built on its blockchain to run smoothly without downtime, fraud, control, or any third-party interference.
Above everything, Ethereum is a platform, or rather protocol that helps developers to produce distributed applications via smart contracts. Ethereum’s major project was Microsoft’s partnership with ConsenSys, offering Ethereum blockchain as a service on Microsoft Azure.
The project’s goal was to enable enterprise clients and developers to have a cloud-based, single-click blockchain developer environment.
Ethereum was introduced in 2014 by Vitalik Buterin. One year later, in 2015, the Ethereum platform was launched by Vitalik Buterin and Joe Lubin, founder of ConsenSys.
The founders of Ethereum were the first ones to consider the full potential of blockchain technology past just enabling the secure payment method.
Ethereum is meant to be much more than just a store or a medium of exchange of value. It’s a decentralized computing network, that is built on blockchain technology.
How does it work?
As we mentioned above, Ethereum is a global decentralized platform for new kinds of applications and money.
Central to Ethereum is its blockchain network, a blockchain that is also a decentralized, distributed public ledger where transactions are recorded and verified.
It’s issued in the way that everyone involved in the Ethereum network holds an identical copy of this ledger, and has access to all past transactions.
The public ledger is stored on thousands of volunteers’ computers around the world, each of which is called a node. The data verification that is stored on the blockchain involves more than half of the nodes before being verified as correct.
Cryptography is used to keep transactions on the network verified and secure.
The native token
On Ethereum, the native token is called Ether and can be used to buy and sell services and goods just like any other crypto value. The unique thing about Ethereum is that users can build apps that run on the blockchain.
These applications can transfer and store personal data, or handle some complex financial transactions.
Ethereum is designed to be scalable, secure, programmable, and decentralized. It supports smart contracts, which are a crucial tool behind decentralized applications. In conjunction with blockchain technology, many DeFi’s and other apps use smart contracts.
The transactions are confirmed and verified by the nodes and the network.
Further on, the consensus is reached using a consensus mechanism. Ethereum uses a protocol called the proof-of-work, where a network of users runs software that tries to prove that an encrypted number is truly valid.
In other words, this is mining, and the first miner to prove this to be right is rewarded in ether. Then, a new block is opened on the blockchain, previous block information is encrypted and placed into the new block, with all the new data, and the mining begins again.
To store their ether, Ethereum owners use wallets. A wallet is a digital interface that gives you access to your ether stored on the blockchain. It has an address similar to an email address.
However, ether is not really stored in your wallet. Your wallet just holds private keys you use, and a private key is unique for each wallet or address. Of course, the key is essential for accessing your ether.
Ethereum is currently working on the upgrading, development, and release of Ethereum 2.0, which began in August 2021. Initially, it promises to upgrade Ethereum’s Mainnet for a scalability increase.
The most significant upgrade and change that comes with Ethereum 2.0 is a switch from proof-of-work to a consensus mechanism of proof-of-stake. This removes the need for miners.
Staking involves locking away a certain amount of cryptocurrency to participate in the transaction verification process, and it will replace mining to verify Ethereum transactions.
Ethereum 2.0, also called “Serenity” doesn’t actually exist. At the beginning of 2022, the Ethereum Foundation said it would stop referring to this major update as Ethereum 2.0. This is because it is intended to reflect the fact that what is going on is just a network upgrade, rather than the launch of a whole new network.
Ethereum 2.0 is launching in a few phases, with the first one called the Beacon Chain, which was going live on December 1, 2020. It introduced native staking to the blockchain, and it’s a separate blockchain from the Ethereum mainnet.
The second phase is called the Merge, and is expected soon in 2022, and will, like the name implies merge the Beacon Chain with the Ethereum mainnet.
The last phase is shard chains, a key role in scaling the Ethereum network. Instead of putting all operations on one blockchain, shard chains split these operations across 64 new chains. Meaning it will become much easier for hardware to run an Ethereum node because there will be fewer data.
The complete upgrade to Ethereum 2.0 is expected to be done by 2023.
- A wide range of functions; apart from being used as a digital currency, Ethereum can also process other financial transactions, store data for third-party applications, and execute smart contracts.
- Large network; the benefits of Ethereum are a large and existing network that has been tested through the years of operation and countless value trading hands. It has a committed and large community and the largest ecosystem in cryptocurrency and blockchain.
- No intermediaries; a decentralized network makes sure to let members leave behind third-party intermediaries like banks and lawyers who write contracts or have a say in financial transactions.
- Constant improvement and innovation; a large community of developers is constantly looking for new ways to upgrade and improve the network and develop new apps.
- Rising transaction costs; Ethereum’s growing popularity has pushed te to higher transaction costs. Transaction fees, known as “gas” can shift and become quite costly. That is great for those who earn money as miners, but not so great for those trying to use the network.
- Possibility for crypto inflation; Ethereum has an annual limit of 18 million Ether per year, but there is no lifetime limit on the number of coins. This could mean that Ethereum, as an investment might function more like a real-life currency.
- Steep learning curve; Ethereum can be difficult for developers to pick up as they move from centralized to decentralized networks.
Is Ethereum a cryptocurrency?
Ethereum itself is a blockchain technology platform that supports a variety of dApps, including cryptocurrencies. However, it’s not a cryptocurrency, but it has a native cryptocurrency known as Ether or ETH.
The ETH coin is usually called Ethereum, although the difference remains between these two terms. So, Ethereum is a platform powered by blockchain technology, and Ether is its cryptocurrency.
The part that cryptocurrency will play in the future is still very indefinite, but Ethereum appears to have a great part to play in corporate and personal finance.
The future of Ethereum
Ethereum adoption is ongoing, including by high-profile enterprises. Web3 is still a concept but is theorized that it will be powered by Ethereum because many of the applications that are being developed use it.
Ethereum is being implemented into virtual reality and gaming, as well. Decentraland is a virtual world that uses the Ethereum blockchain in order to secure items contained within the world.
In 2021 NFTs gained huge popularity. NFTs are tokenized digital items created with Ethereum. The applications that are usable in metaverse are likely to be built on the technology behind Ethereum, like wallets, dApp, or any virtual world you visit.
It’s worth mentioning that DAOs (Decentralized Autonomous Organizations) are being developed. They are collaborative methods for making decisions across a distributed network.
The idea is that DAOs use smart contracts and apps to gather the votes and buy into ventures based on the majority of votes, then automatically distribute any returns. The transaction could be viewed by all parties, and there would be no third-party involvement.
Ethereum is a growing platform, just behind Bitcoin. It is the second-largest blockchain in the world, as of April 2021. It’s possible that in the next few years Ethereum might become larger than Bitcoin and be embraced by large organizations, such as Facebook and Google.