Ethereum is considered the second largest cryptocurrency by volume, after Bitcoin. Several big names are listed as founding members of the Enterprise Ethereum Alliance (EEA), including Microsoft, Intel, and JP Morgan Chase.
According to CNBC, The adoption of Ethereum by the corporate world means it could eventually be bigger than its early-stage rival. This implies that it’s high time to get to learn about the Ethereum blockchain, including its features, applications, and what differentiates Ethereum from Bitcoin.
This article will explain everything about Ethereum for readers to gain a fundamental understanding of this blockchain, along with its purpose, design, and vision.
What is Ethereum?
Ethereum is a decentralized blockchain platform with a Peer-to-Peer (P2P) network which securely executes and verifies application code, which are called smart contracts. Smart contracts enable participants to transact with each other without a trusted central authority.
The transaction records are immutable, verifiable, and securely distributed across the network, giving participants complete ownership and visibility into transaction data. These transactions are sent and received from user-generated Ethereum accounts. A sender must sign transactions and spend Ethereum’s native cryptocurrency, Ether, as a cost for processing transactions on the network.
What Does Ethereum Do?
Ethereum’s Decentralized finance (DeFi) has been the most popular feature of the network, however, Decentralized applications (dApps) have also seen a drastic rise in demand. Ethereum network has built dApps that can perform several functions within its ecosystem. These dApps emerged during 2019-2020 and have been evolving ever since. They have also brought more awareness to the platform over the years.
Developers have designed uncensorable social media platforms to enable users to tip each other for content. For instance, gaming platforms allow users to invest in digital assets, play to earn them, and later sell them for profit, likewise, prediction platforms reward users for accurate forecasts. All of these are managed autonomously via smart contracts, with DeFi enabling users to control their funds.
What are the Features of Ethereum?
Each blockchain in the Ethereum Network has a specific type of consensus algorithm. The network uses these algorithms to match only valid data values.
ERC-20 is the name of a set of standard requirements for those who want to issue a new token on the Ethereum blockchain. ERC stands for “Ethereum Request for Comments.”
Anyone who wants to utilize Ethereum for their application must use Ether (ETH) as their fuel – referred to as ‘Gas’. Platform users pay for the services they have requested here. The complexity of the computations for the activity that the network conducts determines the cost of the fuel. As a result, every developer who wishes to construct an Ethereum application or anyone who wants to access a smart contract must have ETH.
Advantages of Ethereum
As a decentralized platform for DApps, Ethereum has all the advantages of blockchain technology:
- Immutability: A third party cannot alter or delete blockchain data.
- Uncensored: The Ethereum network operates on a consensus principle. As a result, censorship is impossible.
- Security: Due to its cryptographic protection, blockchain is not susceptible to fraud or hacking. Ethereum has no central point of failure.
- Transparency: Everyone can access the entries through the blockchain.
- Universality: Ethereum supports a wide range of programming languages and algorithms of varying complexity. As a result, smart contracts are used in several fields.
- Availability: Ethereum is an open-source platform for anyone interested in creating decentralized apps.
Disadvantages of Ethereum
Like many other platforms, Ethereum too has some disadvantages:
- The smart contract code is not flawless: The infamous DAO fiasco has served as a clear example of how human error can lead to serious difficulties. If the error in the code becomes apparent, there is no real way to stop the attack, except for quick network consensus and base code processing.
For context, The Ethereum DAO fiasco happened back in 2016, wherein an unknown attacker began hacking and draining the DAO of ether which was collected from the sale of its token.
- Low transaction speed: The network can process only about 20 transactions per second, while other platforms can process over 3,000 TPS.
- Scaling: This is a concern for almost every blockchain, including Ethereum.
Ethereum in Gaming
Ethereum is also actively used in virtual gaming. Decentraland is a leading metaverse platform in which assets are secured using the Ethereum blockchain. Ownership of land, avatars, wearables, buildings, and environments, are all tokenized via the Ethereum blockchain.
Axie Infinity is one such game that employs Ethereum’s blockchain technology and has its own cryptocurrency, Smooth Love Potion (SLP), which is utilized for in-game rewards and transactions.
Ethereum in NFTs
NFTs are mostly Ethereum-based tokenized digital products. Tokenization, in general, assigns a unique digital token to each digital asset and stores it on the blockchain. This establishes ownership because the encrypted data is stored in the owner’s wallet address.
Trading NFTs is regarded as a blockchain transaction. The network validates the transaction, and thereby ownership is transferred.
What is the Future of Ethereum?
Ethereum Network is planning The Merge, where it will move on from Proof-of-Work (PoW) consensus to the more efficient Proof-of-Stake (PoS) consensus. According to information on Ethereum’s website, the current Ethereum Mainnet will soon merge with the Beacon Chain proof-of-stake system. This will mark the end of proof-of-work for Ethereum.
The Website states, “The Merge is the most significant upgrade in the history of Ethereum. Extensive testing and bug bounties were undertaken to ensure a safe transition to proof-of-stake,”
With this merge, some experts from the crypto community are predicting that Ethereum can dethrone Bitcoin to become the reigning crypto soon.