Crypto EDU

Ethereum

  • August 2, 2021
  • Beginner
  • cryptocurrency
  • ethereum
ETH (0-00-03-22)

The brainchild of programmer Vitalik Buterin, Ethereum is a decentralized platform that relies on blockchain technology to enable the exchange of digital tokens (called Ether). These transactions are listed on a public, distributed ledger and are validated by people on the network (a.k.a. “miners”), who compete to solve a complex mathematical problem in order to build the next block of data in the blockchain through a process known as a consensus mechanism. As a reward for this work, miners receive newly minted tokens. 

Sounds just like Bitcoin, right? So far, yes. But there is one big difference: Ethereum allows participants to build and use apps to handle transactions more complex than the simple transfer of cryptocurrency from one user to another. This means the platform is constantly evolving. It’s now possible to use Ethereum to store personal data or financial records, for example, or even to take out a loan without going through a bank. 

Among the most popular applications on Ethereum are smart contracts: enforceable agreements between two parties, codified on the blockchain. Smart contracts can make the transfer of Ether automatic and contingent on real-world events. For example, let’s say user A borrows $1,000 from user B and agrees to pay them back, with interest, in ten $105 installments on certain dates. They both agree that if user A misses a payment date, they will be assessed a $20 penalty. If that date passes and the payment has not been made, the penalty fee is automatic. No debate—and no lawyers—required. 

The success of Ethereum has inspired the creation of copycat networks, but because Ethereum remains one of the most capable open-source cryptocurrency platforms, it continues to attract skilled developers who ensure a steady pace of innovation. 

Why should you care about Ethereum?

The Ethereum network controls a majority of the DeFi applications for digital assets, and its currency, Ether, is the second-largest cryptocurrency by market cap in the world. Plus, a likely system-wide upgrade called Ethereum 2.0 should lead to further innovation. For one thing, instead of expending large amounts of energy to complete math problems, miners would put up their own coin as collateral to be allowed to verify transactions and mint new coins. A successful transition to this system would make Ethereum far more sustainable—and also serve as a model for other assets to imitate.

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