Crypto trading in simple words

Basics

What is Ethereum?

Ethereum was launched in 2015 as a platform for creating decentralized online services. Ethereum is used to manage shares and property, to create financial applications and social networks, to develop games etc. It is a programmable blockchain. And this blockchain is chosen by enterprises and developers, who create based on the Ethereum technologies, that can change the way we perform our daily lives and the way many industries operate.

How does Ethereum work?

Applications on the base of Ethereum work using smart contracts. Smart contracts are like traditional paper contracts and they establish the conditions of an arrangement between parties. But instead of traditional contracts, smart contracts are automatically executed when the terms are met without the intermediary or the need for either participating party to know who is on the other side of the deal.

Ethereum can be seen as having two different components: accounts and applications (or usage options). There are two types of Ethereum accounts: external accounts (or Ethereum addresses controlled by private keys, as in the Bitcoin network), and contractual accounts (or smart contracts, which are addresses or “entities” controlled by code within them). An externally owned account is used to create, send and receive transactions and is signed with private keys. The security of the network has been provided by the Proof-of-Work algorithm (similar to those, used for Bitcoin), which requires a lot of time and energy. That is why the “second edition” of Ethereum has been developed – Ethereum 2.0, secured with the Proof-of-Stake algorithm, which is much faster and even more secure. Recently both variations of the network exist and operate simultaneously, but they are going to emerge till the end of the year.

What is the difference between Ethereum and Bitcoin?

Ethereum is considered the evolution of blockchain technology after Bitcoin. If you want to compare, Bitcoin decentralizes money, instead of Ethereum, which decentralizes the internet. If Bitcoin is the digital equivalent of cash, Ethereum works as a decentralized network for running smart-contracts code. It is based on a temporary network, but instead of allowing users to use a number of specific transactions (such as cryptocurrency transactions), as Bitcoin does, Ethereum allows users to execute almost any code they want.

Ethereum and Bitcoin have much in common, but yet differ in their limitations and long-term vision. Much like Bitcoin, Ethereum is an open source project which means that it is not owned or operated by a single individual. The Ethereum blockchain is more flexible compared to the Bitcoin blockchain. It’s like comparing the computer and the accountant book.

What is Ether?

Ether, usually shortened to ETH, is the native currency for the Ethereum platform and it also works as a transaction fee, paid for miners on the Ethereum network. The price of ETH is determined by the free market. This means that the ether is a free currency, it is not pegged to any other currency in the world and is not supported by any government in the world (at the moment). The fees paid for the operations in the Ethereum network are called “gas”, and they are paid in Ether. So, ether can be considered the fuel that makes the whole system work (and which is depicted in the word “gas”).

You can buy ether on the cryptocurrency exchange services, or you can be rewarded with some amount of ether for solving puzzles within the Ethereum blockchain (this process is called mining).

Ether has become the second largest by market value cryptocurrency after Bitcoin. Unlike Bitcoin, Ether is an inflationary currency. This means that the total amount of Ether in the Ethereum network will gradually increase over time without market restrictions.

What are the main shortcomings of Ethereum?

There is no denying that Ethereum has some problems. Scalability is poor, the Proof-of-Work algorithm is expensive and burdensome for the environment, and these are just some of the many minor technical shortcomings. But the beginning of the Internet was just as difficult and full of obstacles, and look what happened! One of the most important disadvantages is the transaction speeds. Recently only 15 transactions are possible per second in the Ethereum network. There are competitive smart contract blockchains, trying to increase speed without the losses in security. They are called “Ethereum killers”, and if they will be the first to find the solution – they might win the chance to build a decentralized future. If you are planning to use any decentralized application based on Ethereum, it is important to do research and check the security, as they may contain bugs which can result in loss of funds.

What is Ethereum used for?

A huge variety of applications has been already built on Ethereum. They include social networks, file storages, payment cards, online advertising, exchange services, and much more. In addition, Ethereum has a dedicated and forward-looking team of developers, as well as a community of young and passionate technophiles, to make sure that this promising technology is fully realized.

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