In recent years, with the advent of decentralized digital currencies like Bitcoin, extensive discussions have arisen about digital currencies and blockchain. And with the emergence of Ethereum, these discussions have heated up even more. It was commonly assumed that this token was just another digital currency. However, that is not the case.
Ethereum is a platform for executing decentralized applications(dApps) and smart contracts without intermediary intervention. Bitcoin aimed to eliminate financial intermediaries, but Ethereum blockchain focused on decentralizing everything and eliminating controls in the world of the web.
Ethereum is powered by a digital currency called ETH, instead of being a replacement for dollars, euros, or pounds; it has many other applications.
In this article, we intend to talk about Ethereum In Simple Terms and share everything you need to know about it with you. Stay with Cryptohovel until the end of the article to get acquainted with the world’s second-largest cryptocurrency.
What is Ethereum?
Ethereum is an open and public system based on blockchain technology that enables the definition of smart contracts and hosts thousands of decentralized applications. ETH is the native coin of this network and is the second-largest cryptocurrency market after Bitcoin. If Bitcoin aims to be a decentralized payment system, Ethereum seeks to decentralize everything.
Ethereum is a decentralized network and has no central controller, meaning no governmental authority supervises it. It is voluntarily managed worldwide by thousands of computer systems.
Each of these computer systems has volunteered to advance the network’s activities and receives rewards from the network for doing so. These users are called nodes, and due to Ethereum’s distributed nature, information is made available to all network members, eliminating the possibility of data alteration and manipulation.
Ethereum, abbreviated as ETH, is a cryptocurrency used to pay transaction fees within the network. This cryptocurrency is used to incentivize nodes to continue voluntarily verifying transactions, creating blocks, and maintaining network security. However, users can also use it to pay for goods and services if accepted.
Joseph Lubin
Ethereum was founded with the goal of allowing us to perform our daily tasks without the need for any bank, company, or other entity other than ourselves.
In summary, Ethereum aims to transform the operation of Internet-based applications by providing users with more freedom. Ethereum’s decentralized approach allows it to bypass intermediaries in favor of smart contracts.
As another example, with this network, we can hold free and transparent elections, elections in which there is no possibility of fraud. This blockchain can decentralize any other centralized service.
Important services such as payments, insurance, voting, banking, loans, and many other services currently provided by intermediaries become decentralized through this network. Anyone can develop their own DApps or digital currencies (Tokens) on the Ethereum network.
Ethereum is a semi-anonymous network, meaning you have a unique address on this network that you obtain by creating an Ethereum wallet. This address is public, but no one can identify you from your address.
How Ethereum Work
Ethereum runs on a decentralized computer network known as Distributed Ledger Technology (DLT), a critical concept in computer networks that entered the world of cryptocurrencies after the birth of Bitcoin and the advent of blockchain technology.
DLT has various subcategories, with blockchain being one of them , and the computers that are responsible for processing transactions and creating new blocks in blockchain networks are known as nodes. The more nodes there are, the more decentralized the network will be.
Smart Contracts
While Bitcoin’s primary focus is solely on the digital currency Bitcoin, Ethereum’s goal is to be recognized as a fully functional platform and an open-source playground for application development. This is accomplished through smart contracts.
The idea of smart contracts was first introduced by computer scientist and cryptographer Nick Szabo in 1996. He wanted to provide a secure and reliable way to make contracts between anonymous individuals on the Internet. He also aimed to make traditional contracts cheaper and more secure.
The most important thing that distinguishes Ethereum from other networks is smart contracts. Today, many layer-1 networks have the ability to define smart contracts, but this concept was first introduced to the world of cryptocurrencies by the Ethereum network.
Perhaps the biggest feature that distinguishes Ethereum from Bitcoin is also these smart contracts.A smart contract is a computer protocol used to facilitate, verify, and enforce the negotiation or performance of a contract, eliminating the need for third parties.
This allows users or different parties to come together and create programs and services on a decentralized platform without the need for an official authority to manage the process. This has increased the security of collaborations.
Smart contracts that are performed on the blockchain of this cryptocurrency are actually a string of code. These codes include pre-contractual and contractual conditions and all the terms of this document and the terms of its execution.
These codes can be used for various programming and framing of various matters such as stock, currency, content, or any other valuable asset.
Smart contracts automatically perform and cannot be altered or stopped once they are closed. In other words, these contracts guarantee full and precise execution. Also, the presence of any intermediary as a third party in these contracts is not possible. All network nodes also receive a copy of this contract on their system. These contracts are written in the Solidity programming language.
It is important to note that this contract will not be interruptible under any circumstances and at any time other than the specified time. Also, none of the parties to the contract are able to make the slightest change to this document after it starts to be executed
History of Ethereum
Ethereum was first introduced in 2013 by its founder, Vitalik Buterin (interesting to note that Vitalik was only 18-19 years old at the time). Vitalik published the Ethereum whitepaper and sent it to his friends to gather their feedback and criticisms regarding his theory, but he received no response.
In 2014, he made his theory public, and in 2015, he launched the Ethereum blockchain. Capital was raised for this project in 2014, and work on the network’s infrastructure continued until 2015.
The Ethereum team can be considered one of the most active teams in the crypto space, consistently working on their ideas and delivering substantial and successful updates from the very beginning of the project without interruption.
In November 2013, the Ethereum whitepaper was published by Buterin. In this whitepaper, Vitalik wrote that blockchain and Bitcoin could be useful not only as currencies but also for other applications, requiring a more robust language for developing these applications.
Buterin also introduced the Ethereum project at a Bitcoin conference in Miami, and a few months later, the project team decided to raise the required funding for the project by launching a Crowdsale (a way to raise the required funding for a cryptocurrency project, during which the project’s cryptocurrencies are pre-sold) and selling Ether coins.
The project’s founders, alongside Vitalik Buterin, were Mihai Alisie, Anthony Di Iorio, and Charles Hoskinson. Buterin aimed to enhance the Bitcoin blockchain and implement smart contracts and decentralized applications in his own blockchain.
Introduction of the Ethereum Development Team
The initial team of Ethereum included Vitalik Buterin, Mihai Alisie (who founded the social framework Akasha for Ethereum in late 2015), Anthony Di Lorio (who later founded Decentral), Charles Hoskinson (who later established the Cardano network), Joseph Lubin (founder of ConsenSys), and Gavin Wood (who later founded Polkadot).
What is the primary use of the Ethereum blockchain?
- Decentralized Finance (DeFi): Ethereum is the most popular blockchain for decentralized financial applications. Activities like lending, borrowing, and trading can be done in a decentralized manner on Ethereum. Examples include Uniswap, Aave, and Compound.
- Non-Fungible Tokens (NFTs): Ethereum, as a blockchain, possesses unique features that make it one of the best choices for NFTs (Non-Fungible Tokens) activities. NFTs like CryptoKitties, Decentraland, and Sorare are created on Ethereum.
- Decentralized Applications (DApps): Most decentralized applications are built on Ethereum. Various applications, including games and social networks, can be run on Ethereum. Examples include Axie Infinity and Peepeth.
- Payments: Ethereum can be used as a tool for direct value transfer between two parties, enabling fast and low-cost payments for both individuals and businesses.
- Crowdfunding: Ethereum has enabled new forms of crowdfunding such as Initial Coin Offerings (ICOs) and Security Token Offerings (STOs), raising billions of dollars for new projects.
- Organizational Use: Some companies use the public Ethereum blockchain or its private versions for supply asset tracking, identity management, and more. Companies like J.P. Morgan, Intel, and Microsoft are in this category.
- Stablecoins: Many well-known stablecoins like Dai, Paxos, and USDC are built on Ethereum. The goal of stablecoins is to reduce volatility by maintaining a 1:1 value peg with fiat currencies like the US dollar.
Ethereum Digital Wallets
To participate in the Ethereum ecosystem and store, send, and receive ETH and other Ethereum-based assets, you need a wallet compatible with the Ethereum Virtual Machine (EVM).Moreover, the best Ethereum wallets on the market allow you to access decentralized applications (dApps) by connecting your wallet to smart contracts, enabling access to Ethereum’s decentralized applications.
For storing Ether and Ethereum-based tokens, you need software or hardware wallets . Think of a digital wallet as a bank account designed for digital currencies, allowing you to store, send, and receive cryptocurrencies. Software Ethereum wallets are free and can be easily installed on mobile phones (Android and iOS) or personal computers (Windows, Linux, and macOS).
In contrast, hardware wallets, offering greater security, are physical devices that must be purchased from reputable stores.
The Difference Between Bitcoin and Ethereum: A Comprehensive Comparison
Bitcoin has the largest market capitalization among cryptocurrencies, and Ethereum is ranked second. The word Bitcoin is used to refer to both the blockchain network and the cryptocurrency itself. In the Ethereum blockchain, the word Ethereum refers to the network and the word Ether refers to the native cryptocurrency of the Ethereum network.
While both Bitcoin and Ethereum operate on the principles of distributed ledger technology (DLT) and cryptography, they differ significantly in technical aspects.For example, Ethereum transactions can contain executable code, whereas Bitcoin transactions are solely used for recording transaction information.
The blockchains and networks of Bitcoin and Ethereum have different overall goals. Bitcoin was created as a replacement for fiat currencies and therefore, wants to be a medium of exchange and store of value. Ethereum, on the other hand, is designed as a platform to facilitate non-fungible contracts and applications through an Ethereum Virtual Machine (EVM).
Transactions on the Ethereum network are confirmed faster than on the Bitcoin network. When making a transaction on the Bitcoin mainnet with regular fees, it may take approximately an hour to confirm, while on the Ethereum blockchain, the confirmation process typically takes only a few seconds.
One of the key differences between Bitcoin and Ethereum lies in their supply limits. Bitcoin has a capped supply, with only 21 million units of the digital currency ever to be mined.Ethereum has no supply limit, and to this date, more than 120 million Ether units have been in circulation.
The unlimited supply of Ether does not mean inflation and oversupply; because the annual inflation of Ether is specific and limited and close to 4%, which may increase or decrease slightly depending on the conditions.
Ethereum Standards and Their Applications
Ethereum has various standards for creating different tokens, most of which are compatible with one another and with decentralized Ethereum-based applications. Some of the most popular and widely used Ethereum token standards include:
1. ERC-20: This standard is the most prevalent among Ethereum token standards and is designed for creating fungible tokens. Tokens following this standard include UNI, LINK, AAVE, and more.
2. ERC-721: Designed for non-fungible tokens (NFTs), this standard enables the creation of unique digital assets.
3. ERC-1155: Tailored for building NFT collections, this standard allows for the creation of multiple non-fungible tokens grouped together, as seen in projects like Cryptopunks and Bored Ape Yacht Club.
4. ERC-777: This standard enables users to add additional functions to their tokens, enhancing privacy and providing a “Recover” function for private key recovery if lost.
5. ERC-4626: A tokenized vault standard designed to optimize and unify the technical parameters of yield-bearing vaults.
6. ERC-725: Designed for blockchain-based identity, contracts written using this standard can have multiple keys and interact with various other contracts. It can define identities for individuals, devices, and objects.
7. ERC-621: This standard is used to alter the total supply of tokens. Users can increase or decrease the total token supply, but only if authorized by contract owners or trusted users.
8. ERC-827: With this standard, holders can send their tokens to third parties for them to use, granting external parties access to the tokens.
The Future of Ethereum
Ethereum is one of the most famous cryptocurrencies that has always been in the spotlight.Many analysts see a bright future for it and consider it a good option for long-term investment. However, it should be noted that any investment in cryptocurrencies should be done with thorough research and investigation.
The transition of Ethereum to a Proof of Stake (PoS) protocol, allowing users to validate transactions and earn new Ether based on their staked assets, is a significant upgrade for the Ethereum platform.
This upgrade has increased the capacity of the Ethereum network and increased the possibility of growth of the Ethereum network. This upgrade will eventually help to address the network congestion problems that have led to increased gas fees.
The Ethereum network can be considered one of the most promising blockchain networks. The promise of Ethereum, which is decentralization, is a very big promise; although even now we can see that this promise has been partially realized and has attracted the attention of many people around the world.
The technology of Ethereum and the developers behind this technology promise that cryptocurrencies will soon fulfill the promises that have been delayed for years in the near future.
In Conclusion
Ethereum as one of the pioneers of cryptocurrencies and blockchain technology, Ethereum has played a very important role in creating ecosystems based on smart contracts and fungible tokens.
This cryptocurrency is not only a unit of currency, but also a powerful platform for running programs, creating custom tokens, and transforming different industries based on blockchain technology.
The technology of smart contracts provides an innovative environment for developers to design and implement new applications and services. Markets and industries, from finance to the gaming industry, benefit from this technology.
Ethereum has the potential to change existing business models and create economic opportunities for millions of people around the world. It is also constantly being improved and developed to become an influential and widely used cryptocurrency in the digital world.
FAQ
- What is Ethereum Digital Currency? In Simple Trems
Ethereum Digital Currency is associated with the Ethereum network, a decentralized computer network powered by a digital currency known as Ether (ETH).
- Who Launched the Ethereum Blockchain?
The Ethereum whitepaper, aimed at creating decentralized applications, was published in late 2013 by a programmer and one of the founders of Bitcoin Magazine, Vitalik Buterin.
- What Factors Determine the Price of Ethereum?
Apart from the price of Bitcoin, which influences the entire cryptocurrency market, other factors such as regulations, supply and demand, trading volume, and more also impact the price of Ether.
- Is Ethereum a Scam?
The Ethereum blockchain and its cryptocurrency, Ether, have a clear roadmap, and the project team continually strives to make this network more practical for people. Therefore, Ethereum is by no means considered a scam.
- Is Ethereum Better Than Bitcoin?
Ethereum and Bitcoin have fundamental differences and are designed for different purposes. Therefore, comparing them is not entirely logical.
- What is the law on buying and selling Ethereum?
Authorities in various countries are examining cryptocurrencies and considering regulations for them. However, buying and selling Ethereum is not prohibited or illegal in any country.