What is Ethereum?

Ethereum is a decentralized blockchain platform that creates a peer-to-peer network that securely executes and verifies application code called a smart contract. Ether is the native cryptocurrency of the Ethereum blockchain.

Smart contracts allow participants to transact with each other without a trusted central authority. Transaction records are immutable, verifiable, and securely distributed over the network, giving participants full ownership and transparency of transaction data. Transactions are sent and received by user-created Ethereum accounts. The sender must sign transactions and spend Ether, the native cryptocurrency of Ethereum, as the cost of processing transactions on the network.

Vitalik Buterin, who is credited with the idea of ​​Ethereum, introduced it in 2014. The Ethereum platform was launched in 2015 by Buterin and Joe Lubin, a founder of ConsenSys, which is a blockchain software development company.

The founders of Ethereum were among the first to consider the full potential of blockchain technology beyond simply providing a secure virtual payment method. Since its launch, Ethereum as a cryptocurrency has become the second largest cryptocurrency by market value after Bitcoin.

How does Ethereum work?

Ethereum allows you to run code on a distributed system. This prevents third parties from making changes to the program. The code is generated on an Ethereum database, which is available, and can be configured to be stored. In addition, the database is visible to all users and they check the code before working with it.

This means that any user can play the application, which can’t be taken offline. In addition, since there is the possibility of using the network over the air, i.e. wireless, these applications can consume the cryptocurrency. Smart contracts use programs for creating applications and can be configured to work independently without human intervention.

Advantages of Ethereum

Besides decentralization and anonymity, Ethereum has a number of other advantages, such as the absence of censorship. For example, if someone tweets something offensive, Twitter can remove it and punish that user. However, this can only happen on an Ethereum-based social media platform if the community votes for it. Thus, users with different opinions can discuss what they think, and people can decide what should and shouldn’t be said.

Community demands also prevent bad actors from seizing power. Someone with bad intentions would have to control 51% of the network in order to make changes, which is next to impossible in most cases. This is much more secure than a simple server that can be hacked.

In addition, smart contracts automate many of the steps central authorities take on the traditional network. A freelancer, for example, on Upwork must use the platform to find clients and enter into payment contracts. In Web 3.0, the client can simply write a smart contract that says "If the work is submitted X times, the funds will be released." The rules are hard-coded into the contract and can’t be changed by either party once they are written.

Moreover, it has become easier than ever to acquire Ether. Companies such as PayPal and its subsidiary Venmo support the purchase of cryptocurrencies with fiat currency directly in the app. With millions of customers on each platform, sooner or later they are bound to turn on.

Disadvantages of Ethereum

While it sounds like the perfect platform, Ethereum has a few key issues that need to be addressed.

First, it’s scalability. Buterin envisioned Ethereum as it’s now, with millions of users interacting at the same time. However, due to the PoW consensus algorithm, such interaction is limited by block verification time and gas fees. In addition, decentralization is an obstacle. A central authority like Visa manages everything and perfects the transaction process.

Another problem is accessibility. Ethereum was expensive to develop and difficult to interact with users unfamiliar with its technology. Some platforms require certain wallets, which means that you need to move ETH from your current wallet to the desired wallet. This is an unnecessary step for users who are entrenched in our current financial ecosystem and not suitable for beginners in the least.

Finally, the platform has well-written documentation on the subject. However, learning about blockchain is very different from using it. So, optimization is what Ethereum needs now.

How do purchase ETH?

Ethereum is available for buying and selling on exchanges. To buy ETH, you need to choose the cryptocurrency exchange, fund your account, and place an order to purchase ETH.

However, you can make money on the rise and fall of prices by trading with a broker. To do this, you need to take the following steps:

1. Open a crypto account.
2. Deposit money.
3. Choose an instrument. In our case it’s Ether.
4. Analyze the market.
5. Select position size and open a trade.

FBS provides plenty of different instruments with ETH, click here for detailed information.

Ethereum vs. Bitcoin

Ethereum is often compared to bitcoin. While ETH and BTC have a lot in common, there are some important differences between them.

Ethereum is described by the organization as a “worldwide programmable blockchain”, positioning itself as a programmable electronic network with many applications. The Bitcoin blockchain, in contrast, was only created to support the Bitcoin cryptocurrency.

The maximum number of Bitcoins that can enter circulation is 21 million. There is no limit to the amount of ETH that can be minted, although the time it takes to process an ETH block limits the amount of Ether that can be minted each year. The number of Ethereum coins in circulation is over 120 million. In addition, an upgrade EIP-1559  introduced a base fee that is burned with every Ethereum transaction. This mechanism removed 1.3 million ETH from the network’s circulation in 2021. According to CryptoRank, the ETH burn was valued at $4.85 billion.

Another significant difference between Ethereum and Bitcoin is how the respective networks handle transaction processing fees. These fees, known as gas on the Ethereum network, are paid by participants in Ethereum transactions. The wider Bitcoin network absorbs the fees associated with Bitcoin transaction.

A significant similarity between Ethereum and Bitcoin is that both blockchain networks consume huge amounts of energy. This is because each of these blockchains runs using a proof-of-work protocol. Proof-of-stake uses much less energy. Ethereum is planning to move to the PoST system – that’s what Ethereum 2.0 is about. However, it takes time to switch and there’s no exact date yet.

Bottom line

In recent months, the popularity of the Ethereum blockchain has skyrocketed as developers have used it to build many decentralized finance and NFT projects. The advent of new applications like these — among the first to run on the public blockchain — has already caused a huge network effect, as increased activity draws more and more developers to Ethereum.

However, major questions remain about whether Ethereum, which is behind schedule thanks to a complex set of technological upgrades, can compete with more flexible competitors and whether any consensus will emerge on its long-term function as the crypto world grows.