Ethereum (ETH) is a Blockchain technology, which is an open-source software platform for creating decentralized applications. The Ethereum blockchain’s currency is used to pay for transaction fees and computing services.
In 2013, Vitalik Buterin, then 19 years old, saw so much potential in the crypto world that he thought up a way to take Bitcoin (BTC) to the next level by integrating smart contracts into blockchain technology. To understand what exactly Ethereum (ETH) is, you must first understand smart contracts.
Understanding Smart Contracts
Smart contracts are a form of self-executing code that is implemented into the blockchain. They transform it from a complex ledger into a programmable network. Numerous cryptocurrencies and decentralized applications are being hosted on the Ethereum network. Although several Ethereum competitors have surfaced, Ether continues to be the most popular one.
Ethereum is the foundation for a bunch of other cryptocurrency projects. It’s also a sought-after platform for non-fungible tokens (NFT). NFTs are a form of digital collectible in which copyright and ownership information is recorded using smart contracts. When a set of specified criteria are met, smart contracts allow decentralized apps, also known as (dApps), to operate automatically on the blockchain.
How Smart Contracts Work
For their validity and security, smart contracts rely on the blockchain. A smart contract is a form of a digital contract between two persons that is written in computer code; they are stored on a public database and can’t be modified due to them running on the blockchain.
Smart contract transactions are handled by the blockchain, which means they could be sent automatically without the assistance of a third party.
Ethereum’s Origins
As we mentioned before, Vitalik Buterin came up with the concept for Ethereum, although the dream came true by a small team of software developers in 2015. Buterin is a programmer born in Russia who spent his life growing up in Canada after his parents moved out of Russia when he was just 6 years old.
Lubin, Buterin, Mihai Alisie, Anthony Di Iorio, Charles Hoskinson, and Gavin Wood were among the first developers to join the project in January 2014 when it first launched.
The Ethereum development team. Source: CoinDesk
Ethereum Mining
The process of verifying and recording transactions on the blockchain is known as Ethereum mining. Ethereum mining is very similar to Bitcoin (BTC) mining, where miners use powerful computers to generate hashes, which in layman’s terms are advanced mathematical equations. This is done by using a method known as proof-of-work (PoW) which simply confirms that the miner has done work on solving a complex mathematical problem so that they can verify a new Ethereum block of transactions, and then be rewarded for it.
Ethereum is migrating to a new and more energy-efficient system known as proof-of-stake (PoS). Proof-of-stake identifies transaction validators based on the number of tokens they have managed to have staked on the network.
Ethereum mining facility Source: Tom’s Hardware
Proof-of-stake does not require as much computing power and also miners don’t have to spend money on expensive hardware. Although it does have a few drawbacks, Proof-of-work is more proven security-wise. Another major problem for Proof-of-Stake is that parties that have lots of crypto holdings could potentially have too much control over it. A problem that proof-of-work does not have.
How to buy Ethereum (ETH)
Ether can be purchased on well-known cryptocurrency exchanges like Coinbase and Gemini. Users can also buy Ether directly from many online brokers. Ether can also be purchased using the online payment apps Venmo and Paypal. There are also thousands of cryptocurrency ATMs scattered around the world that accept Ether. Also, to store Ether you need to use a digital cryptocurrency wallet.
Ethereum Wallets
Simply put, cryptocurrency wallets are digital versions of physical wallets which instead of storing fiat money, store private keys that are required to trade cryptocurrency. Anyone with access to those private keys controls all of the cryptocurrency stored inside that digital wallet. Digital Wallets can be physical in the form of USBs or digital, which are usually apps on your smartphone; some of them require internet access and some of them don’t.
The number of active Ethereum wallets has exceeded the number of active Bitcoin wallets. The recent Ether craze, which saw the cryptocurrency hit numerous new all-time highs, was a clear factor in Ethereum’s increased usage. Other factors, however, have prompted investors to invest in cryptocurrency. The emergence of new spaces such as non-fungible-tokens (NFTs) has undoubtedly played a significant role in this.
Physical cryptocurrency ATMs in Hong Kong. Source: Insider
Cashing Out Methods
There are 2 main ways of converting Ethereum to cash; it could be done via Cryptocurrency exchanges or peer-to-peer platforms.
Cryptocurrency Exchanges
The most popular way to convert Ethereum to fiat money is using third-party cryptocurrency exchanges. This is a faster, simpler, and more secure method that can be done through debit cards or physical cryptocurrency ATMs and they will exchange your Ethereum tokens at any given rate. The amount of time that is needed for the money to reach your bank account is around 3-6 days. Although you lose a percentage of your money due to exchange rates, this is ultimately a more preferred way of cashing out. Some well-known cryptocurrency exchanges are Coinbase, Kraken, Binance, and Gemini.
Peer-to-Peer Platforms
This is a more anonymous way of converting Ether to fiat money because it requires users to sell to other people without the interference of any third-party apps. This results in faster transactions and fewer fees along the way. Although you do get better exchange rates using this method, one of the huge cons of using peer-to-peer platforms is that they’re not 100% safe, and you should only go through with them if you know what you’re doing. Make sure to be aware of scammers and ask for identification before going on with a transaction.
Gemini’s ad campaign around New York. Source: Gemini
What is Ethereum 2.0?
Ethereum 2.0 or Serenity is a widely used name that refers to Ethereum’s much-anticipated transformation from proof-of-work to proof-of-stake, which is expected to eliminate Ether mining. Ether will no longer create consensus through proof-of-work, which requires high amounts of processing power and electricity from miners. Instead, a proof-of-stake system will be used, which will compel validator computers to stake a specific amount of Ether coins to verify blocks on the blockchain.
Verifiers will still need some computational power to create blocks on the blockchain under proof-of-stake, but not nearly as much as they would if compelled to solve mathematical equations.
The Impacts Ethereum 2.0
The Ethereum community is skeptical that the switch to proof of stake would result in lower gas fees. Gas prices are determined by demand, and each block has a limited amount of computing space. Rumors are going around that Ethereum gas fees could potentially decrease due to what is called “Layer 2” applications built on the Ethereum network, which does their computing work but relies on the Ethereum network for consensus and verification.
To put it another way, the entire issue of Ethereum upgrades and their effects is quite complicated, and it’s based on a set of varying conditions that can change dramatically from day to day, including the network size, the price of Ether, and the demand for NFTs. Only time will tell how things will turn out and what impact Ethereum’s changes will have on the crypto world as a whole. NFTs have given users financial independence.
However, it has primarily been content makers who have benefited from this market. Artists who would normally have to go through a broker to get their work seen and sold can now mint and sell their work online and receive 100% of the profits in their bank accounts.
Why is Ethereum so Popular?
Bitcoin is by far the most popular cryptocurrency. Ether, on the other hand, comes in second. There are millions of cryptocurrencies available, but there’s a reason Bitcoin and Ether account for 62% of the overall market as of 2022.
Bitcoin was the very first cryptocurrency, and it remains a popular cryptocurrency investment due to its first-ever advantage, simplicity, and usability as a virtual currency. However, Ethereum’s support for smart contracts, NFTs, and other decentralized applications makes it far more developer-friendly than Bitcoin’s blockchain. Ethereum (ETH) also has plans to upgrade its network during 2022, making it faster, cheaper, and overall more energy efficient.
Takeaways
- Ethereum (ETH) is a blockchain technology, which is an open-source software platform for creating decentralized applications.
- Smart contracts are a form of self-executing code that is implemented into the blockchain. They transform it from a complex ledger into a programmable network.
- A smart contract is a form of a digital contract between two persons that is written in computer code; they are stored on a public database and can’t be modified.
- Vitalik Buterin came up with the concept for Ethereum, although the dream came true by a small team of software developers in 2015.
- Ethereum can be purchased on well-known cryptocurrency exchanges such as Coinbase and Gemini.
- There are 2 main ways of converting Ether to cash; it can be done via cryptocurrency exchanges or peer-to-peer platforms.
- Ethereum 2.0 is a widely used name that refers to Ethereum’s much-anticipated transformation from proof-of-work to proof-of-stake.
- Serenity is supposed to eliminate Ether Mining and it’s supposed to be way more energy-efficient.
- Ethereum (ETH) is the second most popular cryptocurrency on the market. This is mostly because it implemented smart contracts.
