Ethereum – The Next Step
Updated: May 18
"When I came up with Ethereum, my first first thought was, 'OK, this thing is too good to be true." – Vitalk Buterin
"Ethereum", A prevalent term in the crypto world. But What is it?
What is Ethereum?
Most people are aware that Ethereum is the second most valuable cryptocurrency, with a market capitalization of more than $290 billion. Ethereum, it turns out, is not a cryptocurrency at all but rather a software platform that allows programmers to build applications on top of blockchain technology. The Ethereum platform includes a cryptocurrency known as ETHER, which is used to power applications built on the Ethereum blockchain.
Ethereum is essentially a massive, coordinated decentralized swarm of individual computers linked together on the internet where anyone can deploy their mini-programs (called smart contracts) for a small fee.
History of Ethereum
Buterin became interested in blockchain technology as a 17-year-old programmer when he joined Bitcoin and co-founded Bitcoin Magazine in 2011. He began to envision a platform that went beyond the financial use cases allowed by Bitcoin. In 2013, he published a white paper describing what would eventually become Ethereum using a general scripting language.
Buterin and the other Ethereum co-founders launched a crowdsourcing campaign in 2014, selling participants Ether (Ethereum tokens) to get their vision off the ground, raising more than $18 million. Frontier, Ethereum's first live release, was released in 2015. Since then, the platform has snowballed, and hundreds of developers are now involved.
Though it has gone through a long rough process, in early 2019, Ethereum became the second-largest cryptocurrency in market capitalization. As of 2022, it still holds the second position, behind bitcoin.
How Does Ethereum work?
The Ethereum blockchain is very similar to the bitcoin blockchain, but its programming language allows developers to write software that manages and automates specific outcomes for blockchain transactions. This software is known as a smart contract.
A smart contract ensures that the terms of a relationship are fulfilled by writing it in code. It is software that automatically executes the agreement when predefined conditions are met, eliminating the delay and expense associated with manually completing a deal.
An Ethereum user could create a smart contract to send a certain amount of Ether to a friend. They would enter this code into the blockchain, and the Ether would be automatically released to the other party once the contract is completed.
Is Ethereum Secure?
Ethereum places a higher value on security and prioritizes it than any other chain. You're probably wondering why and how Ethereum maintains such a high level of protection. So this is how it works: Ethereum is a peer-to-peer blockchain system (user to user). This means that everyone on the network bears responsibility for the network's security.
Ether is safe to buy as it's secured with Ethereum blockchain, the decentralized technology. Fundamentally, this cryptocurrency was made to make secure transactions. Ethereum protocol is currently being updated to make this platform more secure and faster.
Bitcoin VS Ethereum
Bitcoin implements blockchain technology, whereas Ethereum is the blockchain network itself. Bitcoin is a peer-to-peer electronic cash application that allows Bitcoin payments to be made online. The Bitcoin blockchain is used to track the ownership of digital currency (bitcoins). In contrast, the Ethereum blockchain is used to run the programming code of any decentralized application on the network.
Both of these coins have gained huge popularity, but till today, Bitcoin holds the first position in the crypto world. Bitcoin has also been adopted as legal tender in many places like El Salvador etc. In simple words, Bitcoin is a decentralized virtual currency digital money, whereas Ethereum is a decentralized application that uses smart contracts.
As of May 2022, The market Cap of Bitcoin is $694B, and the market cap of Ether is $324.88B
Problems with Ethereum
Scalability – Ethereum mining restricts block generation between 7-15 transactions per second, and it uses smart contracts, which can lead to errors.
Coding Complexity – Ethereum uses some complex programming languages like Java, Python, and C++, which are not at all beginner-friendly. And as this is a decentralized platform, it's pretty tricky to understand for a person who's totally tech naïve.
Rising transaction cost – Ethereum's growing popularity also led to transaction costs. This transaction fee, also known as 'Gas,' is going upward day by day that's why Ethereum 2.0 is trying to be implemented.
Future of Ethereum
The Ethereum vision for the next several years is exciting since it promises to change how we think about cryptocurrencies.
Ethereum will be transformed from a Proof of Work (PoW) consensus mechanism to a Proof of Stake (PoS) consensus mechanism with ETH 2.0. The present energy-intensive mining model of PoW will be replaced with a long-term staking mechanism in which ETH holders stake their tokens to become validators and assure the blockchain's security while collecting rewards.
When opposed to PoW, switching to a PoS model solves many present issues because a less computation-intensive model may expect cheaper fees and faster transactions.
Ethereum, since it continues to be a foundational part of DeFi applications, has a lot of potential in the following years. Therefore, exposure to Ethereum technology might be valuable to your investing portfolio.