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What is Ethereum?
by Omor Ibne Ehsan · · 4 minute read
Ethereum (ETH) is a decentralized cryptocurrency based on the Ethereum network. Ethereum, much like Bitcoin, is an open-source digital currency. Ethereum was co-founded by eight people, the most notable of whom is Vitalik Buterin. The Ethereum blockchain went live on the 30th of July, 2015, and as of today is the second-largest cryptocurrency by market cap.
How Ethereum Works
Like Bitcoin, Ethereum works on a decentralized computer network called a blockchain. However, Ethereum's blockchain network is more flexible and has several advantages that make it different.
Ether (ETH) is the native cryptocurrency of the Ethereum network and is required to send transactions on the Ethereum blockchain. ETH is like fuel in a car; without it, the car (Ethereum network) can't go anywhere. ETH is also used to pay for computational services on the Ethereum blockchain when used in a smart contract.
Ethereum is divisible up to 18 decimal places. The smallest unit of Ether is called a wei (1 ETH = 1,000,000,000,000,000,000 wei), which is similar to how Bitcoin uses satoshi as a denomination. One wei is one quintillionth of an Ether.
Ethereum uses the Proof-of-Work algorithm to secure and verify its network. In short, Ethereum uses a distributed network of computers owned and operated by its users and developers. These users run the software used to record and verify transactions, and then they broadcast these transactions to the network as secure.
All transactions on the Ethereum network are verified and stored on a blockchain. The blockchain is a digital ledger that records all transactions on the network in an unchangeable way. Because the blockchain is public and the data thereon cannot be altered, Ethereum is often referred to as a "trustless" cryptocurrency.
Ethereum uses a Turing-complete programming language called solidity, which allows developers to design and implement applications and protocols that operate as programmed without the possibility of downtime, censorship, fraud, or third-party interference.
Smart Contracts and DApps
The major innovation of Ethereum that distinguishes it from Bitcoin and other older blockchains is the wide range of smart contracts that can run on its network. A smart contract is a computer program registered on the blockchain executed by the EVM (Ethereum Virtual Machine). When you send a transaction to its address the program runs automatically and the results are stored on the blockchain. These DApps (decentralized applications) enjoy Ethereums's security and immutability for their data. Ethereum platform contracts' execution is entrusted to a decentralized network of users instead of a centralized institution or third party.
Ethereum is decentralized by its nature, meaning there is no central authority like a bank or government that is controlling the currency. Instead, the Ethereum network is controlled by the people who use it. This is a great advantage for users because it allows them to secure the system and use it for their benefit.
The Ethereum network aims to decentralize and anonymize transactions. Users can make ethereum transactions without a broker or a third party which makes transactions almost fully anonymous and does not require custody of your personal data. These benefits make Ethereum highly attractive to both companies and individuals alike.
For Ethereum to run smart contracts and incentivize nodes, fees are paid for every transaction. These fees are delivered in a unit called gas, and they depend on the number of computations necessary for the transaction to complete. Gas fees are required to make transactions on the Ethereum network.
Although transaction fees are present in almost every other cryptocurrency, Ethereum has unusually higher fees due to the increased traffic on the Ethereum network. Ethereum has the most decentralized and most trusted smart contract chain, with an enormous financial ecosystem.
To solve such drawbacks related to transaction fees, Ethereum seeks to make the network less energy-intensive by transitioning from a Proof-of-Work network to a Proof-of-Stake network by 2022.
Ethereum Use Cases
Ethereum was designed to be a decentralized platform on which applications can be built. Ethereum can be used to codify, decentralize, secure and trade just about anything: voting, domain names, financial exchanges, crowdfunding, company governance, contracts and agreements of most kind, intellectual property, and even smart property.
Ethereum can be programmed to serve as a platform for a wide variety of decentralized applications, including but not limited to cryptocurrencies.
The most common use case for Ethereum so far has been the development of ERC-20 tokens. ERC-20 tokens are Ethereum's standard for fungible tokens. They are called "fungible" tokens because every token is identical to every other token. The ERC-20 standard makes it easy for anyone to program their own ERC-20 token and is used as the standard for most cryptocurrencies and tokens created in the Ethereum blockchain.
Ethereum Name Service
The Ethereum Name Service (ENS) is a decentralized naming system based on the Ethereum blockchain. ENS can be used to resolve a wide variety of resources such as Ethereum addresses. ENS is built on the same smart contract technology as the Ethereum network itself, meaning that it shares the same security guarantees.
Decentralized Autonomous Organizations
Ethereum can also be used to build Decentralized Autonomous Organizations (DAO). A DAO is an organization with governance defined by smart contracts registered on a blockchain. A DAO allows people to communicate using an open-source protocol with auto-executing qualities; this protocol and the associated smart contracts formalize the organization's operation rules. There are many DAO in the Defi (Decentralized Finance), the most famous being Maker DAO - a lending platform managing the dollar-pegged stable coin DAI.
How to Buy Ethereum
Buying Ethereum is relatively straightforward. You can buy Ethereum from a lot of user-friendly exchanges. We'll list some of these exchanges below for you to choose from: