Today, the number of coins on the cryptocurrency market is growing every day. But besides Bitcoin, there are other worthy coins. Ethereum occupies an honorable second place in the ranking of cryptocurrencies at the moment. That’s why we turn our attention to it today. In this article, we will look at what Ethereum is, what is the difference between Bitcoin and Ethereum, why Ethereum was created, how smart contracts work, how the Ethereum blockchain works, and whether investing in Ethereum will be justified.
What is Ethereum?
Ethereum is an open platform that allows developers to create and scale decentralized applications (smart contracts). This platform was created to enable every programmer to develop decentralized applications. Moreover, these applications can be characterized by ease of development and scalability.
The crypto community first learned about Ethereum in November 2013, when Vitalik Buterin published the Ethereum White Paper. And in January 2014, the development of the Ethereum platform was publicly announced. Already in August 2014, $18,400,000 was raised through ICO.
Similarities and differences between Ethereum and Bitcoin
Bitcoin and Ethereum are public blockchain networks. And although it may seem that they are very similar, this is not entirely true. There are similarities in some details, but their capabilities and purposes are completely different. The idea of Bitcoin was in one narrow direction - a peer-to-peer electronic payment system. Since its inception, Bitcoin has been striving to become gold 2.0 or the new reserve currency. The main goal of Ethereum was to create a platform with maximum data security on which you can run decentralized programs or applications.
Where does Ethereum come from?
At the moment, Ethereum is mined in the same way as Bitcoin, using mining. In addition to trading or using it as a currency, mined Ether powers the network and also pays transaction fees on the network.
The Ethereum network has its own token – Gas. Gas is used to pay the commission to miners. Every transaction made on the Ethereum network and every smart contract executed comes with a cost. The amount of Gas required to complete a transaction is determined by the size of the contract or transaction. This system prevents the network from wasting resources on lengthy transactions. If a developer creates a smart contract application that does not have enough Gas to complete transactions, miners will stop validating that task and those contracts will not be executed on the network. This in turn will negatively impact the reliability of the application.
Gas also directly affects the speed of transactions. The amount depends on the size of the transaction. The correctly selected amount of Gas will allow you to complete the transfer as quickly as possible.
Smart contracts on the Ethereum blockchain
Simply put, smart contracts are computer code used to exchange anything of value, such as finance or any other asset. Smart contracts are concluded between two parties. Smart contracts are programmed so that any transaction on the blockchain network is completed independently and recorded in the Ethereum blockchain ledger, which is completely transparent. It is the automatic execution that makes these contracts “smart”. Since these contracts operate on the blockchain, any censorship, downtime or fraudulent activity is eliminated.
Ethereum Blockchain and EVM
Before the advent of Ethereum, all existing blockchains could basically perform one simple function - transferring cryptocurrencies within their network. But blockchain had enormous potential, and it was foolish to limit ourselves only to cryptocurrencies. Since any program is code, it can always be rewritten. But to remake the same Bitcoin will require a lot of time and effort. It was easier to create a new platform. Ethereum became such a platform, and its main difference from other blockchains is the Ethereum Virtual Machine (EVM) and the Solidity programming language. This allows any developer to create their own smart contracts, decentralized applications and even new platforms.
Decentralized Applications (DAPPS) on the Ethereum Blockchain
Thus, on the Ethereum blockchain you can create absolutely any type of application or platform with unlimited functionality. Everything you do every day can be implemented using the Ethereum platform. The emails you send to your colleagues, the money you donate to charity, or the rent you pay on your home, even voting systems, data storage or company management can all be used with smart contracts.
The main advantage of applications built in this way is decentralization. All data is 100% transparent and protected from interference by third parties. If any organization is built on the blockchain, then even the creators of this organization will not be able to change the data.
It is also worth mentioning ICO. Most ICOs were conducted on the Ethereum platform.
Ethereum Legacy
Whether it's EVMs, smart contracts or Gas, many of the innovative features that Ethereum has provided to the blockchain community have had a significant impact on the further development of blockchain technology in general. Smart contracts have ushered in a new wave of technology consulting services. They have begun to be used by numerous organizations wishing to decentralize their network transactions. Be it supplies, financial derivatives or political party voting systems. Several organizations in a number of sectors now have blockchain departments to monitor and expand research into new technologies and cryptocurrencies.
Ethereum market capitalization and volumes
On cryptocurrency exchanges, Ethereum is referred to as ETH. At the time of writing, its price is $183, and its market capitalization is almost $20,000,000,000. Ethereum is in second place after Bitcoin among all cryptocurrencies in terms of capitalization.
If we talk about the past, then investing in this cryptocurrency would be an excellent decision for anyone. At the beginning of 2017, the price per coin was only $30. And by the beginning of January 2018, Ethereum was already worth about $1,400. That is, the price increased by as much as 46 times or 4600%.
Is it worth investing in Ethereum cryptocurrency now?
At the moment, the price of Ethereum remains quite low compared to its maximum value. And it still makes sense to invest in this cryptocurrency, but only for the long term. And that's why:
- ETH is one of the most commonly used cryptocurrencies for purchases and payments.
- Continues to develop with an excellent development team.
- The Ethereum blockchain is used by many people, and trust in it is high.
- Ease of use not only for payments, but also for building applications or programs. An example is the massive use of the Ethereum blockchain in ICOs.
- A transition from the Proof of Work (PoW) system to the Proof of Stake (PoS) system is planned.
A few words about PoW and PoS systems
Currently, Ethereum uses the PoW (Proof of Work) system. Bitcoin, by the way, also uses this system. PoW is a protocol designed primarily to prevent and deter cyber attacks on a network ( in fact, attacks can still be carried out, but the cost of doing so will always exceed the potential production ). PoW is needed to solve extremely complex mathematical problems, which is known as mining.
PoS was created as an alternative to PoW. Using the Proof of Stake system, you can mine the same Ethereum simply by checking block transactions, regardless of how many coins you have. All this, of course, happens automatically. And the more coins you have, the greater your mining power and the greater the reward you receive.
Conclusion
As you can see, Ethereum has every chance to remain one of the most popular cryptocurrencies in the future. Huge potential for investment and equally huge potential for use in absolutely any field or industry. Most people are interested in it, of course, as an investment tool. But don’t forget that the cryptocurrency market is still very young and easy to manipulate. Because of this, the volatility of this market is incredibly high compared to traditional markets. In the short term, investments in Ethereum may be unprofitable, but in the long term, profit margins are likely to exceed any expectations. And don’t forget the main rule - invest only those funds that you are not afraid of losing.
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