New economy or what is Ethereum (ETH)? Guide in simple words

Ether is the second most popular cryptocurrencyю It all started in 2011 when young Canadian programming student Vitalik Buterin became interested in blockchain technology and Bitcoin cryptocurrency. After a couple of years, fully convinced of the practical benefits of the blockchain, Vitalik creates technical documentation for the product, which is now known all over the world as Ethereum. In 2014 it was launched.

The main thing that distinguishes Ethereum from Bitcoin is its wider use, thanks to the ability to quickly create smart contracts. If Bitcoin is just a convenient way to store and send funds, then Ethereum offers a wider range of activities that can be done with the money. Money can be borrowed, deposited, invested, lent, and so on.

Smart contracts in Ethereum allow all this and provide the basis for a new economy free from states and banks. To build a full-fledged economy, you need a contracting tool and a third party that both parties to the transaction trust. But the idea behind cryptocurrency is that people don’t want to trust the banks or the government.

This is where Ethereum starts to show up, providing a self-sufficient technical layer that clearly and impartially performs its functions, regardless of whether it is trusted or not. In the Bitcoin network, smart contracts are much more difficult to make.

Ethereum expands the concept of cryptocurrency to the crypto-economy through smart contracts. If the main idea of ​​Bitcoin is money independent of the governments, then Ethereum offers an economic system independent of them.

In the context of Ethereum, blockchain acts as a public ledger that records everything that happens on the network in real-time. Some of the fundamentals of blockchain technology that make Bitcoin possible also make Ethereum work. The structure of the Ethereum blockchain is similar to what we see in Bitcoin. So, a copy of each transaction is distributed throughout the network, and each node, which is a computer running the Ethereum software, of the network keeps a copy of this history. This distributed digital ledger can be easily synchronized through a massive decentralized network. This is what makes Ethereum accessible to anyone who can access the internet, no matter where they are. The Ethereum network has data blocks consisting of transactions and smart contracts. These blocks are connected and represent a complete record of the history of Ethereum since the first block. Blocks are created by some users and distributed to other users who check them and confirm that they are correct. Every blockchain has a specific type of consensus algorithm. The network uses these algorithms to negotiate a single correct data value. New Ethereum transactions are still confirmed by miners using the same Proof-of-Work system, as Bitcoin does, but changes are coming. Ethereum is starting to transition its network to the PoS consensus, which is less energy-intensive than using PoW. Innovation continues to evolve, so let’s take a look at some of the key features of Ethereum.

Before the advent of Ethereum, cryptocurrencies had a meager range of functions, and sometimes even a single function. So, the function of Bitcoin is to be a digital currency. The developers had to either expand the functionality of Bitcoin on the existing blockchain, which is very difficult from a technical point of view, or create a new platform from scratch. Recognizing this impasse, Buterin began work on the EVM. EVM focuses on preventing denial of service attacks that are prevalent in the world of cryptocurrencies. Every time a program or transaction is activated, the network must process this data. Contracts written in different programming languages ​​are compiled into bytecode that the EVM can decode and execute. This means that anyone can run any program, no matter what language it is written in, as long as there is enough time and memory. All Ethereum nodes execute contracts using their EVMs, and this invention means a lot because it allows you to build interaction in a more efficient way than ever. Now there is no need to have your own blockchain for each new project.

Smart contracts are the secret ingredient of Ethereum. The concept of smart contracts was proposed in 1996 by scientist Nick Szabo. Smart contracts are computer programs that control the transfer of digital currencies or assets between parties if certain conditions are met. To put it simply, a smart contract is just a piece of software code embedded in the blockchain. The code contains the terms of the contract. When they are completed, a transaction automatically occurs. A smart contract is an alternative to legal contracts, in which the third party is the judicial system of the country where the contract is concluded, it is who is responsible for the execution of the contract. Smart contracts are exactly the same contract, only digital. It exists inside the Ethereum system and its execution is guaranteed by a computer program, and in the foundation, there is a strict mathematical system. Smart contracts perform if-then operations. For example, if a smart contract is used to run a vending machine, it would look something like this: when someone puts a dollar in the vending machine, it dispenses a can of Coke. Ethereum provides the basis for these contracts and yet has a level of functionality not available to most other cryptocurrencies. Ethereum is already finding applications in areas such as identification systems, insurance payments, and this is only a small part. All this is possible thanks to smart contracts. They effectively support transactions and compliance in a fully digital environment.

Any developer who wants to build an application on Ethereum, or anyone who wants to access a smart contract, must have Ether. Ethereum can also be used as a currency. As the bitcoin network slowed down and transaction fees became higher, some users switched to Ether as a medium of exchange. The total supply of ETH is not limited, as, for example, of bitcoin. The volume of supply and the pace of issuance was largely driven by the initial fundraising in 2014.

Perhaps the most outstanding feature of Ethereum is the wide range of possibilities it offers to users. Do not forget that ETH has never been a currency as such. However, many use it as a transitional link between fiat currency and altcoins. For example, if you want to buy a Lisk token, you need to exchange your fiat currency for bitcoin or ether, and only then buy Lisk with them. Some said simply that they use it as ecosystem fuel. ETH is also being bought and sold by speculators and investors who believe that the value of the Ethereum project and the dApp network will increase over time. Practice shows that they are right. Of course, Ethereum has many other uses as well: – DeFi. The contemporary tide of decentralized finance (DeFi) inventions on the Ethereum net, has discovered startup creators and businessmen utilizing Ethereum blockchain to develop algorithms reproduce conventional financial services. The industry has been formed by enterprises such as MakerDAO, which invented the algorithm that decentralizes the administration of crypto tied to the fiat currency. Different DeFi products have aimed to automatize and decentralization of lending and borrowing services. – ICO. The lion’s share of the ICOs that have taken place over the past few years have been hosted on the Ethereum blockchain. When it comes to funding open source projects, Ethereum is the preferred option. – Decentralized applications (dApps). There are many decentralized applications built on Ethereum, and their number is growing. These applications make decentralized market forecasts, give users full control over their personal information, and provide many other useful features that are too long to list. It all depends on the demands of the market and the community, as well as the desire of developers to respond to these requests. – DAO. There are many examples of Decentralized Autonomous Organizations (DAOs) emerging on Ethereum. When you consider the future use of Ethereum, the tip of the iceberg describes the current realization of the potential well. The use cases for Ethereum are limited only by the imagination of the developers.