If you are new to the crypto world and have limited knowledge about them, wrapping your head around Ethereum might be slightly challenging for you. The world’s first cryptocurrency came along in 2009 in the form of Bitcoin.
Bitcoin was the cryptocurrency that laid the foundations of the cryptocurrency industry. But Ethereum is the one that unlocked a world of new possibilities for the decentralized economic system that’s slated to potentially change the way the world works.
This Crypto for Beginners edition will give you a beginner’s guide to Ethereum so you can catch up on what it is, how it came to be, and where it might be heading as cryptocurrencies become increasingly commonplace.
What Is Ethereum?
According to Ethereum’s website, “Ethereum is a technology that’s home to digital money, global payments, and applications. The community has built a booming digital economy, bold new ways for creators to earn online, and so much more. It’s open to everyone, wherever you are in the world – all you need is the internet.”
This is a precise definition of Ethereum, but not something that is easy for someone new to cryptocurrencies to understand. A slight comparison with Bitcoin might give you a better perspective on this.
You can describe Bitcoin as digital money, and it can be used for transactions between two Bitcoin users without the need for a central authority facilitating the transfer. Validating the transactions happens through a distributed peer review process, making it decentralized finance.
Ethereum is more than mere digital money that can be transferred from one user to another for transactions. You can describe it as highly programmable digital money. Imagine money being transferred from one user to another automatically, but only when a certain set of requirements are met.
Suppose that one person wants to purchase real estate from another person. Traditionally, it would require several third parties to facilitate the process. The involvement of several other parties makes the process more time-taking and costly.
Using Ethereum can help you complete the transaction by automatically transferring the funds once the deal is done and ownership is transferred through a piece of code. There is no need for a third party to facilitate the transaction.
Rather than a mere decentralized form of digital money, Ethereum is a whole infrastructure for decentralized finance, complete with various applications that extend beyond simple peer-to-peer transfers.
When Was Ethereum Created?
Vitalik Buterin is a co-creator of Ethereum who created Ethereum in 2013 to address the limitations that existed with Bitcoin. The whitepaper he published in 2013 led to Buterin and the other co-founders raising $18.3 million in a public Initial Coin Offering, or ICO, in 2014. An ICO is like an Initial Public Offering, but for cryptocurrency. 2015 saw the Ethereum foundation officially launch the Ethereum blockchain. Since then, Ethereum has gone through various upgrades to improve on what it offers, and more changes are constantly in the works.
An Expansive Blockchain Platform
Many people use Ethereum interchangeably as a term to refer to the cryptocurrency, but Ethereum itself is a blockchain platform. Ether is the native cryptocurrency used on the blockchain network, but several other cryptocurrencies have also been built on the infrastructure created by Ethereum, making it a massive Decentralized Finance (DeFi) ecosystem.
Ethereum has its own programming language called Solidity. The DeFi platform offers a viable way to integrate cryptocurrency into everyday life by powering decentralized apps (dApps) with utility across various industries, making transactions on them safer than ever.
Like Bitcoin, the Ethereum blockchain network also relies on miners that check and verify transactions.
What Are Decentralized Apps (dApps) and Smart Contracts?
Decentralized Apps, or dApps, have a user interface that contains a smart contract. The smart contract is like a regular contract that defines an agreement, but the terms of the agreement are written in the form of computer codes and the contract is executed automatically once the terms of the agreement are met.
dApps expand the utility for Ethereum and blockchain technology because they can be used for potentially any scenario, from facilitating transactions for the sale of goods and services to more complex projects.
Smart contracts are a special type of computer code that’s designed to execute automatically once certain conditions are met. There is no need for a central authority to ensure a fair and complete execution of an agreement.
Suppose that you are a freelance photographer tasked with taking a certain number of pictures that have to be approved by your client. A smart contract in such a situation would involve a submission process for you in which your client will approve the submissions. The payment will be automatically released to you once you’ve submitted all the pictures and your client approves the required number of images.
What Is Ethereum 2.0?
Ethereum is constantly upgrading the DeFi ecosystem to improve on what is already an exciting and expansive platform. Ethereum 2.0 is a massive undertaking that would see a complete change in the way transactions are verified on the Ethereum blockchain network.
The current proof-of-work validation method uses a lot of power, takes a long time, and is very energy and cost-intensive. Ethereum is currency merging with the Beacon Chain – shifting to a proof-of-stake validation method.
The change might not appear to be much at a glance, but it will be a revolutionary change. Moving to a proof-of-stake validation method means that the Ethereum blockchain will become more energy-efficient, faster, and cost-effective than the existing network.
The proof-of-stake validation method won’t require specialized mining hardware, making it possible for more people on the Ethereum blockchain network to act as validators, decentralizing Ethereum further and making the entire ecosystem more secure.
Wrapping It Up
Bitcoin was the world’s first cryptocurrency, and it started a revolutionary movement that could potentially change the global financial landscape as we know it. Ethereum became the blockchain platform that took what began with Bitcoin and introduced the necessary innovations to take the crypto world to new heights.
The onset of Non-Fungible Tokens (NFTs) has seen a surge in popularity for Ethereum as more new use cases for the blockchain network arise. The impending technological upgrades on their way to the Ethereum infrastructure are slated to make the programmable blockchain network more popular.
