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What is Ethereum?
Ethereum in simple terms is an open-source public blockchain that is decentralized and enables the building of ‘smart contracts’ and Distributed Applications (Dapps).
These smart contracts are developed on the Ethereum Virtual Machine (EVM) and executed on a network of computers referred to as nodes.
Ethereum was created by Vitalik Buterin who proposed the idea in 2013 and went ahead to write the ethereum whitepaper and presented at a Bitcoin Conference in 2014. By then Vitalik, a Bitcoin enthusiast, and cryptocurrency programmer were just 19 years old.
The Ethereum idea came about as a result of the desire to put to use the blockchain concepts developed by bitcoin for use cases other than just currency transactions.
The ethereum ICO was carried out between July and August 2014. Thereafter, the network launched on July 30, 2015, with Ether as the cryptocurrency’s token coin.
Ethereum, unlike other blockchain platforms and currencies, is Turing- complete, a programming language that can be coded by anyone to develop decentralized applications.
How is Ethereum different from normal currencies?
- Unlike normal currencies, Ethereum is fully decentralized and cannot be controlled by any central body like a government or financial institution.
- It is not printed and released for use like fiat currencies. No one prints ether, Ethereum’s token coin.
- Rather, it is added to the network through a process that involves securing and completing transactions on the network.
So, what is this blockchain thing?
A blockchain is basically a database or public ledger that consists of all the secured and verified transactions ever recorded on the network, in this case, the EVM.
- Every completed transaction is called a block and after all nodes in the network verify it, it’s added to the chain to form the blockchain.
- This process of adding transaction blocks to the blockchain is what makes blockchain technology attractive.
- The use of cryptography to secure the blocks means that once a transaction is completed and verified by the nodes, it is encrypted and cannot be manipulated by anyone.
Of what help then is that blockchain thing to ordinary users?
Well, until you fully understand it, it may seem obscure. Yet in basic terms, the blockchain provides users with the opportunity to carry out transactions efficiently, reduced risks and more importantly at largely lower costs.
The other advantage blockchain technology brings is the fact that all transactions must be verified by all nodes on the network. By virtue of this then, the blockchain through its cryptographic mechanism is an immutable, tamper-proof record of whatever transaction takes place on the network, forever secured and accessible to all the users on the network.
How does Ethereum Work?
First, the difference between ethereum and other currencies, especially Bitcoin is the fact that ethereum works by tracking the state of each and every account whereas Bitcoin only records the transactions in a kind of list. On the other hand, ethereum has value transfer and contact information between two accounts on the blockchain.
So how does etherium work? Well, Ethereum is the blockchain and to ‘fuel’ its vitality, Ether is needed. Before we look at how to buy Ether, let’s examine how Ethereum works.
The basic Ethereum transaction unit is an account on the blockchain. In simple terms, there are two main types of accounts:
- Externally Owned Accounts that are safeguarded by the use of private keys
- Contract Account – which is controlled by the specific contract code that can only be executed by an EOA
A user on the Ethereum network will control the EOA with the private key they have.
Contract accounts are controlled by the programmed code imputed to them and can only be “controlled” by an EOA user who has the programmed private key.
The users on the network have the freedom to create new contracts by imputing a specific code to the Ethereum blockchain.
This is how it works:
- A transaction is created by an EOA and sent to the ethereum network.
- The sender of the transaction pays a fee using ether for computation and storage
- Nodes on the Ethereum blockchain secure and verify/complete the transaction
- Nodes collect the transaction fees after verifying and executing the transactions.
- The miners / stakers then group the completed transactions into blocks that are then added to the blockchain.
- Nodes get ether as reward or incentive for securing the network.
Note that this system applied in the proof-of-work consensus method that is being replaced by the Proof-of-Stake method after the implementation of the Casper Protocol.
How is Ethereum Different From Bitcoin?
Although both Ethereum and Bitcoin are open-sourced public blockchains, there are a number of things that sets Ethereum apart. Let’s look at some of the ways in which Ethereum differs from the bitcoin blockchain.
- Supply: the Bitcoin supply has a maximum universal cap of 21million BTC but Ethereum’s supply of ETH is capped at 18 million every year and will continue unbound.
- Bitcoin is simply anonymous; Ethereum’s smart contracts mean that there is a traceable kind of document that is transmitted between the codes in the agreement. What this means is that ethereum can be used to fight criminal activities since all transactional records can be tracked.
- Bitcoin has established itself as a digital payment currency. Ethereum, on the other hand, is much more than a currency. It is a token by which the EVM can be used to build decentralized applications for virtually any conceivable idea.
- Whereas Bitcoin has successfully implemented blockchain technology and the proof-of-work consensus to create a valuable currency, we see how Ethereum has leveraged the same concept and now proof-of-stake consensus to allow the creation of decentralized autonomous organizations.
- Transaction time: While Bitcoin has its block time set at 10 minutes per block, Ethereum uses its Ghost protocol to achieve a verification time of between 14 to 15 seconds. Thus ethereum is faster than Bitcoin in terms of transaction time.
- Adaptability and flexibility: Ethereum operates as a programmable blockchain, unlike Bitcoin. Therefore, rather than just transactions, ethereum allows developers to their own applications as they wish.
Ethereum Growth and Gains
Ethereum, as an instrument of value exchange, is the biggest altcoin that is showing market potential.
Ethereum has grown to have a market cap of $130 billion by January 2018
Ethereum’s price has grown tremendously over the years. For instance, in January 2017, ether sold at around $1, by the end of the year, prices had soared by a remarkable 5800%. Here is a brief timeline of what Ethereum is in terms of growth.
- In January 2016, ether was valued at just $0.95, a long distance from then bitcoin prices of over $1200.
- By July 2016, ETH had gained in value to trade at an encouraging $12.04.
- However, prices fell to $8.24 in January 2017.
- But by July 2017, ETH had recovered to trade at a high of $269.76
- Prices fell sharply in 2017 after the DAO event but recovered well enough to close the year trading at over $860.
- In January 2018, the value of ethereum gained massively as that of bitcoin went sideways.
Ethereum prices got spiked due to the news that it was possible for the cryptocurrency to have a derivatives market. Added to that was the large number of ICOs that lined up to launch on the ethereum platform.
What are the predictions of ethereum price for 2018?
It is good to remember that making predictions for cryptocurrency prices is a pretty challenging task. For ether, it is difficult to call the price of a single unit due to its volatility. Volatility makes short-term predictions a bit tricky.
Therefore, it is wise to go long on ether.
- The Ether coin may hit the $4000 mark before the end of 2018- by 2017 growth calculations
- Ethereum and ether will perform better than bitcoin in 2018- it possible ethereum market cap will overtake bitcoin in 2018- the interest in ethereum has quadrupled with major firms lining up partnerships.
There are some bold price predictions out there for Ethereum in 2018 and going into the future. Some investors are choosing to go neutral while some are giving bullish predictions. As an investor, it is advisable you analyze the market first before making an investment.
What is the Ethereum Virtual Machine?
The ethereum virtual machine is the network that allows the implementation of smart contracts using ethereum .every connected node on the network runs the EVM protocol and therefore executes the same coded instructions as the other nodes.
How has the EVM changed blockchain technology application and development? In many ways, but the most fundamental is how it has allowed developers to build decentralized applications for various transactions.
Just like what other programming languages do, the EVM allows the entrepreneurs and app developers to actually decide what type of application they wish to build on the blockchain.
However, it is clear that certain applications that involve automated, peer-to-peer transactions and contracts benefit more from the Ethereum Virtual Machine.
The big question is how is the EVM going to impact on the world in the future? In truth, Ethereum may have an even greater impact than its leading sibling Bitcoin. One plausible area that the EVM could help transform is the financial sector.
- The fintech sector could see dapps that make all kinds of complex transactions coded to execute automatic and reliable ‘contracts’ without intermediary manipulation.
- More broadly, the EVM could change the world by enabling the development of important applications that could transform the world’s systems like in voting, governance and all Internet of Things.
What is Ethereum Based On?
Ethereum is more than an open source blockchain. It has ether, which gives the network value.
Ethereum is unlike other cryptocurrencies in the sense that its coin ether is more than just a currency. It is also a token that has value for its users. It can be used to store and transfer value as well as to secure ‘smart contracts’ for decentralized applications.
Ethereum’s ETH is traded for BTC and fiat currencies on several exchanges around the world. The price of ether varies depending on demand and supply in the market. Therefore, prices do fluctuate from one day to the next, sometimes many times in a day.
This scenario can be likened to the stock market where the values of stocks depend on the demand/supply concept.
For instance, stocks that are driven by oil and gold deposits will gain or lose value depending on the amount of oil/gold in the market. Gold deposits are shrinking, but gold prices and value are gaining. If the supply is more than the demand, prices go down and vice versa.
Another example is when a stock is based on a currency like the US dollar. If the value of the dollar fluctuates, the value of that stock plummets or gains accordingly.
Similarly, Ethereum’s price is volatile due to the effect of its liquidity and emerging technology.
What are Some of the Ethereum Features?
Ethereum’s decentralized nature and consensus mechanism give it great characteristics that make the blockchain technology attractive.
Ethereum sought to have features that would make it not just decentralized but also flexible and adaptable for future use cases.
These special features make ethereum popular with developers and as a result, the ethereum network has become an outstanding blockchain platform.
Here are some of these features:
- Immutable and censorship-resistant.
- Easy to set up.
- Small fees.
Is Ethereum Safe?
Ethereum technology and encryption makes it safe to use for all those who run its blockchain transactions.
Transactions on the ethereum platform are not entirely anonymous. The use of the Smart contracts makes it possible to trace transactions because updates and all value points are recorded on the blockchain ledger.
Transactions are also encrypted using the solidity 0.4.3 keccak256 encryption that ensures all transactions are secured.
It is, therefore, safe to use and one you can trust for all the sensitive transactions.
Is Ethereum Here to Stay?
To simplify this, my conviction is that Ethereum is here to stay and the current trend is anything but a clear indicator that ethereum is going to be big. It has the potential to emerge from the cryptocurrency era as the Google or Microsoft of the dotcom fame.
Ethereum actually, is just one of the very few cryptocurrencies out there that have something to offer. The EVM and ether give developers a lot in terms of the environment to explore and build for the future.
My reason for this assertion is the growth in price value of ethereum in the two or three short years it has been around.
- Today, ethereum is the biggest cryptocurrency by 24hour trading volumes and the price of ether is showing no signs of slowing down.
- Look at the number of decentralized applications that are being built on the ethereum platform. If they go on to succeed, then ethereum will continue to be instrumental in changing and shaping world technological advancements in cryptocurrency.
- Partnerships with major corporations like Microsoft on the BaaS technology – the value of ethereum will gain even further.
Why Should I Use Ethereum?
Ethereum is both a cryptocurrency and a platform on which other cryptocurrencies can be built. This is very attractive, and the decentralization will ensure no interference whatsoever from third party forces. Therefore you can use the platform safely.
The reason ethereum is amazing is the fast transactions and cheaper fees compared to banks. Banks, for instance, can charge you up to 10% fee for transfers while Ethereum fees can be as low as 0.1% of the total transactions.
Here are more reasons to use ethereum:
- Global and widespread use
- Security of transactions embedded in smart contracts
- Ethereum is a platform for other crypto coins
What is Casper and What Effect Will it Have on ETH?
Ethereum, to be specific Ether, has seen a major gain in price since the rolling of the first testnet of the blockchain’s Casper implementation.
Before early 2018, Ethereum had been relying on the slower and more expensive proof-of-work consensus method to secure and verify transactions on its network.
However, that has changed with the introduction of the Casper protocol that shifts the consensus mechanism from Proof-of-work to proof-of-stake. This shift is aimed at making Ethereum faster and cheaper.
The release of the testnet has already had an effect on Ethereum as prices have skyrocketed leading to a belief that it’s just a matter of time before Ethereum overtakes Bitcoin as the top cryptocurrency.
Casper protocol will be released and implemented in two parts:
- The Casper FFG (Friendly Finality Gadget) that will be responsible for the intended transition from PoW to PoS.
- The Casper CbC (Correct by Construction) whose responsibility will be to manage Ethereum’s consensus mechanism once Casper FFG is fully implemented.
In short, the Casper protocol will change the Ethereum network to a better, much faster and cheap blockchain. This, in turn, will make ether attractive and price value will increase manifold.
Who is the Real Ethereum?
In basic terms, a fork is an occurrence when a blockchain splits or splinters into two as a result of either a network’s transaction database or a new protocol that makes part of the blockchain community (nodes) decide to follow new rules.
Forking happens in cryptocurrency networks many times. Soft forks usually don’t cause a split. However, sometimes it’s necessary to introduce a hard fork that resolves outstanding disagreements in the blockchain thus allowing the network to continue.
In the case of ethereum, the contentious hard fork that followed the DAO event led to the creation of two sides of the ethereum network. Ethereum started on the forked chain while the other became ethereum classic (ETC), keeping the original blockchain.
Therefore, there’s no such thing as the real ethereum.
What can Ethereum be Useful For?
There are several uses that ethereum could have. Such use cases are in the financial sector, the Internet of Things, in the energy sector where electricity can be sourced and priced using the EVM and casinos/sports betting companies.
Furthermore, Ethereum is useful in the creation of Decentralized Autonomous Organizations (DAO).Ethereum’s blockchain technology allows the creation of smart contracts that are coded to self-execute thereby allowing parties that are disparate and unknown to one another transact without the need for leaders, legal framework or outside influence.
The benefits of DAO include democratization of equity ownership and remove the need for corporate bureaucracy.
To Sum Up…
Ethereum, as a blockchain technology and cryptocurrency, has a lot of prospects for the future. Although still in the early stages, the use of ethereum to built decentralized applications is an attractive proposition for developers. What’s more, the smart contracts idea is one that is innovative and capable of making ethereum become even more valuable in the future. If you are looking to invest in ethereum, you are not too late.
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