In this article, we aim to answer a few fundamental questions about Ethereum, its historical background, its use cases, and its relevant terminology, including smart contracts, gas fees, and DeFi.
Definition of Ethereum
According to the Ethereum community, “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.”
Anyone can use Ethereum to create secure digital technology. While coinss are intended to be used to pay for work done to support the blockchain, participants can also use them to pay for tangible goods and services if accepted. Ethereum is programmable, scalable, decentralized, and secure. It is developers’ favorite blockchain of choice, and the companies’ building technology on it, transforming how many industries work and how we conduct our daily lives.
It natively supports smart contracts, the essential tool behind decentralized applications. Decentralized finance (DeFi) and other applications use smart contracts in combination with blockchain technology.
The difference between Ethereum and Bitcoin
Ethereum, launched in 2015, builds on Bitcoin’s innovation, with some vast differences. Both cryptocurrencies let you utilize digital money without any banks or payment providers. But in contrast, Ethereum is programmable, so you can also deploy and build decentralized applications on the Ethereum network. The result will be a programmable general-purpose blockchain that can do anything. Ethereum can do many things, as it is open to outstanding innovation on the Ethereum network. On the other hand, Bitcoin is only a payment network. Still, Ethereum is similar to a marketplace of financial services, social networks, games, and other apps that protect your privacy and will not censor you.
Who runs Ethereum?
Ethereum is not controlled by any entity. It exists only through decentralized participation and cooperation of the community. Ethereum uses volunteer-run nodes (computers containing copies of the Ethereum blockchain data) to replace individual servers and cloud systems owned by the major internet providers. Operated by individuals and businesses worldwide, these distributed nodes provide resilience to the Ethereum network infrastructure. Therefore, it is far less likely to be hacked or taken down. According to Ethereum.org, “Since its launch in 2015, Ethereum has never experienced any downtime. There are thousands of individual nodes running the Ethereum network. This makes Ethereum one of the most decentralized cryptocurrencies, surpassed only by Bitcoin.”
What can Ethereum do?
Banking for all people
Not everyone has access to financial services. However, all you need is just an internet connection to be able to access Ethereum and its loans, and savings products.
A More private internet
You don’t have to provide all your personal information to use the Ethereum app. Ethereum builds an economy based on value, not surveillance.
A peer-to-peer network
Ethereum allows you to move money or make contracts directly with someone else. No need to go through an intermediary company.
No government or corporation controls Ethereum. This decentralization makes it nearly impossible to stop receiving payments or using services on Ethereum.
Customers have a secure built-in guarantee that their funds will only change if they provide what was agreed on. Similarly, developers can rest assured that the rules will not vary.
All products can be assembled
All apps are built on the identical blockchain with a common global state so that they can build on each other (like Lego); this allows us to develop better products and experiences.
What can I do with ETH coins (Ether)?
One of the most popular uses of Ethereum technology is decentralized finance (DeFi). It opens up the whole area of banking services to anyone with an internet connection. You can borrow Ether as collateral or provide liquidity to earn interest on your funds.
What is DeFi?
DeFi points to financial products and services accessible to anyone who can use Ethereum or another decentralized platform. In the DeFi world, the market is always open, and there is no central authority that can block payments or deny access to anything. Previously slow and risky services for human error now run automatically and more securely as they are handled by code that can be inspected and audited by anyone.
There is a burgeoning crypto economy where you can lend, borrow, go long/short and earn interest. Crypto-savvy Argentines turned to DeFi to escape catastrophic inflation. Companies have started streaming their employees’ wages in real-time. Some have even taken out and paid off loans worth millions of dollars without needing a personal ID.
A self-executing computer protocol that for instance exists on the Ethereum blockchain is called a smart contract. They only run when triggered by a user’s transaction (or other contracts). They make Ethereum very flexible in its capabilities and differentiate it from other cryptocurrencies. Today we call these programs Decentralized Apps or Dapps.
Common examples of smart contracts include lending apps, decentralized exchanges, insurance, crowdfunding apps, and anything you can think of.
What is Gas?
A unit that measures the quantity of computation required to perform certain operations on the Ethereum network is called “gas”. Every Ethereum transaction requires computing resources to execute, so there is a charge for each transaction. Gas refers to the fee required to complete a transaction on Ethereum successfully.
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