In the face of Bitcoin market dominance, Ethereum is often overlooked. As the largest of the “altcoins,” it is discussed far less in the mainstream news, leaving some to speculate that it is undervalued. But Ethereum is arguably just as revolutionary as Bitcoin, and potentially more so. It just wasn’t the first blockchain and cryptocurrency out of the gate.
After understanding Ethereum’s purpose and impact, it is hard not to get excited about it. Continue reading to learn everything you need to know about the Ethereum blockchain.
What is Ethereum?
Founded in 2013 by Vitalik Buterin, Ethereum is one of the most important blockchain projects out there. Vitalik Buterin is a Russian-Canadian developer who used to work for Bitcoin Magazine. He founded Ethereum as a way for blockchain developers to create their projects on an established platform.
Essentially, Buterin’s vision has been to create a “world computer,” where developers use Ethereum’s decentralized platform to build applications that would power a new type of internet.
Ether is the name of the cryptocurrency that drives the Ethereum blockchain. Developers use ether to facilitate operations on their various applications. Additionally, ether holders must pay “gas fees” to conduct transactions across the network.
Ethereum allows for the creation of several types of tokens. Different types of ether tokens fall under the ERC Token Standard. ERC stands for “Ethereum Request for Comments.”
Below is a list of the current ERC tokens operating on the Ethereum blockchain:
ERC-20 tokens are the most popular in use on the Ethereum blockchain and are considered the standard coins that are traded. When someone says that they have “purchased Ethereum,” they have more than likely purchased an ERC-20 token.
Likewise, many of the popular tokens on the market today are actually constituents of the Ethereum blockchain and considered ERC-20 tokens too. There are tens of thousands, but a few notable examples include:
- Wrapped Bitcoin
The next most popular type of Ethereum token is the ERC-721 token. Unlike the ERC-20 token, ERC-721 tokens are non-fungible, meaning they are not interchangeable. ERC-721 tokens have helped define the NFT (non-fungible token) space by adding a dimension of authenticity to digital collectibles.
Other types of ERC tokens (223, 777, 1155, and 1337) are either experimental upgrades to the ERC-20 token standard or are more involved in the blockchain’s low-level functionality, such as with smart contracts.
What has Ethereum accomplished?
Since its inception, the Ethereum blockchain has revolutionized the world of cryptocurrencies. Entire ecosystems have been built on top of it. And future upgrades may see Ethereum break even more ground in the world of finance. So what exactly has Ethereum accomplished so far?
One of the most significant innovations that Ethereum has introduced to the world is smart contracts—primarily built using the Solidity programming language. These are essentially self-executing software agreements that add autonomy to blockchain networks. Instead of requiring intermediaries to facilitate different steps in a transaction as conditions are met, smart contracts can handle things every step of the way.
Decentralized applications (dapp) are a higher-level innovation enabled by the use of smart contracts. A dapp is any program or product utilizing a blockchain and smart contracts as its operational foundation, be it a video game, a token exchange, or a social media network. Building applications using blockchain technology grants them characteristics such as immutability, transparency, trustlessness, and cryptography.
In particular, decentralized exchanges (DEX) are a type of dapp enabled by smart contacts. DEXs are different from a traditional, centralized exchange. They are permission-less and don’t require an intermediary company to keep track of the trades and hold tokens in custody. Instead, smart contracts are used to facilitate trades. And users can add to liquidity pools to help ensure funds are locked in trading pairs, as opposed to centralized exchanges that hold cryptocurrencies in their reserves. Anyone with a cryptocurrency wallet can access a DEX.
With all of the above-mentioned features of Ethereum combined, an entirely new digital financial system has formed and is referred to as decentralized finance (DeFi). The DeFi space has grown exponentially since some of the first DEXs came online. Users now have access to various financial tools, such as lending, borrowing, trading, and earning high interest rates.
The future of Ethereum
While Ethereum has served the blockchain and crypto spaces well, it has run into issues with scaling. Similar to Bitcoin, it was built on a Proof-of-Work consensus model, which involves “mining” for new coins. Unfortunately, as an operating system that hundreds of dapps rely on, Ethereum runs into congestion issues. This network congestion results in unsustainably high gas fees that block average users from accessing the broader market.
Vitalik Buterin and many other Ethereum developers have begun work on Ethereum 2.0, which will see the network transfer to a Proof-of-Stake consensus model. PoS blockchains utilize token holders to validate blocks instead of mining. Token holders are incentivized by earning a percentage of transaction fees. Developers hope that this consensus model will allow the network to scale.
ETH 2.0 is being released in phases, with the first being the introduction of the Beacon Chain in December. Next, the Ethereum blockchain will enter a sharding phase, which introduces the parallel chains that will increase Ethereum’s throughput. Finally, in the final phase, Ethereum’s main net will be absorbed into the Beacon Chain.
ETH 2.0 will vastly upgrade Ethereum’s scalability, security, and energy efficiency if all goes well.
The bottom line
Regardless of what the future holds for Ethereum, there is no doubt that it will go down in history as a critical technology for finance and the internet. Despite the rising competition between other blockchains seeking to build on Ethereum’s successes, many expect that ETH 2.0 will solidify its dominance.
At this time, anybody can take part in the vast ecosystem that Ethereum has created. If you’re interested in exploring Ethereum’s potential, start interacting with all of the apps available on the web now.
Great article Jovaughn. But, alt coins and block chain are still as hard for me to understand as space and time. Maybe I am too old. I will keep reading if you keep writing though! Maybe I will have my ah ha moment yet.
You’ll start to understand eventually! Just keep reading 🙂
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