What is Ethereum

 What Is Ethereum?

Ethereum may be a platform powered by blockchain technology that's best known for its native cryptocurrency, called Ether, or ETH, or just Ethereum. The distributed nature of blockchain technology is what makes the Ethereum platform secure, which security enables ETH to accrue value.

The Ethereum platform supports Ether additionally to a network of decentralized apps, otherwise referred to as dApps. Smart contracts, which originated on the Ethereum platform, are a central component of how the platform operates. Many decentralized finance (DeFi) and other applications use smart contracts in conjunction with blockchain technology.

As a cryptocurrency, Ethereum is second in market price only to Bitcoin as of December 2021. 1

KEY TAKEAWAYS

Ethereum may be a blockchain-based platform that's best known for its cryptocurrency, ETH.

The blockchain technology that powers Ethereum enables secure digital ledgers to be publicly created and maintained.

Bitcoin and Ethereum have many similarities but different long-term visions and limitations.

Ethereum is transitioning to an operational protocol that gives incentives to process transactions to those that own the most important amounts of ETH.

How Does Ethereum Work?

Ethereum, like other cryptocurrencies, uses blockchain technology. Imagine a really long chain of blocks linked together, with all of the knowledge about each block known to each member of the blockchain network. With every member of the network having an equivalent knowledge of the blockchain, which functions like an electronic ledger, distributed consensus are often created and maintained about the status of the blockchain.

Blockchain technology creates distributed consensus about the state of the Ethereum network. New blocks are added to the very long Ethereum blockchain to process Ethereum transactions and mint new Ether coins, or to execute smart contracts for Ethereum dApps.

The Ethereum network derives its security from the decentralized nature of blockchain technology. a huge network of computers worldwide maintains the Ethereum blockchain network, and therefore the network requires distributed consensus—majority agreement—for any changes to be made to the blockchain. a private or group of network participants would wish to realize majority control of the Ethereum platform’s computing power—a task that might be gargantuan, if not impossible—to successfully manipulate the Ethereum blockchain.

The Ethereum platform can support more applications than ETH and other cryptocurrencies. The network’s users can create, publish, monetize, and use a various range of applications on the Ethereum platform, and may use ETH or another cryptocurrency as payment.

A Brief History of Ethereum

Vitalik Buterin, who is credited with conceiving the first Ethereum concept, published a white book to introduce Ethereum in 2013.2 The Ethereum platform was launched in 2015 by Buterin and Joe Lubin, founding father of the blockchain software company ConsenSys.3 The founders of Ethereum were among the primary to think about the complete potential of blockchain technology, beyond just enabling the secure trading of virtual currency.

One notable event in Ethereum’s history is that the hard fork, or split, of Ethereum and Ethereum Classic. In 2016, a gaggle of network participants gained majority control of the Ethereum blockchain to steal quite $50 million worth of Ether, which had been raised for a project called The DAO. The success of the raid was attributed to involvement by a third-party developer for the new project. While the bulk of the Ethereum community opted to reverse the theft by invalidating the prevailing Ethereum blockchain and approving a blockchain with a revised history, a fraction of the community chose to take care of the first version of the Ethereum blockchain. That unaltered version of Ethereum permanently split to become the cryptocurrency Ethereum Classic, or ETC.4

Since the launch of Ethereum, Ether as a cryptocurrency has risen to become the second-largest cryptocurrency by market price . it's outranked only by Bitcoin.5

Ethereum vs. Bitcoin

Ethereum is usually compared to Bitcoin. While the 2 cryptocurrencies have many similarities, potential investors should concentrate to some important distinctions.

Ethereum is described as “the world’s programmable blockchain,” positioning itself as an electronic, programmable network with many applications.6 The Bitcoin blockchain, against this , was created only to support the bitcoin cryptocurrency.

The Ethereum platform was founded with broad ambitions to leverage blockchain technology for several diverse applications. Bitcoin was designed strictly as a cryptocurrency.

The maximum number of bitcoins which will enter circulation is 21 million.7 the quantity of ETH which will be created is unlimited, although the time that it takes to process a block of ETH limits what proportion Ether are often minted annually .8 the amount of Ethereum coins in circulation is quite 118 million at the close of 2021.9

One major difference that affects investors is how the Ethereum and Bitcoin networks treat transaction processing fees. These fees, referred to as “gas” on the Ethereum network, are paid by the participants in Ethereum transactions. The fees related to Bitcoin transactions are absorbed by the broader Bitcoin network.

A significant way that Ethereum and Bitcoin are similar is that both of the blockchain networks consume vast amounts of energy. Each of those blockchains operates using the proof of labor protocol, which may be a methodology that needs extensive computing power to validate transactions and mint new currency. Ethereum is gradually transitioning to a special operating protocol referred to as proof of stake, which uses much less energy.

The Future of Ethereum

Ethereum’s transition to the proof of stake protocol, which enables users to validate transactions and mint new ETH supported their Ether holdings, is a component of a serious upgrade to the Ethereum platform referred to as Eth2. The upgrade also adds capacity to the Ethereum network to support its growth, which helps to deal with chronic network congestion problems that have driven up gas fees.10

Ethereum adoption is constant , including by high-profile enterprises. In 2020, chipmaker Advanced Micro Devices (AMD) announced a venture with ConsenSys to make a network of knowledge centers built on the Ethereum platform.11 Since 2015, Microsoft has had a partnership with ConsenSys to develop Ethereum Blockchain as a Service (EBaaS) technology on Microsoft’s Azure cloud platform.12

How am i able to Buy Ethereum?

Investors can use one among many cryptocurrency exchange platforms to shop for and sell Ether. Ethereum is supported by dedicated crypto exchanges, including Coinbase, Kraken, Gemini, and Binance, and by brokerages like Robinhood.13

How Does Ethereum Make Money?

Ethereum isn't a centralized organization that creates money. Miners and validators who participate in operating the Ethereum network, usually by mining, earn ETH rewards for his or her contributions.14

Is Ethereum a Cryptocurrency?

The Ethereum platform features a native cryptocurrency, referred to as Ether or ETH. Ethereum itself may be a blockchain technology platform that supports a good range of decentralized applications (dApps), including cryptocurrencies. The ETH coin is usually called Ethereum, although the excellence remains that Ethereum may be a blockchain-powered platform and Ether is its cryptocurrency.15

Investing in cryptocurrencies and initial coin offerings (ICOs) is very risky and speculative, and this text isn't a recommendation by Investopedia or the author to take a position in cryptocurrencies or ICOs. Since each individual’s situation is exclusive , a professional professional should be consulted before making any financial decisions. Investopedia makes no representations or warranties on the accuracy or timeliness of the knowledge contained herein. As of the date when this text was written, the author owns Bitcoin and Ripple.

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