What is Ethereum?
Ethereum is a decentralized permissionless blockchain platform with smart contract and dApp capabilities. It is the second largest cryptocurrency by market capitalization. Ethereum is fueled by its native crypto token, ETH.
Ethereum was first conceived of by programmer Vitalik Buterin in 2013. He envisioned blockchain technology as a way to create a virtual decentralized computer with more functions than transferring value. Cryptocurrency could be used to create a decentralized and borderless financial system without the influence of governments and banks.
In 2014, Buterin met up with a group of developers at a Bitcoin conference and together they founded the Ethereum network. The Ethereum Virtual Machine was launched on 30 July 2015 and Ethereum held an Initial Coin Offering that raised $17.3 million.
Ethereum was the first blockchain to successfully deploy smart contracts. Smart contracts are self-executing codes that are automatically carried out once certain conditions are met. They allow permissionless transactions and remove the need for an intermediary like a bank or broker.
Smart Contracts can be used for trading cryptocurrencies without a centralized exchange, creating dApps (Decentralized Applications) and much more. They are a vital part of Decentralized Finance (DeFi).
DeFi has come to mean the ecosystem of trustless and decentralized financial services available through blockchain technology that can be accessed without banks or government interference.
The native coin, ETH, is used to pay for the deployment of smart contracts and dApps. Ethereum users pay a “gas” fee based on the resources needed and the level of congestion in the network at the time. Users can pay a higher gas fee to have their transactions processed quickly in times of heavy congestion..
Ethereum allows the creation of ERC-20 tokens, tokens built to the Ethereum standard with smart contract capability. Many new cryptocurrencies have built their tokens to this standard. Ethereum also supports non-fungible tokens (NFTs) which have seen a recent explosion in popularity.
Although Ethereum has become one of the most successful cryptocurrencies, it is facing issues with scaling and network congestion. Due to the Proof-of-Work consensus mechanism used and high network use, transactions can take days and incur high gas fees.
To combat this, Ethereum will be launching Ethereum 2.0 and moving to a Proof-of-Stake consensus mechanism. They will also use sharding, where different nodes process transactions alongside each other. This will vastly lower the environmental impact of Ethereum.