What is Ethereum and what impact does it have on the market?


Do you know Ethereum, the cryptocurrency platform of 2021? It was created in 2015 by Vitalik Buterin, Russian writer and programmer, with the idea of ​​establishing a vehicle for decentralized collaborative applications. The Ethereum platform allows you to easily use blockchain technology to develop applications without central control and ensure the integrity and processing of secure payments with your smart contracts. Basically, the Ethereum blockchain can bring its basic principles of trust, transparency, security and efficiency to any service, company, or industry.

What is Ethereum?

Ethereum is a public open-source blockchain platform with smart contract features. Unlike other blockchain platforms, this one is decentralized. Through its cryptocurrency Ether, peer-to-peer contracts can be processed and, in turn, allows developers to create and run distributed applications in public nodes, instead of using the traditional client-server model. These so-called  “dapps” applications get the benefits of cryptocurrency and blockchain technology.

We can say that the applications on this platform are actually contracts, that is, they are its core. The contract is an automatic agent that lives on the system and has its own Ethereum address. When the user sends a transaction to the address of the contract, it is activated and, after agreeing with the additional information in the transaction, it will execute its own code and finally return a result, which can be another transaction sent from the address of the contract.

Ethereum is a user-created and managed system that relies on thousands of independent computers around the world to monitor and verify transactions. It works as a distributed network that uses “volunteer” operating nodes, rather than traditional servers or cloud platforms, to provide computing services. Each computer maintains its own ledger and relies only on its historical records to ensure the legality of transactions, without relying on any central agency to coordinate them.

What is its operation?

Ethereum is based on the Bitcoin protocol and its blockchain. However, the only similarity between the two blockchains is that they store the complete transaction logs of their respective networks. In addition to the transaction history, each node on the Ethereum network also needs to download the latest status or current information for each smart contract on the network, each user’s balance, the complete smart contract code, and the storage location.

Each Ethereum state contains millions of transactions. These transactions are grouped together and form “blocks”, each one connecting with the previous one. However, before the transaction is added to the ledger, it needs to be verified and then the process is known as “mining” begins. Mining refers to the process of challenging a group of nodes using their computing power to complete the “proof of work,” which is essentially a mathematical problem.

The greater the computing power of the computer, the faster it can solve these math problems. The answer to these puzzles is itself a proof of work and guarantees the effectiveness of block building. Many miners around the world compete with each other to try to build and verify a new block, because every time a miner tries to build a block, a new Ethereum (ETH) token will be generated and delivered to the miner.

What are its differences with Bitcoin?

Despite the fact that Ethereum and Bitcoin retain a great similarity in nature coming from blockchain technology, there are marked differences between them. The most important difference lies in the technology behind each of them and what this means for other cryptocurrencies. In principle, Ethereum is not technically a cryptocurrency, but a unique blockchain technology. This technology not only allows people to transfer Ether, it can also be used to create other cryptocurrencies.

Ethereum has an important feature that improves on Bitcoin: its smart contracts are more efficient. Bitcoin uses a simpler script, while the smart contract used by Ethereum can handle more complex problems. The system is capable of formulating ground rules and enforcing the contract, which is impossible in the actual contract and without an intermediary. Many cryptocurrencies are based on the underlying technology of Ethereum and, in some cases, it can be said that they are completely dependent on this technology.

It is also worth noting that, compared to Bitcointhe block confirmation time for Ethereum transactions is shorter. And in terms of transaction fees, they are lower. Furthermore, they operate according to different protocols and the operation process is not related to each other. This means that certain transactions that are allowed on one platform may not be allowed on another platform.

How to invest with Ethereum?

The most common and recommended way to invest in Ethereum is to buy on an exchange. All you have to do is find an exchange that sells Ethereum and operates in your jurisdiction, opens an account, and buys Ethereum tokens through bank accounts, wire transfers, or even credit cards. Ethereum must be stored in a wallet. The wallet will be provided by the exchange itself, by the native Mist of Ethereum browser, or by other professional service providers.

However, you have to know that some complicated situations can arise when buying cryptocurrencies on exchanges. Examples of this are the cumbersome account verification processes and commissions. Also, if you want to benefit from the price difference by buying and selling Ethereum, you must buy at real value, and if funds are limited, income will be too. On the other hand, being a decentralized system, there is a risk that the wallet can be hacked.

Advantages of using Ethereum

Ethereum is one of the most advantageous blockchain platforms that we can find thanks to:

  • The entire platform is decentralized, which means that the probability of failure is extremely low. And all applications will always stay online, they will never be closed.
  • It has been developed with open source, which gives it greater security, stability and transparency. It also allows you to make the necessary improvements at any given time as well as the correction of possible errors.
  • It does not admit interference from government entities, due to its totally decentralized nature. Which implies that no government will be able to influence its value.
  • Smart contracts guarantee the security of compliance, since their programming cannot be violated, that is, their guidelines are always followed.
  • Every blockchain network is formed based on a consensus. It means that all nodes in the system must agree with each change that occurs. This eliminates the possibility of fraud and corruption, making it inviolable.

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