Top Things You Should Know About Ethereum (ETH)

Top Things You Should Know About Ethereum (ETH)

By MuyAsk | Crypto Truth Lexicon | 7 Aug 2020


Hey guys :) I’m back with another comprehensive Q&A piece, this time for the leading open-source platform for decentralized applications – Ethereum (ETH).

Ethereum is a decentralized smart contract computing platform that enables developers to build decentralized applications (dapps) on top of its public Ethereum blockchain. It’s by far the leading blockchain platform and is the second-largest cryptocurrency by market cap, right next to Bitcoin. 

Now, before we dive in, the following piece is similar to my latest articles on Jarvis Network (JRT), Reserve Rights (RSR), and THORChain (RUNE), so if you haven’t already seen those, be sure to check them out as well. 

Hope you enjoy!

The list of Q&A is kind of long so first comes the list of questions that I have prepared the answers to:

  1. What is Ethereum?
  2. Who and When Created Ethereum?
  3. What is $ETH Token Used For?
  4. What is a Smart Contract?
  5. What is ETH 2.0?
  6. What's the main use case of Ethereum?
  7. Details on the ETH Token
  8. Where to Store $ETH?
  9. Where to Buy & Sell Ethereum?

1. What is Ethereum?

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Ethereum website homepage

Ethereum is a global, open-source platform and programmable blockchain that enables developers to write code that controls digital value, runs exactly as programmed, and is accessible anywhere in the world.

Ethereum is building the foundation of our digital future by enabling developers to create and develop unstoppable and censorship-resistant decentralized applications. It’s not owned or controlled by any single entity, it’s a community built technology that’s behind thousands of cryptocurrencies and applications you can use today. 

Ethereum is the base protocol layer of our decentralized digital future and it currently powers the most important cryptocurrencies and blockchain-based applications and technologies in the world. 

What’s more?

Ethereum builds on Bitcoin’s innovation of a sound digital money without payment providers or banks with its own native cryptocurrency, Ether (ETH). 

But unlike Bitcoin, Ethereum is programmable and its digital currency Ether can be used for more than payments. It can be used in decentralized financial services, games, and apps that can't steal your data or censor you. 

Also, since Ethereum is programmable, lots of different digital assets (including Bitcoin) can be used in Ethereum-powered applications and technologies as well.

Important Ethereum Features: 

Open-Source & Decentralized
Ethereum operates in a decentralized manner across thousands of computers distributed around the world. No one owns or controls Ethereum and it’s code and technology is freely available and open-source. 

Censorship-Resistant
No government or company has control over Ethereum because it’s decentralized. This decentralization makes it nearly impossible for anyone to stop you from receiving payments or using services on Ethereum.

Peer-to-Peer
Ethereum operates on a peer-to-peer (P2P) network meaning you can move money, or make agreements, directly with someone else without the use of a third party or middleman. 

Programmable with Smart Contract Functionality
The Ethereum blockchain has programmable code with smart contract functionality, meaning the code will execute when specific conditions are met. This enables developers to build and deploy novel decentralized applications. 

Compatible by Default
Ethereum-based products and applications are compatible by default so that companies and developers can build on each other’s success. 

2. Who and When Created Ethereum?

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Ethereum founder, Vitalik Buterin

Ethereum was first conceptualized in late 2013 by Vitalik Buterin who proposed a whitepaper titled, “Ethereum: A Next-Generation Smart Contract & Decentralized Application Platform”.

In this whitepaper, Buterin introduced an entirely new concept for blockchain technology, describing Ethereum as a distributed world computer for executing and storing computing programs.

Following the release of the Ethereum whitepaper, other developers and blockchain enthusiasts including Anthony Di Iorio, Charles Hoskinson, Mihai Alisie, & Amir Chetrit joined Buterin in bringing Ethereum to reality. 

Then in early 2014, Dr. Gavin Wood, Joseph Lubin, and Jeffrey Wilke began working on Ethereum and became recognized as founders as well.

To this day, Vitalik Buterin remains incredibly active working on Ethereum and its expansive ecosystem and is largely known as Ethereum’s figurehead. 

As for Ethereum’s other core founders: 

Gavin Wood became Ethereum’s chief technological officer (CTO) and wrote the Ethereum yellow paper, but later left the project in early 2016 to start working on another blockchain project called Polkadot. 

Joseph Lubin remains active in the Ethereum ecosystem and went on to form Consensys, which is now a global blockchain technology company that solves real-world problems with Ethereum blockchain solutions.

As for the others, Jeffrey Wilke and Amir Chetrit worked as Ethereum developers for quite some time but now focus on other endeavors; Anthony Di Iorio moved onto other crypto/blockchain ventures; Charles Hoskinson had a falling out with the team and left Ethereum to create Cardano, and Mihai Alisie remains as an active core Ethereum developer.

Now, going back to the launch of Ethereum, the team held a public token sale of the project’s native cryptocurrency, “Ether” (ETH) in 2014 where they raised more than $18 million, making it the largest token sale ever commenced at the time.

Following the token sale nearly 1 year later, the Ethereum mainnet finally went live on July 30, 2015, and to this day (August 2020) Ethereum is still under heavy development.

3. What is $ETH Token Used For?

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Ether (ETH) token logo

Ether (ETH) is the native cryptocurrency of the public Ethereum blockchain and it’s used within the Ethereum network and ecosystem.

Ether (ETH) Use Cases:

  • ETH fuels and secures Ethereum
  • ETH underpins the Ethereum system
  • ETH is a digital store of value
  • ETH can be traded
  • ETH is for payments

ETH fuels and secures Ethereum
ETH is the cryptocurrency used within the Ethereum network, it’s the lifeblood of Ethereum. 

When you use an Ethereum application or send ETH, you’ll pay a small fee in ETH itself to use the network. Also, application developers building on top of Ethereum use ETH to pay for transaction fees and services on the network too.

These small fees are used as fuel to power and secure the Ethereum network because it is allocated to miners as an incentive to process and verify blocks (transactions) on Ethereum’s blockchain. 

Also, miners get rewarded with small amounts of newly-issued ETH for running, securing, and decentralizing Ethereum’s blockchain network. 

In other words, ETH powers Ethereum.

ETH underpins the Ethereum financial system
The global Ethereum community of developers and innovators are building a whole new financial system that's peer-to-peer and accessible to everyone. 

This new financial system is often referred to as Open Finance or Decentralized Finance (DeFi), and ETH is often used as collateral to generate entirely different cryptocurrency tokens on Ethereum.

You can borrow, lend, and even earn interest on ETH and other ETH-backed tokens in this new decentralized finance system powered by Ethereum. 

ETH is a digital store of value
Some people view ETH as a digital store of value because the mining of new ETH slows down over time and its value should theoretically increase as it’s utilized in more applications. 

For instance, ETH is increasingly being locked up as collateral in DeFi applications, and when Ethereum 2.0 launches large amounts of ETH will be staked (locked up) to secure the network.

ETH can be traded
ETH is a tradeable digital currency that can be traded on most centralized and decentralized cryptocurrency exchanges. It’s also the second biggest and third most liquid cryptocurrency on the market and has more trading pairs than any other digital currency. 

ETH is for payments
ETH can be used for peer-to-peer payments, meaning you can send ETH directly to someone else without any intermediary service like a bank. You can use ETH to pay an invoice or you can use ETH to pay for goods and services.

4. What is a Smart Contract?

“Smart contracts are applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.” – Ethereum Foundation

“Smart Contracts are a set of promises, specified in digital form, including protocols within which the parties perform on the other promises.” – Nick Szabo

Now, to Break down what’s said in the quotes above, in the simplest of terms:

A smart contract is an automatically executing programmable agreement that operates on basic if / then logic. 

A smart contract self-executes its programmable code when specific conditions are met and it handles the enforcement, the management, performance, and payment.

Ethereum Smart Contract Attributes:

Computer Programs
Smart contracts are simply computer programs and the word “contract” has no legal meaning in this context. 

Immutable
Once a smart contract is deployed, its code is immutable. It can never be changed, hacked, or manipulated. This also means smart contracts never shut down unexpectedly and can never be switched off.

Deterministic
A smart contract will execute exactly how it’s supposed to, there is no randomness involved. The outcome of a smart contract’s execution will be the same for everyone who runs it, given its starting condition or initial state that executed the contract is the same.

Self-Executing
A smart contract’s code self executes based on specific outcomes and therefore does not require a trusted third party or intermediary.

Ethereum Smart Contract Example:

Ethereum smart contracts can be applied in a number of specific scenarios involving things like insurance, supply chains and logistics, real estate, elections, and more. 

A simple real-world example of how smart contracts can be used is in the insurance sector. One example is to use smart contracts in the case of life insurance, where the policy terms would be encoded into the smart contract.

In the event of a passing, the notarized death certificate would be provided by a trusted oracle as the input trigger for the smart contract to release the payments to the named beneficiaries.

This type of smart contract can be extended to other forms of insurance such as travel insurance, car insurance, and so on. 

5. What is ETH 2.0?

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ETH 2.0, also called Ethereum 2.0 or ‘Serenity’, is a long-anticipated upgrade to the public Ethereum mainnet. 

The ETH 2.0 upgrade is major and will be released in multiple phases, with each phase improving the functionality and performance of Ethereum in different ways. Phase 0 is the first phase that’s rolling out in 2020 and the subsequent phases, Phase 1 and Phase 2, will be rolled out in the years to come.

Why is ETH 2.0 such a major upgrade?

Ethereum 2.0 will be the biggest upgrade Ethereum has ever seen because it’s introducing two primary improvements that do not exist in Ethereum 1.0: Proof-of-Stake (PoS) and Shard Chains. 

Proof-of-Stake (PoS)
Ethereum currently runs on a consensus mechanism known as Proof-of-Work (PoW), which relies on computer power (miners) and electricity (work) to verify transactions and add blocks to the blockchain. 

This is the same consensus mechanism employed by Bitcoin and it has proven to be very secure and reliable, but not as efficient or scalable as Proof-of-Stake. 

Ethereum’s upgrade to Proof-of-Stake will not rely on miners or work, but will instead rely on validators (virtual miners) and deposits of Ether (ETH) as the stake. Ethereum’s PoS system is poised to improve security, scalability, and energy efficiency.

Shard Chains
Shard Chains are Ethereum 2.0’s primary scalability solution which is poised to drastically improve the throughput of the Ethereum blockchain. 

In Ethereum 1.0, there is a single blockchain made up of consecutive blocks in which each full node must process and validate each block of transactions in consecutive order. This proves to be a problem because during times of high mainnet activity, the blockchain can get bloated and blocks are processed more slowly. 

With Shard Chains, the Ethereum blockchain will essentially be split into many separate chains that run parallel to one another and interoperate seamlessly – thus dividing the data processing responsibility among many nodes. This allows for transactions to be processed in parallel rather than consecutively, which increases the throughput quite significantly.

6. What's the main use case of Ethereum?

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(Source)

As Ethereum stands today, its main use case is powering decentralized finance (DeFi) applications. As of August 6, 2020, there is $4.48 billion locked USD value in Ethereum-based DeFi applications and this number continues to grow. 

So, what is Decentralized Finance (DeFi)?

Decentralized Finance, often called Open Finance or DeFi, generally refers to the financial software, protocols, digital assets, smart contracts, and decentralized applications (dapps) built on decentralized blockchain technology. 

DeFi is the movement that leverages decentralized networks to transform old financial products into trustless and transparent protocols that run without intermediaries, and the wide majority of DeFi dapps are powered by Ethereum. 

These Ethereum-powered DeFi dapps are ushering in an economic paradigm shift with novel financial dapps including peer-to-peer payments systems, blockchain-based borrowing and lending, automated token exchanges, decentralized prediction markets, synthetic assets, no-loss lottery’s, USD-pegged stablecoins, and more. 

By leveraging the decentralized Ethereum blockchain, DeFi dapps are unlocking newfound liquidity and growth opportunities, increasing financial security and transparency, and supporting an open, permissionless, and standardized economic system.

However, Ethereum use is not limited to DeFi. Ethereum is home to decentralized autonomous organizations (DAO) and also is being leveraged by many games studios to build their games economics atop if it. 

7. Details on the ETH Token

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(Source)

Ethereum’s native cryptocurrency Ether (ETH) is an inflationary currency with a total and circulating supply of 112,068,383 ETH. Unlike Bitcoin, which has a capped supply of 21 million BTC, the supply of ETH is not capped. 

As Ethereum stands today, newly minted ETH is rewarded to miners every time a block is processed, verified, and added to the Ethereum blockchain. It takes roughly 13 seconds for a block to be mined and block rewards are currently set at 2 ETH per block. 

Through time, ETH’s rate of inflation is supposed to slow down, and when Ethereum 2.0 launches along with Proof-of-Stake (PoS), ETH will no longer be mined with computing power.

Instead, validators will deposit (stake) their ETH tokens and Ethereum’s PoS protocol will determine which participants get selected to validate blocks and earn the staking rewards. 

Ethereum 2.0 will require validators to run a validator node and stake a minimum of 32 ETH to participate in the network. While it’s not yet set in stone, the rate of return for staking ETH is expected to be around 4%–10%.

Now, getting back to the ETH token itself, 1 ETH can be broken down into smaller units called Gwei. For instance, 0.000000001 ETH = 1 Gwei or 1 ETH = 1,000,000,000 Gwei (10^9). 

The unit Gwei is most commonly used in terms of Ethereum’s gas costs. Instead of saying that your gas costs 0.000000001 Ether, you can say your gas costs 1 Gwei.

8. Where to Store $ETH?

Ethereum (ETH) is a very well established cryptocurrency residing on top of the public Ethereum blockchain and you can store ETH in a wide variety of ERC-20 token supported wallets. 

However, it’s best to store ETH in a wallet that makes it easy to hold and send ETH, as well as interact with applications built on Ethereum. 

That said, here’s a list of wallets recommended for storing ETH from the official Ethereum website:

  • MetaMask - browser extension and mobile wallet for iOS and Android
  • MyCrypto - web-based wallet
  • TrustWallet - mobile wallet for iOS and Android
  • MyEtherWallet - client-side wallet
  • Argent - mobile wallet for iOS and Android, optimized for DeFi
  • Coinbase Wallet - mobile wallet for iOS and Android
  • Gnosis Safe - security-oriented multi-signature wallet

In addition to the above-listed wallets, Ethereum (ETH) can be stored on a wide variety of other reputable wallets supporting Ethereum and ERC-20 tokens.

9. Where to Buy & Sell Ethereum?

Ethereum (ETH) can be bought and sold on a peer-to-peer (P2P) basis but the most popular way to buy, sell, or trade Ethereum is through cryptocurrency exchanges.

You can buy ETH with cryptocurrency or fiat currency at the following top exchanges. In most cases, you will be able to buy Ether with Bitcoin, stablecoins, or fiat currency.

Centralized Exchanges

  • Binance - BTC, BNB, USD, USDT, BUSD, USDC, TUSD, PAX, + more
  • Coinbase - BTC, USD, EUR, GBP, LINK, USDC
  • Bitfinex - BTC, USD, USDT, EUR, JPY
  • Huobi Global - BTC, USDT, 
  • Kraken - BTC, USD, EUR, XTZ

Decentralized Exchanges

  • Uniswap
  • Balancer
  • Kyber Network

In addition to the exchanges listed above, Ethereum (ETH) is also traded on a wide array of other exchanges and platforms that enable people to buy, sell, or trade cryptocurrencies.

Hope you enjoyed that read :) Let me know if I have missed something in the comments.


MuyAsk
MuyAsk

All truths are easy to understand once they are discovered; the point is to discover them


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