You may have heard Ethereum referred to as a cryptocurrency, like bitcoin. While it is a virtual coin (called ‘Ether’), Ethereum is also much more than that. Ethereum is at its heart a blockchain platform with tremendous potential to host smart contracts and decentralized digital applications, or “DApps,” allowing users to make agreements and conduct transactions without the need for middlemen when buying, selling, or trading goods and services.
Have a look at Ethereum’s revolutionary potential and how it could impact the business world in the future.
What is Ethereum?
Launched in 2015, Ethereum is an open-source platform that uses blockchain technology and which runs on a decentralized platform. Ethereum established the first general-purpose blockchain platform—a revolutionary step in the advancement of distributed ledger technology. This blockchain database is consensually shared and synchronized across multiple sites, institutions, or geographies, allowing transactions to effectively have public “witnesses.” A significant attractive feature of Ethereum is its independence from third parties and the security of the blockchain from hacking or alteration. Ethereum’s native programming language allows developers to build and publish distributed applications for various purposes, with the potential use cases being virtually endless.
How does Ethereum compare to other cryptocurrencies?
The cryptocurrency associated with the Ethereum blockchain—the coin known as Ether—is the second-largest digital currency after Bitcoin, with a market cap of approximately $202 billion US at the time of writing.
Similar to how Bitcoin miners are paid to maintain the Bitcoin blockchain via their computations, developers use Ether to pay for building and launching new blocks to the Ethereum ledger. Because running the computers that execute the code that drives the Ethereum blockchain is costly and consumes a great deal of power, Ether incentivizes programmers to run the Ethereum protocol and maintain network health.
Unlike cryptocurrencies like bitcoin, however, Ethereum is more versatile. While as cryptocurrencies Bitcoin and Ether do much the same thing, Ethereum is programmable, so you can also use it for a variety of digital assets—including bitcoin. More than that, as a general-purpose blockchain, Ethereum’s main function is as a marketplace for direct financial services, games, and apps.
With over 200,000 active developers building over 1,400 projects, the Ethereum protocol enables revolutionary innovations like smart contracts and decentralized applications (DApps). Smart contracts, for example, run exactly as programmed, eradicating the risk of fraud, control, or interference from a third party. Smart contracts are also self-executing. Once certain contractual conditions, such as transfer of payment, are met and verified via the blockchain, the merchandise is automatically sent or accessible to the buyer.
DApps allow users to bypass banks to transfer money, avoid the use of lawyers to draw up contracts, and provide direct means to launch a fundraising site instead of using a crowdfunding Internet site, among other benefits.
What does Ethereum mean for the future?
Thanks to blockchain technology, anyone on the Ethereum ledger can create a financial contract or keep debt or ownership registries, all of which will be time and date stamped, including user data, and cannot be altered without the approval of all involved users. The elimination of external recordkeepers or trust officers makes these Ethereum connections “trustless” transactions, with the contracts self-fulfilling.
Trustless transactions will enable a range of new products and services that all rely on the Ethereum blockchain. Three examples of the possibilities inherent in Ethereum, which are in their early days, are decentralized finance (DeFi), non-fungible tokens (NFT), and decentralized autonomous organizations (DAO).
Decentralized finance (DeFi) represents an open, global alternative to the current financial system. DeFi products are available to anyone with an internet connection, including otherwise unbanked persons around the world. DeFi products are primarily owned and maintained by their users and let them borrow, save, invest, and trade just as they would with traditional financial institutions. Tens of billions of dollars worth of crypto has already flowed through DeFi applications—a number that will only grow.
Non-fungible tokens (NFT), much in the news lately, are an Ethereum-based asset powered by smart contracts. NFTs are tokens used to represent ownership of unique items, like a deed for an item in the digital or physical realm. To date, NFTs have made their biggest splash in the world of digital art and collectibles, empowering content creators to get paid in new ways for their work. But NFTs can also represent ownership of any unique asset, such as a car or even real estate. NFTs can only have one official owner at a time, and the Ethereum blockchain secures that ownership.
And decentralized autonomous organizations (DAO) are member-owned communities without centralized leadership. Collectively-owned and managed by its members, DAOs have built-in treasuries that no one can access without the approval of the group. Decisions are governed by proposals and voting to ensure everyone in the organization has a voice. Ways to use a DAO include setting up a charity, a network of freelancers, and even creating a venture fund that pools investment capital and votes on which ventures to back.
The benefits of Ethereum
The world of cryptocurrency continues to expand. While Bitcoin was a trailblazer in cryptocurrency the possibilities offered by Ethereum are broader because of the scope of the Ethereum platform itself. As host to several ground-breaking technologies reliant on blockchain and with the promise of others yet to be developed, Ethereum looks poised to be a go-to platform for businesses and individuals looking to take advantage of the unique power of distributed ledger technology.
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