Like many, you might have heard about Ethereum but haven’t quite got your head around it. Join us as we guide you through everything you need to know about the second largest cryptocurrency, from what is Ethereum (ETH) to how it works, its use cases and how you can get your hands on it.
What Is Ethereum?
While at its core Ethereum is a blockchain network that facilitates transactions using its native token, ETH, it’s really so much more than that. The platform was first introduced to the world in 2013 by Vitalik Buterin. The next year it underwent a very successful crowdfunding sale, accumulating 7,400,000 ETH in the first 12 hours (roughly 3,700 BTC at the time). With a team of developers, Buterin built and launched the platform in 2015, to great acclaim.
Originally designed to compliment the Bitcoin network, Ethereum has carved a niche of its own and become a catalyst for huge innovation within the crypto space. The network uses open source coding that allows anyone to build and implement decentralized applications (dapps). There are three types of dapps developers can create:
- dapps that manage money within the blockchain network.
- dapps that operate with funds outside of the blockchain network.
- dapps that don’t work with money at all, such as voting systems.
Within these dapps, developers can make use of several token standards on offer (used to create cryptocurrencies) and can build and implement smart contracts. Smart contracts are digital agreements that don’t require a third party to execute, i.e. once predetermined conditions are met the agreement will automatically go into effect.
Token standards are different tokens that can be used for different uses. There are a number of different token standards available on the Ethereum network to work with, here are some examples: ERC 20, ERC 721, ERC 223, ERC 777, ERC 1155, ERC 1337. If you wanted to create a cryptocurrency that operates for the purpose of trading money, like Tether for example, developers use ERC 20 tokens. However, if you wanted to use a token to represent a one of a kind product, the ERC 721 token would be used.
How Does Ethereum Work?
As a decentralized blockchain network, Ethereum functions in a very similar way to Bitcoin however it uses a different mechanism for transaction fees. The network is built up of nodes that facilitate all activity on the blockchain, verifying and executing (much like Bitcoin). Miners are responsible for verifying the transactions, and then adding them to the blockchain receiving compensation in ETH.
Each activity on the Ethereum network costs a small fee (whether it’s a transaction or a smart contract), and is charged in gas. Gas is paid in ETH, a small denomination known as Gwei (Giga-wei) which equates to 0.000000001 ETH. The higher the gas, the higher the priority and processing speed.
In 2018, Vitalik Buterin introduced a roadmap for a new version of Ethereum known as ETH 2.0. This updated version is designed to be more efficient, more scalable, and move from a Proof of Work concept to a Proof of Stake. While Proof of Work requires miners to reach consensus before adding a block to the blockchain, Proof of Stake randomly awards the mining process to miners holding the most cryptocurrency. Proof of Stake uses less electricity, giving it a reputation for being more environmentally friendly.
In order to launch phase 0 of ETH 2.0, the network required 524,288 ETH to be staked in the network (only available for withdrawal when phase 2 launches). By 1 December 2020 the network had acquired 808,800 staked ETH and the Genesis block was created. ETH 2.0 will not be fully operational until phase 2, with 2 milestones scheduled before that. Phase 1 will incorporate data sharding while phase 1.5 incorporates ETH 1.0 onto the blockchain allowing the two chains to communicate with each other.
Ethereum Use Cases
As one of the most used blockchain networks, Ethereum has a multitude of use cases available for anyone to utilize. With the functionality to support the creation of dapps and smart contracts across a wide range of industries, the possibilities are endless. Here are a few examples of the Ethereum use cases:
- Ability to run applications, from gaming to exchanges to gambling.
- Ability to build self executing smart contracts, ideal for supply chain management.
- Ability to tokenize assets, from silver to fiat to high luxury items.
- Ability to create and manage a decentralized asset exchange.
- Ability to create identification and document verification services.
Ethereum And DeFi
Decentralized finance is the latest trend in the cryptocurrency industry, and is built on top of the Ethereum network. With gains of over 1,200% in 2020, it’s no surprise why. DeFi is centred around the integration of traditional financial instruments and blockchain technology. DeFi dapps create automated services that are designed to increase users’ returns through a variety of financial trading tools. A popular, arguably the most popular, DeFi tool is yield farming, which involves users staking their coins in a “staking pool” with the expectation that they will receive returns (similar to earning interest on money in the bank).
How To Buy Ethereum (ETH)
Ethereum’s incredibly versatile use cases aside, following the network’s returns achieved in 2020 many people are looking at how to buy Ethereum (ETH). In a year of extreme pressure on all markets, the platform saw unbelievable gains of 470%.
If you’d like to get your hands on ETH you can do so simply through our Oobit platform. We’ve streamlined the processes to allow users to quickly and efficiently buy Ethereum with a credit or debit card.The whole process only takes a few minutes, and users can have ETH in their wallet in no time.
Enter The World Of Ethereum
With the second highest market cap and a plethora of use cases, the sky’s the limit for this cryptocurrency. Set to continue facilitating high levels of innovation in the gaming and decentralized finance (DeFi) industries as well as blockchain development, there are many more industries that could benefit from the powers of Ethereum. Concluding our guide for beginners on what is Ethereum, check out these price predictions for 2021 and beyond.