Ethereum is a decentralized blockchain that allows users to create decentralized applications and smart contracts. The platform is open source. Smart contracts allow the users to transact with one another without a trusted centralized entity. Every transaction is immutable, verifiable and securely distributed throughout the network – meaning participants have full ownership and visibility of all transactions.
All transactions occur between user-created Ethereum accounts. Senders sign a transaction and spend Ether (the native Ethereum currency) as the cost of making a transaction on the network.
But what is a smart contract? Essentially, smart contracts are computer protocols that allow, verify or force negotiation of some sort of arrangement without a third party. For example, a smart contract could be used to represent a legal agreement, a financial contract, or any other important aspect of life.
Smart contracts act without third party intervention and are recorded on the Eth blockchain. The contract simply works as it is coded no matter what. The contracts work on an if, then logic system, so if A happens, B action is implemented.
These contracts are self-fulfilling applications that do not need third party intervention, fraud or the possibility of downtime. They allow actions to happen as long as the criteria is met (A happens, B is implemented).
More on Ethereum Smart Contracts
Ethereum themselves listed four key points about smart contract applications.
- There is no downtime. Smart contracts cannot suddenly “turn off” for any reason. They are based on pure logic. Again, if Z happens, Y action MUST occur.
- 0 censorship. Eth nodes (computers which run the protocol) spread far and wide throughout the world, meaning no censorship from a central entity can take place.
- Safe from fraudulent activity. Once deployed, the contract cannot be modified, broken into or changed by anyone else.
- No centralized authority or third party is required to make the contracts operate as the contracts self-operate based on the if X then Y model.
Benefits of Building on Ethereum
Many crypto developers choose to build on Ethereum. It is, after all, the second most popular cryptocurrency available right now. It is also headed by Vitalik Buterin, an extremely respected mind within the crypto space. Ethereum is a very flexible platform to build decentralized applications. Developers will use the native Solidity scripting language (an extremely popular coding language) and Ethereum Virtual Machine. DApp developers benefit from the tooling, support and infrastructure of the long-standing Ethereum network.
Thankfully, the development happening across the Ethereum network makes it a suitable place for cryptocurrency users as well as developers. For example, there are excellent wallet applications, like MetaMask, Argent and more which offer a simple interface for one to interact with the Ethereum blockchain and the smart contracts deployed there. A user might buy or sell a coin, or perhaps deposit their Ether onto a dApp through a smart contract.
As Ethereum is extremely popular with many users, developers are enticed to deploy their dApp on the Ethereum network. More users entice more developers and vice versa. The snowball effect is in full force with Ethereum. Over the years, this has reinforced Ethereum as one of the staple homes of decentralized finance (DeFi) and Non-fungible tokens (NFTs).
Ethereum is aiming to release Ethereum 2.0 protocol in the future, which will allow greater scalability for DApp creators that require greater transaction throughputs. Currently, the fees to deploy contracts on Ethereum is very expensive, especially compared to other blockchains. Just basic use for everyday people is expensive too. One may spend $100 worth of Ether in gas price to complete a simple task like sending 1Eth to a friend. On the other hand, one might use the Binance Smart Chain network and spend $0.30 on the same action. Ethereum 2.0 will aim to make using the network more cost effective.
The other issue the Ethereum blockchain currently faces is the environmentally unfriendly FUD (fear, uncertainty and doubt). It’s long been stated that Ethereum uses too much energy. Ethereum are overcoming this with their long awaited change to Ethereum 2.0. We are generally expecting to see more brands and businesses associate themselves with Ethereum after they become more environmentally friendly in the eyes of others.
Ethereum Use Cases
Let’s check out some of the main use cases of the Ethereum network. Ethereum has become the home of DeFi and NFTs, two major parts of crypto as a whole.
Decentralized Finance (DeFi)
DeFi is defined as a network of financial applications built on top of a blockchain network. It differs from traditional financial networks due to being open, programmable and operating without a centralized figurehead – hence the name “Decentralized Finance”.
Developers can enjoy the creation of new payment methods, investing tools, trading platforms, borrowing tools and more.
Smart contracts allow developers to easily create decentralized finance protocols as they can operate without the creator overseeing them. There are already endless peer-to-peer lending, staking, trading and other applications that can be used. For example, UniSwap is a great example of a team building DeFi trading, lending and staking features on their protocol. UniSwap is one of the biggest dApps on the Ethereum network. It is primarily used to “swap” tokens for others.
Non-Fungible Tokens (NFTs)
NFTs are a way to prove unique ownership of something through the blockchain. They are essentially invisible digital assets. E.g. NFTs could be used by a property company to tokenize their home and prove that it is unique and belongs to them. The proof of ownership is stored on the blockchain, which is of course irrefutable based on the peer-to-peer network system of modern blockchains.
NFTs are becoming more and more mainstream as people want to prove their “thing” is theirs in an indisputable way. In gaming, you can prove that your sword or armour is unique and belongs to you. In music you could prove your song is unique and belongs to you.
Digital art is popular on the Ethereum network right now. For example, Crypto Punks, some of the first NFTs ever minted on Eth, are selling at a huge premium because of the prestige associated with these classical images. Some are going for multiple millions. They’re also known as JPEGs because they are essentially just a basic image. Now, those who own these simple JPEGs gain a lot of status for owning a piece of crypto, Eth and NFT history. So it goes to show that rarity, proof of ownership and everything NFTs can now provide us is extremely significant.
Where Can I Buy Ethereum?
You can buy Ether with fiat currency from a centralized exchange. First, you must create an account on the exchange (e.g. Coinbase or Binance), then use your fiat to purchase Ether. Another option is to buy another coin and then exchange that coin for Ether.
Remember to always keep your login details safe so as to always be able to access your Ether. If you cannot access your account, you cannot access your Ether.
Another option is peer-to-peer trading. You could use the peer-to-peer system on an exchange like Binance, or you could have a friend send you Ethereum to your wallet.
This is especially true if you want to own Ether on a non-custodial wallet. You will have a set of private keys (essentially randomized words that are your password) that grant you access to the wallet. If you lose your keys you lose your Ether!
Ethereum Price
The price of Ethereum is currently around $1,900 as we write this article. The total market capitalization is roughly around $250 billion. It is the second-largest cryptocurrency behind Bitcoin and ahead of Tether. We expect the price to continue to rise into the future as the Ethereum platform is so well established and continually grows every single day. The Ethereum community is as die-hard as it gets and many will be loyal to Ethereum forever.
Ethereum offers an extremely exciting level of scalability, too. Where bitcoin will almost certainly be used as “digital gold” – Ethereum will continue to grow and innovate at rapid speeds. Who knows what we will see developed on the Ethereum network in the coming years.
Ethereum2.0, when it is finally complete, will also be a huge boost to the Ethereum blockchain. Not only will Ethereum become cheaper and faster to use and build on, but also more environmentally friendly. This will certainly help brands and businesses support Ethereum.
ERC-20 Tokens
The “ERC-20 token” is the standard used for making and deploying smart contracts on the Ethereum blockchain. ERC stands for “Ethereum request for comment,” and was created in November 2015. This means every token on the Ethereum Blockchain is the same. One Ethereum token is the same as any other token, so as long as it is ERC20.
ERC-20 sets the standard in which tokens can be transferred, how transactions are approved, and the total supply of tokens. In order to interact with ERC tokens, you will need to pay a small amount of Ether for transaction execution.
Tokens can be used for anything. You might mint 1000 ERC-20 tokens to use as guest passes for an exclusive venue.
Other chains have equivalents of ERC-20, such as the Binance Smart Chain. They use BEP-2, BEP-20 and more.
Disadvantages of Ethereum
Ethereum does face a lot of competition. After effectively inventing dApps, a whole swarm of other chains have followed. Solana is a front runner. They are doing well with NFTs. Binance Smart Chain is also another front runner. Though less decentralized than Ethereum, The Binance Smart Chain has the backing of Binance, the largest crypto exchange in existence. There are other options like Polygon, but Polygon acts as a scaling solution for Ethereum and runs from the Ethereum blockchain.
Ethereum already achieved a high market cap. This means traders can likely expect to see less short term gains from a coin like Ethereum. However, there is an argument to be made for the safety and usability you gain for owning Ethereum. It’s not like holding a stock. You can swap, stake, farm, lend, borrow and more with your Ether.
Ethereum2.0 has taken… Forever. It’s no secret that Ethereum2.0 has taken far too long to rollout. The team are saying major progress will be made into 2022 as well as 2023, so we’ll have to see. Several parts of their checklist have been completed, so it seems we are getting gradually ever closer.
