What is Ethereum and should you invest in it?

Ethereum is an inside token of a platform based on blockchain. It works with smart contracts and decentralized applications. Find out everything you need to know about this incredible achievement of modern technology.
ethereum

We all know that progress is based on constant improvements in the field of storing and transferring material goods. Those represented by traditional money are usually exchanged through bank transfers. However, we might soon face challenges which will require the use of safer and more efficient methods. The Ethereum project based on blockchain technology meets those needs, offering material transfers using unprecedented security and privacy protection protocols.

What exactly is the cryptocurrency bitcoin Ethereum (ETH)?

Cryptocurrencies are one of the most important technological and financial innovations of the last couple of years. Virtual money is often used as an inside payment method within complicated systems. It is usually based on blockchains and cryptographical technology. Cryptography is precisely where the modern method of managing goods gets its name from. One of its main priorities is the protection of privacy and security of funds.

The ETH cryptocurrency is used to settle the transactions performed within the Ethereum network. At the same time, the coin can be used to buy any and all goods that the seller decides to accept. You can store it in wallets in the form of programs or electronic devices. Tokens under the name of ETH are listed on cryptocurrency exchanges. They can be bought and sold in online exchange offices.

About blockchain technology – the foundation of the Ethereum cryptocurrency and system

A blockchain is quite literally a chain of blocks – a distributed database with a register of all the transactions concluded within a certain network. The blocks in a chain may also include other types of data, such as smart contracts. They can also support decentralized applications – which is exactly the case with Ethereum. The method of data recording in cryptographically confirmed blocks ensures that the inserted information is irremovable and impossible to be changed or damaged.

The Proof of Work consensus algorithm – the foundation of the ETH coin

Blockchain networks may be subdivided into a couple of different types. One of them is the chain of blocks which operates based on the Proof of Work consensus algorithm (PoW). The Ethereum blockchain is part of the PoW category. The data recorded in blocks is stored using encryption. All the necessary cryptographic calculations are performed using the computing power of the following systems:

  • central computer processors;
  • graphic card processors;
  • dedicated FPGAs or ASICs as elements of special servers.

The consensus in the Ethereum blockchain is as follows: all the network nodes agree about the validity of the next block containing transactions and other data. The data blocks are cryptographically linked using the so-called hash. Each new block includes the data which has appeared in the network since the confirmation of the last element.

The new blocks don’t just include that basic data. They also carry all the information necessary to maintain the integrity of the blockchain, which include:

  • validation rules version number;
  • the cryptographic hash of the previous block;
  • an abbreviation of the data root;
  • timestamps.

The hash of the new block is found through the hashing process, based on the available blockchain data. When the new block gets its hash, it’s successfully added to the chain. The hashing function in the Ethereum network is called Ethash.

There is an interesting property to the hashing feature. The creation of new coins has also been implemented in this process. They are a reward and an incentive for validators, or miners, as they are also called – the owners of excavators. The process of finding block hashes and creating new cryptocurrency coins is called mining due to the fact that it’s an incredibly difficult and time-consuming feat.

The Proof of Stake consensus algorithm – the future of the ETH coin?

The Ethereum cryptocurrency system has always been a network based on the PoW algorithm. However, its creators had decided to gradually migrate the system into one that uses the validation process of the Proof of Stake consensus algorithm (PoS). In such networks, new blocks are created in nodes dedicated to this purpose, e.g. based on the number of locked coins in a wallet. These types of systems don’t require much computing power. But – just like in the PoW blockchain – the node administrators also receive rewards for their work in the form of new coins.

The history and characteristics of the Ethereum cryptocurrency and network

The idea to build an Ethereum network was announced by the canadian programmer of russian heritage – Vitalik Buterin. The platform is based on the bitcoin source code, but Vitalik and his coworkers had modified it. They have equipped their blockchain not only with the option of working with the ETH coin, but also creating smart contracts and decentralized applications.

During the 2014 bitcoin conference in Miami, British computer specialist Gavin Wood, mathematician Charles Hoskinson, Canadian entrepreneur Anthony Di Iorio and Vitalik Buterin held the first meeting centered around their new platform. Half a year later, these gentlemen created the Ethereum foundation in Switzerland. Its aim was to raise funds for the project’s growth and evolution.

At the end of July 2014, the foundation had emitted the Ethereum cryptocurrency, which was sold for bitcoins (BTC) during the first 42 hours – and had earned them 14 mln dollars. The platform was launched on the 30th July 2015, along with the Frontier protocol update. 

The ETH coin as the cryptocurrency of the Ethereum platform

New blocks on the platform are created every 12 seconds or so. They do not have a set size, unlike some other blockchain projects. Their size is dynamic and depends on how many transactions, smart contracts and other applications data they must contain. Whether a certain transaction or piece of information will be stored in the current block or not depends on the initial fee. The fees for operating the transactions block are paid by the node owners – miners.

They are paid for in the Ethereum cryptocurrency and calculated using so-called Gas units. The fee depends on the computing power necessary to perform the transaction, smart contract tasks or other decentralized application tasks. Gas units are valued at Gwei which is a nanoether with the face value of 0,0000000001 ETH.

The reward for miners for finding a block is currently about 2 ETH. Until recently (June 2021), 113 mln 304 thousand ETH have been found – and that is how many of them there currently are in the market. The Ethereum coin, or Ether, doesn’t have a set number of units – which means that it is an inflation cryptocurrency.

What are smart contracts and decentralized applications on the Ethereum platform?

A smart contract works on a chain of blocks. It’s a type of contract concluded in a virtual space and – thanks to the blockchain cryptography – one that does not need any human confirmation. There are certain regulations within the program code, protected against external interference, which ensure that the contract conditions are being met. That is why trust between parties is unnecessary.

A decentralized application (dApp) is a program based on blockchain, just like the smart contract. Examples of such applications are the Uniswap platform which is used for exchanging tokens, or the decentralized finance protocol – Compound Finance. 

Ethereum cryptocurrency stock quotes

The stock market valuation of ETH is currently (June 2021) roughly 2500 USD per unit. Keep in mind that in September 2020, the Ethereum cryptocurrency was worth only 360 USD, but it had also reached figures of about 4000 USD (May 2021). 

Despite these fluctuations, long term investment in this cryptocurrency is definitely worth it. The interest in blockchain technology and smart contracts is constantly rising. With time, the platform should be even more efficient – when it switches to the PoS algorithm (Ethereum 2.0).

Where do I buy the cryptocurrency bitcoin Ethereum?

ETH coins may be bought or sold for traditional money in currency exchange offices in most large cities. You can also find bitcoin ATMs which allow you to easily exchange your cryptocurrency for any other currency.

On-line cryptocurrency exchanges and “real” exchange offices are the most popular places for trading your digital goods. Global exchange companies enable you to trade bitcoins for most traditional currencies. You can also use other fiat currencies or cryptocurrencies to buy and sell ETH in a couple dozen large exchanges, such as Coinbase, Bittrex, Binance, Bitstamp or Bitfinex.

How do I store my Ethereum cryptocurrency ?

Cryptocurrencies can be stored in software or hardware wallets. One example of a software wallet is the Metamask application which is an add-on for Chrome, Firefox and other browsers. The most popular hardware wallets which will help you manage your Ethereum resources are the Ledger Nano S model or the Trezor One device.

The Ethereum cryptocurrency is definitely an interesting asset from the point of view of investors. Private users looking to secure their money transfers will also find a use for this technology.

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