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Ethereum Explained - A potential global supercomputer



Is there anything Ethereum can't do? Many consider the Ethereum platform a global supercomputer. It is also referred to as "the mother of dApps". Read why here.



SUMMARY


Ethereum has the potential to serve as the framework for a new decentralized internet. Launched in 2015, the Ethereum blockchain builds on the decentralized and distributed architecture of Bitcoin. However, by introducing smart contracts that support an ecosystem of decentralized applications (dApps), Ethereum goes far beyond Bitcoin's core functionality as a payment platform. The Ethereum platform is open source, programmable, and censorship-resistant. Due to its open nature, Ethereum has spawned a wide range of innovations, including initial coin offerings (ICOs), stablecoins, and decentralized financial applications (DeFi).



CONTENT

  • What is Ethereum?

  • Ethereum vs. Bitcoin

  • The key difference: Ethereum Smart Contracts

  • The Ethereum dApp ecosystem

  • The future of Ethereum


WHAT IS ETHEREUM?


Ethereum was proposed and developed by computer programmer Vitalik Buterin in late 2013. The development of the Ethereum blockchain was funded through an online crowd sale of the network's cryptocurrency, Ether (ETH), which ran from July 2014 to August 2014. This first round of funding raised more than $18 million, and Ethereum was officially launched to the public on 30 July 2015.


Ethereum is often referred to as the world's supercomputer, providing a flexible and secure platform for building, connecting, and monetizing an ever-growing ecosystem of decentralized applications (dApps). As a result, Ethereum now underpins thousands of new applications across a wide range of industries. Ethereum provides a way for established industries and governments to more effectively digitize their operations and services by bringing them onto the blockchain.


All Ethereum applications are characterized by a number of features. Ethereum is open source, meaning that anyone can participate in the development of the technology as a developer and access the technology as a user. The Ethereum protocol does not store or profit from sensitive user data. While the Ethereum transaction ledger is public, the trading parties remain anonymous. Furthermore, Ethereum is resistant to censorship. No central authority controls the blockchain, so no one can approve or deny transactions.



ETHEREUM VS. BITCOIN


Buterin envisioned Ethereum as a kind of dynamic Swiss Army knife protocol with a wide range of practical applications and its own currency, Ether (ETH) or gas, to fuel the network. Ethereum and Bitcoin are similar in that both blockchain protocols currently use a proof-of-work (PoW) consensus mechanism to enable transactions via their own cryptocurrency. In terms of infrastructure and technology, the two networks have far more in common than differences. However, Bitcoin is more limited in its function as a peer-to-peer digital money system. Ethereum, on the other hand, extends the basic functionality and utility of Bitcoin through the use of smart contracts, which help in the development and implementation of complex dApps that can offer an almost unlimited range of functions and use cases.



THE KEY DIFFERENCE: ETHEREUM SMART CONTRACTS


From the beginning, Ethereum's key differentiator has been its use of smart contracts. Smart contracts are hard-coded, self-executing contracts that enable, verify and enforce unique and specific functions on a blockchain network when the conditions specified in these contracts are met. These contracts can be a simple agreement between two parties, such as a straightforward transaction, or a complex web of interconnected smart contracts that interact with each other to form an operating platform. The resulting platforms can be stand-alone enterprises, such as decentralized autonomous organizations (DAOs), or dApps that can be created, edited, and modified by community members at will.


Smart contracts provide automation, transparency, and immutability, offering advantages to both innovative startups and long-established companies looking to build products and services on the blockchain. Smart contracts also enable the creation of digital assets that are programmable and able to perform unique and specific functions according to the code of the contract.


Ethereum has spawned several widely used token standards, such as ERC-20 and ERC-721, which are all part of the Ethereum Request for Comments (ERC) family of token standards. These standards are essentially interfaces that specify that the token's contract responds to a set of commands specific to a particular smart contract. Consequently, the token standards determine the nature of a token as well as the networks with which it is compatible.


Within the Ethereum ecosystem, the most common token standards are as follows:


ERC-20: ERC-20 tokens are fungible, meaning they are identical and mutually interchangeable with other tokens of the same type. Therefore, ERC-20 tokens are usually used in a currency context or other use cases where token fungibility is required. Most common digital assets in the Ethereum ecosystem are based on the ERC-20 token standard. At its peak, 94 of the top 100 cryptocurrencies by market cap were based on Ethereum's ERC-20 token standard.


ERC-621: ERC-621 tokens are similar to ERC-20 tokens, with the difference that the ERC-621 token standard allows for subsequent modification (e.g. minting and burning) of the token's total supply. In contrast, the ERC-20 standard only allows a one-time token issuance.


ERC-827: Another extension of the ERC-20 token standard, ERC-827 allows a token holder to permit a third party to issue or transfer the holder's tokens based on a predetermined set of rules. This feature opens up new possibilities, such as the ability to automate certain operations while remaining ERC-20 compliant.


ERC-721: This standard enables the creation of non-fungible tokens (NFTs) that are completely unique and not interchangeable with other tokens. Therefore, ERC-721 tokens are typically used for collectibles, original artworks, and in other contexts where verifiable ownership of a digital asset is a priority.


ERC-1155: This standard allows smart contracts to manage multiple token types so that any combination of fungible tokens, non-fungible tokens, and other hybrid configurations can be included.


The above token standards can be used to create tokens representing a wide range of digital and physical assets. They can also be used for network governance and deployment, reputation building, and multi-party transaction processing.


Ethereum's native ETH coins are used as gas for transactions on the Ethereum network. This means that for every transaction that takes place on the Ethereum network, a small amount of ETH must be spent. ETH is digitally minted - or mined - using a PoW algorithm and can serve as a store of value similar to BTC.



THE ETHEREUM DAPP ECOSYSTEM


Because Ethereum is an open source system, theoretically anyone with the right knowledge can develop a dApp or web service for the network. As a result, Ethereum has become a unifying ecosystem for thousands of organizations since its launch in 2015. About half of all working dApps on the market are based on the Ethereum network, and more than 600,000 active users interact with dApps on a regular basis. Ethereum's dApps range widely, from decentralized credit services and financial exchanges to blockchain-enabled web browsers and data markets. As of January 2021, Ethereum's rapidly growing decentralized financial sector (DeFi) held more than $22 billion worth of digitized assets.


While some Ethereum dApps resemble traditional web applications from a user's perspective, dApps are able to operate and transact on a peer-to-peer basis without the need for a central authority. Since the introduction of Ethereum, a number of other blockchain projects have emerged that focus on dApps with smart contracts. However, Ethereum remains the most widely used platform of its kind. And as of January 2021, the Ethereum blockchain remains the second largest, largely due to the success of the project in attracting developers to build dApps on its network.



THE FUTURE OF ETHEREUM


The dApps, DAOs, and DeFi platforms that run on Ethereum require huge amounts of data to be stored on the blockchain, and as a result, Ethereum's popularity has brought with it a number of challenges. While interest and demand for Ethereum continue to grow, the PoW consensus algorithm that underpins the Ethereum network is increasingly challenged by the ever-growing volume of transactions.


To address this scalability issue, Ethereum developers are working to replace the current platform with a redesigned Ethereum 2.0 network. Ethereum 2.0 is being rolled out via a multi-stage package of updates called Serenity. After years of development, testing, and speculation, the implementation of Ethereum 2.0 began with Phase 0 of the Serenity updates and the launch of the Ethereum 2.0 Beacon Chain in December 2020. These updates will transition the network's smart contract protocols to a more scalable proof-of-stake (PoS) consensus algorithm. While this transition is unprecedented in its scope and requires the development of new technologies to work, it is widely seen as a necessary step in making Ethereum a user-friendly, universally accessible supercomputer.


The Ethereum network is a magnet for innovation and is already making significant progress in restructuring existing organizations and enabling new, decentralized business models. The flexible programmability of the network has expanded the use cases for blockchain technology far beyond the realm of digital transactions and settlements. Ethereum 2.0 has the potential to bring the concept of a robust, decentralized global supercomputer even closer to fruition. With an extensive community of developers, users, and corporate partnerships, Ethereum appears to be a strong candidate for realizing the dream of a highly decentralized internet.


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