Ethereum is a very new cryptocurrency that was created in 2015. Because of this, people do not have a lot of information about it. This does not mean that you should be just ignorant about it. Ethereum is a decentralized cryptocurrency that runs on thousands of computers around the world. It is often referred to as a blockchain, because it uses the blockchain technology.
Bitcoin is taking the world by storm as a currency and a platform for decentralized applications. But there is another blockchain out there that is not Bitcoin and is in many ways like Bitcoin but with some major differences. In this article, we will dive deep into Ethereum.
The Ethereum network is a decentralized platform for applications that run on smart contracts – applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference. Ethereum was developed as a reaction to the increasing complexity of using traditional web applications. Today, a lot of people are already familiar with Bitcoin, which is a crypto-currency that works on the Ethereum network. However, Ethereum is more than that. It’s a platform for decentralized applications.
I originally learned about Ethereum and Bitcoin when I first became interested in cryptocurrencies in 2017. This is unsurprising given that they have long been the most popular and lucrative cryptocurrencies.
Bitcoin, which debuted in 2009, is the first cryptocurrency to be used for online payments. However, others in my circle advised that I concentrate on Ethereum because it was more than just a payment coin. It was also a lot less expensive to invest in.
Ethereum was only $1 when it first appeared on the market in December 2015, but Bitcoin was already trading over $400. By May 2021, the price of Ethereum had risen to $4,500! It is currently worth roughly $2,300, compared to $40,000 for Bitcoin. As a result, Ethereum has grown faster than Bitcoin since its inception.
Because of its ease of usage, Bitcoin remains the more popular and valuable of the two. Ethereum is frequently described as being more sophisticated than it is by sources on the internet and in the media.
After reading all of the conflicting information available over the last four years, I can assure you that Ethereum is not nearly as complicated as it appears.
And if you’re interested in investing in Ethereum, I’ll show you how straightforward it is.
In this essay, we’ll go over:
- What exactly is Ethereum?
- Ethereum’s revolutionary technology
- The industries and applications of Ethereum
- What role does Ethereum play in the realm of cryptocurrencies?
- The benefits and drawbacks of investing in Ethereum
We’ll go through some additional considerations to make while investing in any cryptocurrency.
What is Ethereum?
Ethereum can be thought of as an all-encompassing global middleman — a bank, a brokerage, an exchange, a notary, and even a government – in very simple terms. However, there are no owners, no management, and no actual location.
I realize it sounds oxymoronic, if not absurd, but Ethereum has a lot of crucial underlying technologies that enable this miracle to happen.
What Makes Ethereum So Different From Other Cryptocurrencies?
The first fundamental technology is that Ethereum is a “blockchain,” which is a global network of computers without a central server. The majority of cryptocurrencies are built on the blockchain, making them “digital decentralized organizations.” The organization will continue to operate as long as the internet is accessible around the world.
Cryptography, the de facto technology for all cryptocurrencies, is the second underlying technology. Each coin (unit of cryptocurrency) and each transaction are encoded with a code, making it nearly hard to double-spend a coin or forge a transaction.
This removes the requirement for a physical or central third-party mediator, allowing for self-contained transactions. The goal of eliminating middlemen is to reduce transaction time and expenses as much as possible.
You can also hold your coins in a software wallet on your computer, browser, or smartphone instead of a third-party custody without the need of intermediaries.
A coin is created using a process known as “mine,” which involves running software on your computer. Mining a single coin necessitates a specific amount of computing power. Ethereum is also a cryptocurrency that can be mined.
Cryptocurrencies have a variety of applications because to their decentralized and autonomous nature. For instance, Bitcoin, the most well-known cryptocurrency, can only perform Bitcoin payment/transfer requests within its own blockchain, making it a simple payment coin.
Cryptocurrencies that can also exchange other cryptocurrencies within their own blockchain are a more advanced example.
What Sets Ethereum Apart From Other Cryptocurrencies
Ethereum, on the other hand, not only facilitates the transfer of cryptocurrencies but also a variety of other digital assets, including real-world financial products purchased from a bank, as well as legal deeds, copyrights, artwork, and even virtual gaming characters and things.
Ethereum is a decentralized, digital global intermediate as a result of this feature.
The digital assets you can trade on Ethereum are divided into two categories: financial and non-financial.
Financial products include lending & borrowing products, interest-bearing savings accounts, decentralized exchanges, insurance policies, crowdfunding, and digital representations of real-world financial assets like stocks, precious metals, and national currencies.
Digital deeds for both real-world and virtual properties, product licenses, copyrights, digital artwork, virtual game characters and things, and other non-financial products are examples.
You can generate new digital assets using Ethereum’s blockchain in addition to current ones. You can buy things with Bitcoin, but you can also build things using Ethereum.
Ethereum’s Revolutionary Technology
As you can see, Ethereum offers more usefulness than Bitcoin. It is the first cryptocurrency that allows you to generate and trade a diverse range of digital assets, not just payment coins. All of these things are possible thanks to Ethereum’s third important underlying technology, “smart contracts.”
It is the world’s first cryptocurrency to use this technology.
A smart contract is a contract between two people that has specified terms. The contract is encoded in computer code and stored in a digital “token.” A token is a right to redeem an asset, a service, or a utility in exchange for money, subject to the terms of the agreement.
When the contract’s terms are met, the contract is immediately executed on the Ethereum network without the need for a physical third-party middleman.
James, for example, is interested in purchasing Howard’s home. They use a smart contract to make an agreement on the Ethereum blockchain. “When James pays Howard 1000 Ether (Ethereum’s native token), James will obtain ownership of the house,” the agreement would read.
When the smart contract is created, it generates a token that remains in Howard’s ownership and serves as the house’s unique deed. The contract executes when James pays the 1000 Ether, and Howard receives the 1000 Ether while James receives the deed token. They save time by not having to pay fees to a broker and a notary.
Another example of how smart contracts can be used is when someone lends money to someone else without first depositing it in a bank. A smart contract can be used to create a loan agreement that specifies the terms of the loan.
Every payback date, as specified in the agreement, the contract will automatically send the borrowed monies back to the lender. Without the use of a bank, the entire process is automated.
Ethereum’s smart contract and tokenization functions are forming a new virtual economy free of political boundaries and traditional intermediaries.
Everything in this new economy happens automatically, with no human intervention, which poses a challenge to a variety of businesses, as Ethereum has the ability to do numerous business operations considerably more cheaply and quickly.
According to Glassnode, a leading cryptocurrency analytics business, the value of Ethereum smart contracts has already topped $60 billion as of July 2021, up from only $5 billion a year ago. So far, Ethereum and its applications appear to be doing well, but no one knows how long this new world will continue.
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The Industries and Applications of Ethereum So far, three industries have thrived in Ethereum’s virtual economy: 1) Finance, which in the blockchain world is known as “Decentralized Finance (DeFi)”; 2) Legal, which uses “non-fungible tokens (NFT)”; and 3) Gaming, which combines DeFi with NFTs.
1. Decentralized Finance (DeFi): Decentralized finance is a blockchain-based version of traditional finance that offers traditional financial instruments without the use of intermediaries such as brokerages, exchanges, or banks. Intermediaries are replaced with smart contracts. The following are the most common DeFi applications:
- Lending and borrowing platforms: Lenders earn interest by depositing their digital assets into specially created “money pools”. Borrowers then can take out a loan from the pool after depositing a certain amount of coins as collateral. This ensures that the pool never dries out of funds. I took a loan last May from the biggest lending & borrowing platform called Aave. All I had to do was deposit a collateral in Ethereum from my wallet into the platform, in exchange for a loan in the cryptocurrency of my choice. After choosing that, the loan amount was automatically transferred back to my wallet using a smart contract. However, the collateral amount I had to deposit was more than the value of the loan. In fact, it was 150% of the approved loan amount. This is the case as of yet with all lending & borrowing platforms on the Ethereum blockchain because collaterals are in Ethereum, which has a lot of price volatility. So, platforms reduce their collateral risk by asking for a lot of collateral. Lending and borrowing platforms provide you financing opportunities from all over the world, if you can manage Ethereum’s volatility. You are not stuck within your country or your social environment when you need money. There are millions of people out there, who would be interested in lending their capital to receive a return, as banks right now give negligible interest on savings. Lending & borrowing constitutes the biggest sector in the entire Ethereum ecosystem, not just DeFi, with $26 billion of funds locked in smart contracts as of today.
- Interest-bearing savings platforms: Cryptocurrency investors can earn interest on their holdings by depositing them into “savings pools,” which receive a portion of transaction fees generated in Ethereum lending platforms and cryptocurrency exchanges – similar to how a bank finances its savings interest expenses with fees earned from its operations. Saving pools use smart contracts to automatically select the finest interest-bearing platform in the world and deposit your money there.
- Decentralized exchanges: These are exchanges that are not owned or maintained by anyone, but rather are a collection of smart contracts that run on the Ethereum blockchain and enable peer-to-peer cryptocurrency transactions. Owners of cryptocurrencies lend their coins or tokens to these smart contracts in exchange for fees. A trader can come in and exchange his digital asset for a lender’s asset. Smart contracts impose a transaction fee for each trade, which is returned to lenders in exchange for their funds. Decentralized exchanges have the advantage of not requiring you to move funds out of your software wallet when conducting a transaction, as you would with a typical, centralized exchange. You connect your wallet to the decentralized exchange’s platform and trade directly with the platform’s lenders, saving time and reducing the risk of a transaction. Transaction fees, on the other hand, can be far higher than those charged by centralized exchanges. Transaction costs on decentralized exchanges on the Ethereum blockchain are paid in Ether, hence fees are determined by the price of Ethereum. Transaction costs can skyrocket as demand for Ethereum grows. I recall being requested to pay $400 in Ether to execute a $200 transaction back in May, when Ethereum hit an all-time high of $4,500! In a big centralized exchange, the average transaction fee is usually between 0.1 and 0.2 percent of the transaction value.
Traditional banks are the taxi cabs of finance, and DeFi is the Uber of finance. Despite the fact that it is still expensive to use, the total value of cryptocurrencies and digital assets locked in the smart contracts of all blockchains, not just Ethereum, has already surpassed $100 billion. However, Ethereum alone accounts for more than 60% of the whole DeFi market.
2. Legal: Ethereum’s smart contracts and tokens have the potential to become legal documents in the future, such as proof-of-ownership deeds or licenses. Ethereum has also made it possible to authenticate assets and transfer ownership of both digital and physical assets at previously unimaginable speeds and costs:
- Authentication and sale of digital assets: Any intellectual property, like as art, paintings, photographs, films, movies, music, literature, collectibles, and so on, can be digitally stored in a smart contract and authenticated by creating a unique token from the smart contract. The token serves as both a proof of validity and a license claiming property ownership. The ability to view, read, or listen to that property is instantly granted to everyone who owns the token. And selling the token would give someone else those rights. Because the underwritten asset is unique and not interchangeable like any cryptocurrency coin, this sort of token is known as a “Non-fungible token (NFT).” On the Ethereum blockchain, you can create NFT tokens using a special protocol. NFT digital asset sales were at $250 million in 2020, but they skyrocketed to over $2.5 billion in the first half of 2021! As a result, just like DeFi, NFT adoption has skyrocketed. During the coronavirus pandemic, this was extremely advantageous for artists because they could readily share and sell their real artwork in a secure and cost-effective manner online.
- NFTs can also be used to trade physical goods by authenticating them and transferring ownership through NFTs, which eliminates the requirement for both parties to meet, confirm the asset’s specs, and visit a notary or register. NFTs can be used to sell real estate, vehicles, equipment, and any other valuable collectible physical thing. During the coronavirus pandemic, trading physical assets using NFTs was advantageous because various travel restrictions exist around the world, limiting many cross-border deals, particularly real estate. We don’t have any data on the entire trading volume of real-world NFTs because there isn’t yet a structured online marketplace for real-world assets on the Ethereum blockchain.
3. Gaming: In the blockchain industry, this is the newest craze. You may earn bitcoin by playing a variety of online games that operate on the Ethereum blockchain.
These are mainly Pokémon-style games in which you interact with virtual cats, puppies, lizards, bear cubs, and other real and imaginary animals. Each game comes with its own cryptocurrency. It’s similar to a virtual country or planet with its own native currency.
In these games, there are three different ways to create value. The first is through playing a blockchain game and earning cryptocurrency. The second option is to purchase and sell pre-existing game characters and stuff in the form of NFTs.
The third option is to deposit or lend those characters and stuff into the game’s money pool and profit from the game’s fees, similar to a decentralized exchange. As a result, blockchain games are a hybrid application of DeFi and NFT functions.
Axie Infinity, another Pokémon-style game, is the leader in this new market. I started playing this game in June and was able to earn $20 each day from a $400 investment in an axie (a generic term for gaming characters).
This appears to be a fantastic return, but it is contingent on the value of the game’s native coin. If the value of the cryptocurrency plummets as a result of a broader market downturn, your investment and returns will also plummet.
These games have proven to be a viable source of revenue for young kids, those who have lost their employment as a result of the pandemic, and people in other underdeveloped areas of the world.
However, I’m not sure whether quitting your day job and trying to make a living playing cryptocurrency games is the greatest option, given that this is the newest and least-tested genre in the blockchain world, making it the most volatile.
In light of the preceding examples, Ethereum can be viewed as a decentralized Windows or Mac operating system on which to develop applications. You would be a stakeholder in transaction fees generated by a decentralized operating system if you invested in Ethereum.
It’s like being a stakeholder in a corporation with millions of owners and no central board of directors.
Ethereum development is still in its early, basic stages. Given the new pandemic-restricted world order, Ethereum has the potential to spread into new industries and transform them into the virtual world with new uses, as provided as its technology survives and governments do not impose restrictive restrictions.
What Position Does Ethereum Hold in the Cryptocurrency World?
The goal of blockchain and cryptocurrencies is to build a virtual representation of the real world in the long run. It all started with Bitcoin in 2009, which acts as the digital equivalent of gold. Our civilization’s first global method of payment was gold.
You can always pay with gold, but because it is such a rare commodity, most are hesitant to do so. Because there is less gold flowing in the market when fewer people trade it, its value rises. Bitcoin is also extremely rare, with only 18 million coins created to date and a maximum usable supply of 21 million coins that cannot be changed due to its irreversible source code.
When compared to the US Dollar, which has hundreds of billions of bills in circulation, and Ethereum, which has a current supply of 116 million coins, this is a significant difference.
Because Ethereum needs to produce currencies as long as its network grows, it does not have a maximum supply like Bitcoin. Like gold, the scarcity of Bitcoin causes people to be hesitant to spend it, making Bitcoin the de facto store of value in the digital world.
Ethereum, while more plentiful than Bitcoin, is still scarce in comparison to several other cryptocurrencies. Take, for example, Dogecoin, the 6th largest cryptocurrency with a total supply of 130 billion coins in circulation.
Dogecoin began in 2014 as a “meme” (joke) coin intended to mock cryptocurrencies. Unlike Ethereum and Bitcoin, it has no use cases or regular development.
However, Elon Musk, the most powerful figure in the cryptocurrency sector, has turned Dogecoin into a pop culture phenomenon by tweeting about how much fun it would be if it became the world’s reserve currency.
Between November 2020 and May 2021, the price of Dogecoin surged by a staggering 250x (from 0.3 cents to 70 cents) thanks to Musk’s promotional tweets. There have been coins influenced by pop culture in the past, but their popularity was short-lived and they were unable to keep their worth due to a lack of a proper use case.
Over the last five years, a large number of coins have entered and exited the top ten cryptocurrency list.
Ethereum has never been a popular topic. Its network and environment have expanded steadily over time, rather than through seasonal tweets like Dogecoin. This is reflected in the results obtained.
Ethereum has by far produced the strongest gains in the cryptocurrency sector over the previous five years. While Bitcoin is the initial cryptocurrency, Ethereum can be said to be the genuine first mass-market use of blockchain technology, upon which most of the developing DeFi and NFT marketplaces have been constructed to date.
Is Ethereum a Good Investment?
We’ve gone over many of Ethereum’s advantages as well as a few threats that could jeopardize its existence. At this time, no one knows if cryptocurrencies will survive or which ones will.
Let’s look at the benefits and drawbacks of Ethereum in comparison to Bitcoin and other cryptocurrencies so you can decide whether or not it’s a good idea to invest in Ethereum.
THE BENEFITS OF BUYING ETHEREUM:
- You put money into more than just a payment coin. Because of its smart contract and tokenization capabilities, Ethereum is more useful than Bitcoin.
- In comparison to Bitcoin, Ethereum is still in its infancy. Bitcoin’s use case has become more stable. As a result, its price may be less erratic, growing primarily due to scarcity, as gold does. However, Ethereum remains a jungle, similar to the early stages of the industrial revolution when coal and oil were first introduced, which could lead to future price explosions.
- The ability of Ethereum to replace some aspects of the physical world. Ethereum eliminates the need for banks, brokerages, exchanges, notaries, and even many government activities through smart contracts and tokenization. Ethereum’s value would be unimaginable if it could eliminate some of these in the future.
- Network costs are the lifeblood of cryptocurrencies. There are a slew of Ethereum competitors on the market, but none of them have caught on, despite the fact that they offer superior functionality and reduced transaction fees. Low adoption translates to lower transaction fee revenue and, as a result, a less viable bitcoin network. As a result, Ethereum, which has by far the largest fees, can nonetheless deliver the highest gains in the future.
CONS OF ETHEREUM INVESTING:
- When compared to Bitcoin, there is a significant increase in volatility. When Bitcoin falls, Ethereum tends to collapse much faster. For example, during the May 2021 crypto meltdown, Bitcoin plunged by 50% in ten days, while Ethereum fell by 55% in four days. Ethereum’s higher volatility is likely to remain until it reaches a more mature level of usage, similar to Bitcoin. Plus, even Bitcoin is still quite unpredictable; we’re talking about losing 50% of your investment in just ten days!
- Ethereum’s technical bottlenecks Because Ethereum’s decentralized transaction capacity is restricted by current technology, the Ethereum network is frequently congested. Congestion results in enormous transaction fees, which can be up to ten times the standard fee to complete your transaction. If Ethereum is unable to fix this issue, it may be wiped out by a competitor. Cryptocurrencies are highly speculative assets, and once deemed ineffective, they can quickly lose the majority of their value.
- DeFi is both costly and unstable. Borrowing rates in DeFi applications are absurdly high, reaching up to 100% per year, as a result of the inherent price risk in cryptocurrencies as well as the smart contract technical risk. Furthermore, a collateral equal to 150 percent of the loan amount is required while borrowing. You must also deposit the collateral in Ethereum, which can be liquidated quickly if the price of Ethereum falls. Ethereum acceptance may not continue if DeFi does not grow cheaper and safer, and its fundamental notion may eventually fail.
- Regulations are lacking. There is no legal framework in place to deal with conflicts that may emerge as a result of smart contracts, which is required for NFTs to gain widespread use. Otherwise, instead of being used by the entire public, they would only be used by a tiny, tech-savvy community. Ethereum’s growth would be hampered as a result of this.
The disadvantages of Ethereum may be found in almost all cryptocurrencies. Because no one knows where the market is going, it stays extremely volatile. If you intend to invest in any cryptocurrency, you should first set long-term objectives and create a strategy.
Due to the considerations stated above, there will be many ups and downs in price action along the way, but you must constantly maintain your calm, which can only be accomplished by keeping to your long-term goals.
In the future, Ethereum has the potential to become a significant part of our life. It’s a game-changing cryptocurrency that’s more than just a payment method. It has the potential to become our go-to digital location for banking, brokerage, legal, and online retail services without having to leave the house. All of this may be found under one virtual roof.
Bitcoin revolutionized the way we think about money, and Ethereum has the ability to revolutionize the financial, legal, and governmental systems as well.
We can do the following with Ethereum:
- Obtain a loan from anywhere in the world
- obtain interest from all over the world on our savings
- Purchase or sell any property, both digital and physical, from anywhere in the world.
- and make money by playing video games
All of this is done using smart contracts, with no political boundaries or middlemen!
However, Ethereum is still in its infancy, and its usefulness and capacity are constrained by current technology. Although the primary goal of eliminating intermediaries is to reduce transaction costs, Ethereum’s present price volatility and network congestion are likely to make transactions just as expensive, if not more so, than using a traditional intermediary.
If these issues are not resolved, Ethereum faces the possibility of being supplanted by a competitor or possibly failing as a concept.
Ethereum is in a similar situation as coal and oil during the dawn of the industrial age. We’ll witness how it shapes digital society in the future, as well as the consequences for the conventional, physical world. If you choose to invest in Ethereum, you are betting on the possibility of a similar impact.
If you believe in a future with Ethereum, you can also choose to start your own DeFi or NFT project; a lending & borrowing platform or a decentralized exchange with better functionalities maybe, or a token with your valuable items, or even a play-to-earn video game and try to make a fortune out of it!
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Quick, name the cryptocurrency that is the most valuable in the world. You could think of it as the top dog in the cryptocurrency race. It’s called Ethereum, and it’s currently second only to Bitcoin in market cap. But you don’t need to be a rocket scientist to learn about Ethereum. In fact, you could learn more about Ethereum in an hour than most people learn in a lifetime.. Read more about all to know about ethereum and let us know what you think.
Frequently Asked Questions
What is ethereum everything you need to know?
Ethereum is a decentralized platform that runs smart contracts, which are applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.
What will ethereum be worth in 2030?
Ethereums price is not set in stone, but it will likely be worth more than $1,000 USD by the end of 2030.
What is ethereum for beginners?
Ethereum is a blockchain-based platform that allows users to create and run their own decentralized applications.
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