TL;DR
Ethereum boasts the second largest market capitalization among blockchain networks and uses Ether (ETH) as its currency. In 2022, the consensus method was changed to improve network performance, and founder Vitalik Buterin wants to develop Ethereum into a versatile platform. Currently, Ethereum plays a central role in various fields such as DeFi, gaming, NFT, and DAO.
What is Ethereum?
Ethereum is a blockchain-based decentralized platform founded by founder Vitalik Buterin in 2014. The core currency of this platform is Ether (ETH), which is used in a variety of digital applications.
Ethereum is made up of computer networks, or 'nodes', scattered around the world, so it operates without the vulnerabilities or limitations of centralized systems. This structure strengthens the security of the system and prevents it from being controlled by a specific group or individual.
While Bitcoin primarily functions as a digital currency, Ethereum goes beyond that function and supports a variety of applications. One of the most unique features of Ethereum is ‘smart contracts’. A smart contract is a program code that runs automatically when certain conditions are met, allowing transactions to proceed safely without intermediaries.
Thanks to this, Ethereum has become an essential tool for creating decentralized applications (DApps) and is used in a variety of fields, from DeFi services to online games.
Differences between Ethereum and Bitcoin
Bitcoin and Ethereum are both based on blockchain technology. However, the purpose, philosophy, and features of the two platforms are different.
- Purpose of release:
- Bitcoin: Introduced by Satoshi Nakamoto in 2009, Bitcoin focuses on its function as a digital currency. Bitcoin was created as a digital currency that can be traded without the intervention of a central authority.
- Ethereum: Founded by Vitalik Buterin in 2014, Ethereum aims for a wider range of uses beyond its function as a currency. Ethereum is a platform centered on building smart contracts and DApps.
- Smart Contracts and DApps:
- The main differentiator of Ethereum is that it supports the execution of smart contracts and DApps. Bitcoin also has smart contract functionality, but the smart contracts provided by Ethereum are much more diverse and scalable.
- Token Economics:
- Bitcoin: There can only be a maximum of 21 million Bitcoins, which is believed to be a factor in increasing the value of Bitcoin.
- Ethereum: There is no limit to the total supply of Ether (ETH). However, since switching to PoS in 2022, Ethereum has acquired deflationary characteristics.
In conclusion, Bitcoin and Ethereum provide different features and functions depending on their respective purposes and philosophies. Bitcoin aims to innovate as a digital currency, while Ethereum focuses on building new types of applications and contracts using blockchain technology.
How does Ethereum work?
Ethereum is a powerful platform in itself. To highlight some of Ethereum's unique features:
- Programmable Transactions: Smart contracts allow you to automate transactions based on user-defined conditions. This automation allows complex tasks to be safely performed without the need for a central authority or trusted third party.
- Scalability of DApps: Developers around the world are developing various decentralized applications on the Ethereum platform. These applications span a variety of fields, including finance, gaming, identity management, social media, and healthcare.
- Security: The Ethereum blockchain operates in a decentralized manner, so problems or attacks on individual nodes do not affect the network as a whole. This approach makes the network more secure.
- Change in consensus mechanism: The transition to PoS has significantly improved the energy efficiency of the Ethereum network. This marks a move towards environmentally friendly blockchain technology, offering more scalability and security.
Ethereum continues to grow as a leader in the evolution and innovation of blockchain technology. Ethereum is expected to continue to play a central role in the decentralized web in the future.
Conversion from PoW to PoS on Ethereum
Ethereum initially maintained its network by applying a proof-of-work (PoW) consensus method similar to Bitcoin. However, through the 'The Merge' event on September 15, 2022, Ethereum switched to Proof of Stake (PoS). This transition brought several benefits, including significantly reducing Ethereum's energy consumption.
Proof of Stake is a consensus algorithm that began to be introduced in 2011 and was presented as an alternative to overcome the limitations of Proof of Work. It is currently used in various blockchain networks, such as BNB Chain, Solana (SOL), Cardano (ADA), etc.
Understanding Ethereum 2.0
Ethereum 2.0, or Eth2 or “Serenity”, is a major upgrade to the Ethereum network that aims to improve the network’s performance. The release of Ethereum 2.0 was the result of a long period of preparation and required a complex process to safely scale the blockchain.
Ethereum 2.0 was gradually released in three parts: stage 0, stage 1/1.5, and stage 2. Each stage introduces new features and improvements.
In phase 0, the beacon chain was launched on December 1, 2020, and this chain operated in parallel with the mainnet and served to recruit validators. Validators at this stage will stake their Ether and keep it locked until the full implementation of the shard chain is achieved.
Phase 1/1.5 involves Ethereum’s transition from PoW to PoS with the introduction of shard chains. In Phase 1, a shard chain that generates blocks using proof-of-stake was introduced, and in Phase 1.5, there was an official transition from PoW to PoS.
Phase 2 is the complete introduction of Ethereum 2.0, where the shard chain is integrated with smart contracts to enable interoperability with various applications and services supporting Ethereum 2.0.
Three areas of the Ethereum ecosystem: DeFi, NFT, DAO
Ethereum has become one of the most popular blockchain platforms in the world since its launch. Among the various applications developed based on Ethereum, DeFi, NFT, and DAO are receiving particular attention.
1. DeFi
DeFi refers to financial services using blockchain technology without a central agency. These services run through smart contracts and provide a variety of financial products and services, including P2P lending, staking, and automated investment strategies. Famous DeFi platforms include Compound, Uniswap, and Abe.
2. Non-Fungible Tokens (NFT)
NFT is a blockchain token that represents a digital asset with unique information. It is used in various fields such as art, music, and game items, and each NFT is recorded on the blockchain to prove its ownership and authenticity. The representative NFT standard is ERC-721, and various digital assets are traded based on it.
3. Decentralized Autonomous Organization (DAO)
DAO is an organization operated by decision-making by community members without a central authority. Smart contracts are used to automate regulations, voting, and fund management, and various activities are performed according to the wishes of members.
In this way, the Ethereum ecosystem is constantly evolving and introducing innovative applications in various fields. Among them, DeFi, NFT, and DAO are currently the three most important fields and can be seen as examples showing the infinite potential of Ethereum.
Summary of frequently asked questions about Ethereum
1. What is the difference between Ethereum and Ether?
- Ethereum: A blockchain platform.
- Ether (ETH): The currency used on the Ethereum platform.
2. How to purchase Ethereum?
- You can purchase ether after creating an account on an exchange (e.g. Binance).
3. Is investing in Ethereum a good choice?
- Ethereum, like any other investment, has risks. Especially high volatility That's why you need to be careful.
4. How to make money on Ethereum?
- People who are active on the Ethereum network are rewarded with ether. exchange or You can stake Ethereum on DeFi platforms and receive rewards.
5. How to change Ethereum to cash?
- You can sell ether on the exchange and receive cash in your linked bank account.
6. What if you lose your ether?
- If you lose it, there is no way to get it back. Therefore, you must be careful about managing your wallet. do.
