What is Ethereum?

By Michael Thorburn

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Ethereum is an open-source blockchain platform that has its own cryptocurrency and operates its own programming language called Solidity.

As a blockchain platform, Ethereum is a decentralized public ledger that is used to verify and record transactions and designed to be unhackable. As a cryptocurrency, Ethereum is the biggest cryptocurrency after Bitcoin as of May 2021.

The users on the network can create, publish, monetize and use applications on the platform and use the Ethereum cryptocurrency as a form of digital payment. The decentralized applications on the network are known as dApps by its users. Ethereum users have to pay fees to use dApps, known as ‘gas’ because the fee amounts vary depending on the computational power required to execute them.

How Ethereum works

Founded in July 2015 by a small group of blockchain enthusiasts, Ethereum was created to allow developers to build and publish smart contracts and distributed applications or dApps without the risk of downtime, fraud or interference from third parties.

The Ethereum platform acts as a marketplace for financial services, games and apps which are protected against theft, fraud and censorship and can be purchased using the Ether cryptocurrency. While the Ether currency was created to be used on the platform it is now an accepted method of payment on online sites including Spotify and Travala.

As of May 2021, Ethereum had a market capitalization of $500 billion, making it the second largest cryptocurrency after Bitcoin and a major contender in the cryptocurrency market. Given its position in the market, Ethereum has become a popular investment choice among investors and traders.

As an investment instrument, cryptocurrencies are highly volatile and frequently experience boom and bust cycles. Investors who trade cryptocurrencies do so with the aim of capitalizing on their volatility. Over the course of the last year the price of Ether has risen significantly, back in Nov 2020 the value of one Ether was $463 and in Nov 2021 it stands at $4,720.

Benefits of Ethereum

Has wider ambitions

Unlike the Bitcoin blockchain, the Ethereum blockchain was not built to solely support its Ether cryptocurrency. The Ethereum platform has wide ambitions to become a platform that can be used to securely store information for all kinds of applications, including healthcare records.

Ethereum is decentralized

Built on blockchain technology, Ethereum is a transparent platform that does not rely on trusted third parties to verify and validate transactions. This makes the platform highly secure, and for investors can offer investments that serve to diversify their portfolio and spread their risk from other centralized investments.

Continuing development

It is anticipated that the Ethereum platform will be moving to proof-of-stake with the launch of Ethereum 2.0. The evolution and continued development of the Ethereum platform is expected to significantly impact the price of Ether and is being closely monitored across the market.

Drawbacks of Ethereum

Uses a complicated programming language

Ethereum uses a programming language that is similar to C++, Python and Java, but its own language Solidity can be difficult to learn. This combined with the lack of easy to find beginner tutorials make it difficult for programmers to quickly learn Solidity.

High transaction fees

Transaction fees on the Ethereum platform can be unstable, leaving developers looking to migrate their projects elsewhere. Not knowing how much Ether is required each day to build dApps can make it difficult for developers to create a realistic budget for their project.

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Author: Michael Thorburn

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.