2021-09-22
The Technology Behind Ethereum
Ethereum is a well-known cryptocurrency with market cap just second to Bitcoin. Ethereum or Ether (ETH) is a cryptocurrency behind Ethereum's blockchain platform.
Ethereum is a community-built blockchain technology that is powering ETH. It works as a decentralized public ledger used for verifying and recording transactions, and built on the same recipe as Bitcoin with a pinch of twist.
Both Bitcoin and Ethereum perform as an open access to digital money that let users to send digital asset without any intermediaries. Ethereum is programmed so that users can use it for other cryptocurrency projects and applications. That means Ethereum functions more than just a medium of payment, and serves as a marketplace for several financial services, applications, games, and non-fungible token (NFT). Ethereum network also ensures that user data cannot be stolen or censored.
Ethereum tries to solve the scarcity of banking access because not everyone has the ability and knowledge on how to use the financial facilities. As long as users have an Ethereum wallet and internet access, they are able to use its lending, borrowing and saving products.
Ethereum aims to provide more value added and no surveillance facilities. Therefore, there will be no Know Your Customer (KYC) needed to use Ethereum applications. It also allows users to make transactions or agreements directly with the recipient party without any intermediaries, making the transaction more secure and private.
Ethereum using the decentralization method make it impossible for anyone to stop using them. Plus, all transactions made to and from a wallet address can be tracked on the Ethereum scanner. It allows every transaction to be visible and transparent.
Many cryptocurrencies are being created on top of the Ethereum blockchain ecosystem. The Ethereum community builds a whole financial system where users can use ETH as collateral to generate different cryptocurrency tokens on the its network. Users can also lend, borrow and earn dividends and interest on ETH, as well as other ETH tokens. Each token developed opens a new possibilities. Examples of tokens or coins behind Ethereum networks are stable coins, governance coins, sh*t coins and collectable tokens.
There are three main essential elements of Ethereum; Ether (ETH), wallet and Ethereum DApps, which are shown below:
It is common for new crypto users to get mixed up between Ethereum and Ether (ETH). Ethereum is the blockchain of the project, while Ether (ETH) is the currency behind Ethereum. So when you say you are buying Ethereum, it is most likely ETH and not the blockchain (Ethereum).
ETH is a cryptocurrency that is used to purchase on the internet. ETH gives user an ultimate control of the asset. User can control their own fund in their own wallet as proof of ownership, with no intermediary required for any transactions. No middleman concept is similar to passing cash from one person to another without involvement from third party. It can be done securely with anyone, anywhere and at any time.
Digital assets might be a new technology, but it is secured. ETH wallet and every transaction made is protected by cryptography. There is no institution or bank that can suddenly change the term of use or have the ability to print additional ETH. It is decentralized and transparent, hence can be publicly seen by the whole world. Many crypto wallets are accessible without KYC. Hence, there access to any bank account to accept payments is not needed. In addition, ETH is divisible up to 18 decimal places, implying that you can send or buy a fractional - as low as 0.000000000000000001 ETH.
Whenever a user send ETH or use any of Ethereum-based applications, it is mandatory to pay a small gas fee (gwei) to use the Ethereum network. The gas fees is an initiative towards the miner’s process and as a verification of your transactions. Miner is a crucial element of Ethereum. They serve the purpose of record keeping. They check, track, and prove the authenticity of every transaction. Miners will also be rewarded with small amounts of newly issued ETH.
Cryptocurrencies wallet is the heart of digital assets where it gives access to a user's funds on every Ethereum applications. It is vital to ensure that only the owner will have access to their wallet. Crypto wallet will only work as a managing tool. Like Metamask, it let you manage several accounts under one application. Wallet works like an internet banking apps; it allows user to send or receive transactions, connect to other applications, record balance and all transactions. Some wallet offers more facilities such as staking, decentralized applications (DApps), swaps and many more.
Wallets will grant access to any decentralized application. It works as both username and password for login. It helps to bridge with many other DApps. Wallets such as Ledger, Metamask, Trust Wallet can be used to facilitate this function.
For example, if a user try to use OpenSea, they cannot create an account using email and password, however they will need a crypto wallet to unlock the application. In order to mint an NFT, a user need a minimum balance of ETH in your Ethereum Wallet.
DApps are applications built on the Ethereum network to upgrade traditional business model or inventing a new one. Before a user begin to use DApps, they will need to connect using wallet and use ETH to pay for any transactions fees.
DApps use Ethereum blockchain as a data storage and intelligent contract (backend code) to run their applications on the decentralized and non-centralized server. A smart contract is a set of live, on-chain rules that can be executed once all elements are fulfilled.
There are 4 major DApps categories that are available on the Ethereum network, which are:
Decentralized finance (DeFi) is a financial system that runs on Ethereum. For example, Uniswap and 1Inch works as an exchange that allows user to swap from one coin to another. In traditional finance, this is known as remittance. They also provide bridge services such as converting an Ethereum token to Binance Smart Chain tokens.
Lending and borrowing is another aspect of cryptocurrencies that disrupt traditional finance. It allows individual and business to perform as a lender or borrower of cryptocurrencies. Users can use their crypto as collateral to borrow USDT. This service is provided in projects such as Aave and Compound. dYdX is an example of a DApp that perform as a trading exchange. It is fast and performs with no gas fees, unlike other exchanges. With over $ 1 Billion trading volume, it is safe to say that dYdX existence is to create a better alternative of financial facilities. Using DApps, users do not have to perform KYC and will not have to move their cryptocurrencies from wallet to trading platform as the platform can be connected directly with the Ethereum Wallet.
If you hold a large number of Ethereum and afraid of any hacking possibilities, DApps like Nexus and Etherisc are available and works like an insurance but without any insurance company.
Digital collectables, arts, fashion and audio are some examples of NFT. The main focus of NFT is on digital ownership, earning and investing in creators and their creation. There are different types of NFT DApps, such as Audius for music NFT, Rarible as a marketplace for collectables and Async for art.
NFT DApps proves ownership so that every artwork with able to secure its authenticity. Every NFT path can be traced from its creation up to its current owner. The collectables are linked to user's wallet address. Thus, allowing them to sell items on the marketplace.
The rarest DApps are technology DApps, where their focus centre on developers tools, incorporating cryptoeconomic systems into existing technology and creating marketplaces for open-source development work. Famous technological DApps are browsers such as Brave and Opera. Opera browser has its own Ethereum Wallet built-in the apps.
The most famous DApps are gaming DApps. These games are mostly of virtual worlds or battle games among players using collectables that hold a real world value. This means every collectable bought on the game can be sold off at another DApps market.
Axie Infinity is the most well-known gaming DApps. They have more than 250,000 active players with up to 90,000 ETH has been traded on their in-house marketplace, and their collectables stored real value. The most expensive Axie was being sold at 300ETH, which amounted to $ 943,572 as of 20/09/2021.
Ethereum 2.0 or ETH 2 is a set of upgrades that allow Ethereum to be more scalable, secure and sustainable. The upgrades is a joint interconnection work of multiple teams across the Ethereum ecosystem.
There are 3 different sets of ships of ETH 2:
To become a validator for ETH 2.0, user will need to stake a minimum of 32 ETH to activate the validator software. The validation process will keep Ethereum secure and help the validator earn new ETH in the process. This process is known as Proof-of-Stake (PoS) and was introduced by the Beacon Chain. If anyone is interested to stake ETH 2.0 but owns less than 32 ETH, they can go to any exchanges or institutions that provide the facilities.
It is important to understand a cryptocurrency and its technology before investing. Looking at the promising current project and its prospect will give investors a better understanding before spending on a coin or a project.
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