Ethereum For Dummies
Ethereum is both significant and perplexing. On the one hand, it has vast applications as a digital asset. But, on the other, it isn’t easy to understand. Is it a cryptocurrency? Or something else altogether? And what are the practical applications and future outlook?
Ethereum is considered the second most popular cryptocurrency, second only to Bitcoin. But where other cryptocurrencies are only an exchange medium or value store, Ethereum is also a “programmable blockchain” marketplace.
This marketplace of applications, available to the public, begins with choosing a wallet that allows you to manage Ethereum’s cryptocurrency Ether (ETH) and your Ethereum account. This enables the exchange of value between users for a small fee.
There are also Ethereum’s Decentralized Applications (dapps) for finance, gaming, arts, and technology use. Ethereum promotes these as “games and apps that can’t steal your data or censor you.”
To take things back a bit further, you should understand some of the rudimentary terminologies.
Mediums of exchange enable trade, sales, and purchases between parties with a mutually acceptable standard of value. For example, with traditional money as the exchange medium, two parties agree on a price and exchange currency as value for goods or services. When using unequal funds (e.g., the Euro and the US dollar), they would employ an exchange rate for value fairness.
Cryptocurrency has no intrinsic value or physical form, and it doesn’t require an exchange rate. Its exchange medium is also decentralized, meaning no central authority governs its value. Cryptocurrency users distribute the digitally encrypted medium instead of financial institutions. Verified and recorded transactions are updated universally in a blockchain.
A blockchain is an openly distributed ledger of encoded transactions spread worldwide. The way it works is that a transaction is requested and broadcast to a peer-to-peer (P2P) network where algorithms validate and verify the transaction. That transaction is combined with others to make a block of data. This block is then linked in a chain of previous transactions.
The completed transaction is permanent, residing digitally encrypted on computers all over the world. The unified transaction record updates for everyone instantaneously, so records are precise and matching. This widespread transparency and permanence prevents someone from altering it afterward. Hackers can’t access one banking system and change the information because it doesn’t reside on only one system.
Some experts consider blockchain technology the next-generation software for business processing. The ability to move exchange mediums quickly, verifiably, and accurately without a middleman financial institution could be the means to achieve higher investment returns with lower fees and better security.
How Is Ethereum Different?
Ethereum is the blockchain network. Ethereum has the cryptocurrency Ether, but it can also hold and exchange other cryptos like Bitcoin.
In the most straightforward application, Ethereum is used to create conditional statements (also known as if/then statements). These statements are programming language commands that allow the user to handle decision-making with a hypothesis followed by a conclusion. In other words, if one thing happens, then this other thing will happen. The results of the boolean condition evaluate as True or False (or similarly contrasting alternatives).
Ethereum offers diverse functions outside ETH. The network can, for example, pass intermediaries in other ways, like storing data and decentralized applications instead of using host servers. Smart Contracts are another available function available, bypassing lawyers and instead code the contract directly onto the blockchain with mutually agreeable conditions.
Ethereum, therefore, is more than just a medium exchange of cryptocurrency. Instead, it is a system with an extensive variety of functionality and widespread popularity that will allow for continuous innovation.