The Basics of Ethereum: What It Is And How It Works

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Written By Larious

Larious is the Executive Editor of LowkeyTech. He is a tech enthusiast and a content writer. 





Last Updated on August 8, 2022 by Larious

We consider Ethereum to be one of the most well-known cryptocurrencies at present. Nevertheless, we expect Ethereum to be much more than a store of value or a medium of exchange unlike the majority of the other Virtual currencies including Bitcoin. However, this particular cryptocurrency can be considered to be a decentralized computer network that is blockchain-based.

A Brief Overview of Ethereum

Being a blockchain-based application platform, we can make use of Ethereum for sending and receiving value without any intervention from a third party.

It was VitalikButerin, a computer programmer, who was responsible for proposing Ethereum in the year 2013. Its primary intention was to enable the developers to generate their own applications, thus expanding the use of cryptocurrencies. Unlike the traditional applications, these applications which are Ethereum-based are referred to as apps or “decentralized applications”.

Functioning of Ethereum- How Does It Function?

It is possible for Ethereum to power different types of applications performing different types of functions:

  • Smart contracts – It will be possible to develop and deploy Smart contracts on Ethereum. By the term smart contract, we actually refer to a simple computer application using which two parties will be able to exchange valuable items such as stocks, cash, real estate, and so on.
  • Currency – A cryptocurrency wallet can be employed by you for sending and receiving ether and also paying for services and products in case it is possible to accept digital currency as payment. Moreover, you will be able to store the coins in a digital wallet by using Coinbase and several other platforms which makes them less susceptible to hackers out there.
  • Non-fungible tokens – It will be possible for artists to make use of these Ethereum-based tokens for selling art and so on to the buyers directly through smart contracts.
  • Decentralized finance – It might be feasible for some individuals to use Ethereum for avoiding centralized control over the transfer of cash.
  • Digital apps – Ethereum can be used by users for investing and sending cash, playing games, following social media, maintaining an investment portfolio, and so on.

Benefits of Ethereum

It is a fact that there are enough reasons for Ethereum to find a place behind Bitcoin in terms of popularity at present. In the following paragraphs, we will talk about the advantages of the Ethereum network over its competitors.

  1. Size of network

The network of Ethereum is approximately four times bigger compared to its closest competitor given that there are in excess of 250,000 active developers out there. This implies that it can boast of having lots of support on its site.

  1. Lots of celebrities

Some popular names who happen to be celebrities such as Mark Cuban, Ashton Kutcher, and the Winklevoss brothers have endorsed Ethereum over the years. In this way, it can be rightly asserted that Ethereum has got lots of backing, unlike other digital currencies.

  1. Market cap

Ethereum happens to be less vulnerable to inflation since it doesn’t have any hard cap, unlike Bitcoin. Nevertheless, Ethereum has an 18 million ETH every year annual cap while the rewards of the miners become less over time. In this way, the currency is further safeguarded in the long run.

  1. Decentralization

Many different nodes from different parts of the world provide power to Ethereum similar to other cryptocurrencies. In this way, it becomes quite tough to control, hack, or infiltrate Ethereum.

Drawbacks of Ethereum

  1. Security

Even though Ethereum happens to be an extremely secure network, one cannot deny the fact that it experienced a significant breach in the year 2016. Apart from this, it was also victimized by the Crypto Kitties congestion the next year which resulted in the capturing of the network.

  1. Scalability

Right now, is possible for Ethereum to handle only 15 transactions every second. Therefore, it can be rightly asserted that sluggish processing speed happens to be the biggest drawback of this digital currency.

  1. Community Discord

Ethereum has been overwhelmed by discord despite the fact that it can boast of having a huge number of developers. In fact, this has become even more pronounced with the introduction of Ethereum 2.0.

Final Words

So, these were some important points you needed to note when planning to invest in Ethereum or not. Also, these advantages and drawbacks mentioned above will help you make informed decisions when investing in Ethereum.


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