Ethereum

Definition

Ethereum is an open-source, blockchain-based platform that enables developers to create and deploy decentralized applications (DApps) and smart contracts. It goes beyond just being a cryptocurrency by facilitating complex programmable transactions and providing a foundation for various applications across industries, making it a pivotal player in the blockchain ecosystem.

5 Must Know Facts For Your Next Test

1. Ethereum was proposed by Vitalik Buterin in late 2013 and officially launched in July 2015.
2. Ether (ETH) is the native cryptocurrency of the Ethereum platform and is used to pay for transaction fees and computational services on the network.
3. Ethereum introduced the concept of 'gas' to measure computational work, which helps to allocate resources on the network efficiently.
4. Ethereum 2.0 is a major upgrade aimed at improving scalability, security, and sustainability through a shift from Proof of Work to Proof of Stake consensus mechanism.
5. The platform has played a critical role in the rise of decentralized finance (DeFi) and non-fungible tokens (NFTs), revolutionizing how financial services and digital collectibles are created and traded.

Review Questions

• How does Ethereum's architecture facilitate the development of decentralized applications?
  • Ethereum's architecture includes a robust blockchain framework that supports smart contracts and decentralized applications (DApps). The platform allows developers to write code that automatically executes agreements when certain conditions are met. This programmability provides flexibility for creating a wide variety of DApps across different sectors, enabling functionalities that are transparent, secure, and resistant to censorship.
• Discuss the significance of Ethereum's transition from Proof of Work to Proof of Stake and its impact on scalability and energy efficiency.
  • The transition from Proof of Work (PoW) to Proof of Stake (PoS) is significant because it aims to improve Ethereum's scalability while reducing its energy consumption. PoW requires extensive computational power, leading to high energy usage, whereas PoS allows validators to create new blocks based on the amount of Ether they hold and are willing to 'stake.' This shift not only enhances transaction speeds but also aligns with growing environmental concerns, making Ethereum more sustainable in the long run.
• Evaluate the role of Ethereum in shaping the decentralized finance (DeFi) landscape and its implications for traditional financial systems.
  • Ethereum has been instrumental in shaping the DeFi landscape by providing a platform for innovative financial products that operate without traditional intermediaries. Through smart contracts, Ethereum enables services such as lending, borrowing, and trading to occur in a decentralized manner. This disrupts traditional financial systems by increasing accessibility, lowering costs, and enhancing transparency. As DeFi continues to grow on Ethereum, it challenges conventional banking practices, potentially reshaping how financial services are delivered worldwide.

Related terms

Smart Contracts: Self-executing contracts with the terms of the agreement directly written into code, allowing for automatic execution when conditions are met.

Decentralized Applications (DApps): Applications that run on a peer-to-peer network, rather than being hosted on centralized servers, providing greater security and transparency.

ERC-20: A technical standard for Ethereum tokens that allows for the creation of fungible tokens that can be used in DApps and on exchanges.