Ethereum

Definition

Ethereum is a decentralized, open-source blockchain platform that enables developers to build and deploy smart contracts and decentralized applications (DApps). Unlike Bitcoin, which primarily serves as digital currency, Ethereum's main feature is its ability to execute programmable transactions through its own cryptocurrency called Ether (ETH). This flexibility allows for a variety of use cases beyond simple transactions, including decentralized finance (DeFi) and non-fungible tokens (NFTs).

5 Must Know Facts For Your Next Test

1. Ethereum was proposed in late 2013 by Vitalik Buterin and went live in July 2015.
2. The Ethereum network utilizes a consensus mechanism called Proof of Stake (PoS), which aims to be more energy-efficient compared to Bitcoin's Proof of Work (PoW).
3. Ethereum supports the creation of Initial Coin Offerings (ICOs), enabling projects to raise funds by issuing their own tokens on the Ethereum blockchain.
4. The platform's major upgrade, Ethereum 2.0, aims to improve scalability, security, and sustainability by transitioning from PoW to PoS.
5. Ethereum has spurred the growth of a wide range of projects and sectors, particularly in decentralized finance (DeFi), where users can lend, borrow, and trade assets without intermediaries.

Review Questions

• How does Ethereum differentiate itself from Bitcoin in terms of functionality and purpose?
  • Ethereum differentiates itself from Bitcoin mainly through its focus on programmable transactions via smart contracts. While Bitcoin primarily serves as a digital currency for peer-to-peer transactions, Ethereum allows developers to create a wide variety of decentralized applications (DApps) that can automate complex agreements and processes. This flexibility opens up new use cases beyond simple currency transfers, making Ethereum a platform for innovation in various sectors.
• Evaluate the impact of Ethereum's transition to Proof of Stake (PoS) on the network's scalability and energy consumption.
  • The transition to Proof of Stake (PoS) significantly impacts Ethereum's scalability and energy consumption. PoS reduces the amount of energy required for transaction validation compared to Proof of Work (PoW) by allowing validators to create new blocks based on the number of coins they hold and are willing to 'stake' as collateral. This change not only makes the network more sustainable but also enhances its capacity to handle a higher volume of transactions efficiently, addressing one of the major criticisms faced by Ethereum under PoW.
• Analyze the broader implications of Ethereum's technology on traditional financial systems and how it promotes decentralization.
  • Ethereum's technology has profound implications for traditional financial systems by promoting decentralization through smart contracts and decentralized applications (DApps). By allowing users to engage in financial activities like lending, borrowing, and trading without relying on intermediaries such as banks or brokers, Ethereum empowers individuals and fosters greater financial inclusivity. This shift challenges established financial norms and encourages innovation in how transactions are executed and regulated, potentially transforming the entire financial landscape.

Related terms

Smart Contracts: Self-executing contracts with the terms of the agreement directly written into code, running on the Ethereum blockchain.

Decentralized Applications (DApps): Applications that run on a peer-to-peer network rather than being hosted on centralized servers, often utilizing Ethereum's smart contracts.

Ether (ETH): The native cryptocurrency of the Ethereum platform, used to facilitate transactions and execute smart contracts within the network.