Founded in 2013 by Vitalik Buterin, Ethereum is a platform powered by blockchain technology that allows users to make peer-to-peer transactions, trade cryptocurrencies, use nonfungible tokens or NFTs, earn interest through staking, play games, and so on.
As the world’s second-largest cryptocurrency, there are a lot of speculations about Ethereum and its ability to potentially overtake Bitcoin as the dominant cryptocurrency in the market. Putting performance into perspective, Ethereum is one of the best-performing equities with billions of USD placed in the ecosystem. But what’s unique about Ethereum is the fact that it is intended to be much more than a store of value or a medium of exchange, unlike most other virtual currencies in the market including Bitcoin.
So whether you’re planning to include cryptocurrencies in your investment portfolio or just remotely curious about this space, this beginner-friendly article will serve as a guide that will walk you through the key ideas behind this network.
Uses of Ethereum
Decentralized finance or also known as DeFi allows users to lend, borrow, invest, and trade in the blockchain smoothly without worrying about any third-party interference. All of this can be done through the software that verifies and records each financial transaction from all users regardless of who or where they are. With DeFi, the complexities of cross-border remittances can be simplified through automation and are relatively cheaper as compared to its traditional alternatives. Its massive growth over the recent years had a significant impact on how banks operate and even has the potential to change financial systems at a macroeconomic level.
Another big trend in the Ethereum network right now is NFTs, which are digital assets ultimately designed to represent ownership of unique virtual items like art, music, game objects, redeemable, and more. Representing real-world items through tokens allows them to be bought, sold, and traded in the digital asset marketplace. The fungibility characteristic of these tokens makes it impossible for one NFT to be equal to another, thereby making each of them unique and easy to distinguish from other tokens. This makes NFTs extremely valuable in the world of gaming, where players can buy heroes, skins, items, along with other in-game assets that are limited in quantities and can’t be altered.
On top of that, Ethereum is now gearing up to launch a significant upgrade to its current network through Ethereum 2.0 in order to address issues like scalability, network congestion, and excessive energy consumption required to make the blockchain function. Unlike many other cryptocurrencies in the market, the shift to proof-of-stake mechanism in Ethereum 2.0 radically reduces the overall energy consumption by 99.95%. In addition to this, developers are constantly striving to increase network capacity and improve transaction speed to process at least 1,000 transactions per second.
Beyond reducing mining waste and improving efficiency, the technology behind Ethereum 2.0 also gives an average person greater access to financial services at a low cost. This shift to Ethereum 2.0 is expected to have a profound effect on its price as faster transactions and lower fees make the network more appealing to a broader demographic of users.
Comparing Ethereum To Bitcoin
By market capitalization, Bitcoin and Ethereum are the two most valuable currencies built on blockchain technology today. While both are a good choice for crypto starters, these two digital currencies have different use cases. One of the primary differences between the two is the fact that Ethereum is designed to build new programs and automate processes, whereas the utility of Bitcoin is limited as a digital currency and a medium to store value.
As more and more developers are entering the Ethereum network, financial experts compare investing in Ethereum to investing in a real-world tech company. On the other hand, many investors see Bitcoin as digital gold because of its more predictable returns on investment and a store of value that guards them against inflation.
The developers of Ethereum based its foundations on the core concepts of Bitcoin and improved upon the platform to build smart contracts and distributed applications—providing more functionality and real-life uses. While the technology behind Ethereum isn’t perfect yet, many people are excited about its potential to impact processes across all industries and open the door for a wide array of unique innovations.