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What is Ethereum And How Does it Work?

Ethereum first came into its own in the cryptocurrency world when Vitalik Biteren and Gone Wood founded it in 2015.

In 2021, the its price touched an all-time high (ATH) of $4,379 from February to May. Again, on November 16, 2021, it hit another ATH of $4,891.70.

As bitcoin plays a role as a foundation for peer-to-peer currency and a store of value, Ethereum emerges as an innovator with a grander vision. It is not like buying or selling; it has a different purpose. This is a network of blockchain technology that is not controlled by any person or group. This article provide you a complete knowledge.

Ethereum coin in a group of chess
Photo by Ivan Radic

What is Ethereum?

According to crypto, Ethereum is “a global, decentralized platform for new kinds of applications as well as for money.” It contains thousands of games and apps running on top of its blockchain. The blockchain network behaves as a center for it. Mainly, the blockchain is a decentralized, shared public ledger.

This means that everyone participating in the Ethereum network has the same copy of the record, which allows them to see all past transactions. It is decentralized in that the network isn’t held by an individual; instead, it is controlled by all distributed ledger holders.

To overcome the security issues, cryptography is used for blockchain transactions. The native token in the Ethereum network is “Ether.” It can be used for the buying and selling of goods, like bitcoin. Its uniqueness is shown by its amazing feature of allowing users to build applications and then run them on the blockchain as the software runs on computers.

How does it work?

It operates on a decentralized network of thousands of computers, or, as we can say, “nodes.” It is basically used to build resistance to attacks and downtimes. As the Ethereum is decentralized, it runs a computer called the Ethereum Virtual Machine (EVM). The transactions are stored in blocks on the Ethereum blockchain. Miners validate it by using a proof-of-stake consensus method and get rewarded with ETH for verifying the transaction.

Moreover, the transactions on Ethereum are public, and then miners transmit them to confirm the changes and the ledger. The user has to pay the gas fees for each transaction. This payment incentivizes miners and also secures the network.

To interact with Ethereum, it is important to store the cryptocurrency in a wallet. This wallet behaves as a passport, and it is connected to DApps. In contrast to traditional websites, it allows its users to browse and do work without any intermediary transactions, which increases user interest.

How to buy Ethereum?

Every beginner thinks that it is not possible to buy Ethereum because it is a network. But instead of buying it, you can buy ether and then use it in the Ethereum network. So buying the Ethereum is very easy by following the given steps:

Choose a cryptocurrency exchange:

It is wise to buy Ethereum through a cryptocurrency trading platform instead of buying it directly. You may have to face some complexities on these platforms, depending on your experience. Different platforms have different features, security measures, and options, so it’s good to do some research before you sign in to that platform.

Fund your account:

After a complete research, now it’s time to sign in to the account for which you have to add your personal information and ID verification. After that, you have to link your credit card or bank account to your fund account.

But it doesn’t mean that you’ve bought the Ethereum. Of course, you wouldn’t want your money sitting and doing nothing. Now the main part comes, where the actual work is done.

Place an order for Ethereum:

Just after funding your account, you can trade your U.S. dollars. You can trade by putting the amount in dollars you want to swap and according to the current price of Ethereum. In the form of a percentage, your purchase will be shown. You can get help from some experts’ views about trading.

Store your Ethereum.

If you are working on a small amount, then it is easy for you to leave your investment on  exchange. But if you have a large investment, a lot of digital wallets are available, which provide you with extra security. Different types of digital wallets are available; they are different due to the levels of protection they provide, like paper wallets and mobile wallets.

Ethereum vs bitcoin:

People often compare Ethereum with bitcoin; they have some similarities and some differences.

Ethereum is a programmable blockchain that represents itself like a network. Ethereum wants to make app stores or working with fund managers more automated; it wants to remove the presence of middlemen. On the other hand, bitcoin was especially created to support only bitcoin cryptocurrency.

Bitcoin has a limit of 21 million bitcoins, which is the maximum, but Ethereum doesn’t have a cap on its price. However, the creation of new ether can be limited due to the time consumed in the process of transaction. According to research, currently there are over 120.18 million coins in circulation, while the amount of bitcoin that is in circulation is over 19.59 million coins.

Another key difference is that Ethereum shifted to a proof-of-stake system in September 2022, while bitcoin remains in an energy-intensive proof-of-work method.

In the proof-of-work method, miners have to solve complex problems and also compete for rewards, while Ethereum is an energy-efficient method that doesn’t require any type of intense competition like bitcoin. .

What is Ethereum 2.0 (Eth2)?

Ethereum is slowly upgrading to a new version of Ethereum 2.0 (ETH2). It is expected that this version will introduce proof-of-stake consensus algorithms. This upgrade starts at Beacon China with a big change in shard chains.

In sharding, the transactions are spread over the smaller blockchain networks. The users who do not have a powerful computer manage these transactions. For that purpose, they only need to store the information on their shard rather than the entire network.

The transition to Ethereum 2.0 aims to solve the problem of high fees and low verification times. Instead of using mining, it is replaced by proof-of-stake, which doesn’t require a lot of energy. Proof-of-stake is operated by validators instead of miners. Validators are basically similar to the “nodes,” and they must have a minimum stake of 32 ETH. By keeping their computer connected to the network, they can earn the reward.

The argument for proof-of-stake is that it is a much faster and easily accessible form of consensus blockchain, requiring no hardware. This accessibility is expected to make Ethereum better, and we hope that more validators will make the network strong and safe.

The future of Ethereum:

By seeing the constant upgrades, it seems like the upcoming years are good for it. It is becoming very popular; developers are using it for projects like NFTs and decentralized finance. It means that the more activity there is, the more developers are interested in.

There is a question about what will be the position of Ethereum in the future?. The investor Gard suggested that the crypto market might have faced some changes if it remained important and bitcoin became dominant again.


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