10 Things You Need to Know about Ethereum
Everyone’s heard of bitcoins, but not many know about Ethereum. One of the most sought-after cryptocurrencies in the world, it is making big waves in the world of FinTech. Here are 10 things that you absolutely need to know about Ethereum:
- It is a platform which facilitates peer-to-peer contracts
Ethereum is open source public software which was developed by cryptocurrency researcher Vitalik Buterin in 2013 as an alternative to make online payments. As opposed to other cryptocurrencies, Ethereum is designed not as a payment application, but as a platform for peer-to-peer contracts.
So, what does this mean? Well, Ethereum functions as a platform where two parties, for example a seller and a buyer, meet, interact and make a transaction, all without the interference of a middleman.
Although you can make financial transactions on the Ethereum platform, you can also indulge in other peer-to-peer activities. For example, you can raise funds for new businesses on Ethereum or develop applications on the platform and sell them to corporate buyers. British banking giant Barclays PLC engages in trading of derivatives on the Ethereum platform.
- It uses digital currency called ‘Ether’
Cryptocurrencies first came into view when Satoshi Nakamoto introduced Bitcoin to the world in 2009. Soon after, other cryptocurrencies came into the picture, including monero, ripple, litecoin, Zcash, dash and ethereum’s very own digital coin – Ether.
Dubbed as the ‘crypto-fuel of the Ethereum network’ by the Ethereum fraternity, Ether is the digital currency that users use to conduct transactions on the Ethereum platform.
In terms of commercial transactions, Ether is the money users pay developers for the services they provide on the platform.
- It has the second highest market capitalization in cryptocurrencies
Today, bitcoins stand at the top of the cryptocurrency chart with a market capitalization of $241,589,670,790 USD. Ether (and by extension Ethereum) currently has a market capitalization of $69,934,201,326 USD, making it the second most powerful cryptocurrency in the world.
So what does this mean for the general public? Well, because it is so valuable, tech-savvy investors are bound to make greater investments in Ether and Ethereum. Additionally, given that Ethereum offers users other features apart from payment-related transactions; they are increasingly being used by corporates globally.
- It is powered by a blockchain
Ethereum, like bitcoins, is a decentralized platform; meaning it allows users to conduct financial and non-financial transactions in total and complete anonymity. Anything you do on Ethereum or do through the website cannot be traced by law enforcement agencies and financial institutions, making transactions completely secure from third parties. This feature makes it almost impossible to trace the digital footprint of users.
To solve this concern, cryptocurrency software use something called ‘blockchain’, which act as online ledgers and account for every single transaction conducted on the software. Ethereum’s blockchain too tracks every single application, activity and transaction that occurs on the platform and ensures that there are no illegal activities taking place.
The blockchain adds an extra layer of security to transactions and tracks and prevents chances of currency counterfeiting.
- It uses state-of-the-art FinTech feature called ‘Smart Contract’
The best feature of Ethereum is the ‘Smart Contract’. Let’s understand how this key feature works using an example.
Let’s assume that you wish to start investing in the stock market. You approach an Ethereum developer for help. The developer uses the ‘Smart Contract’ feature and creates an application through which money will automatically get deducted from your account and go to your chosen stocks, shares and bonds periodically, all without your intervention.
Not only this, but any instructions that you have given regarding ploughing-back the profits into other streams of revenue will also be followed, with the application continually investing, spending and saving money all on its own.
The ‘Smart Contract’ feature enables the development of fully-automated applications that will run by themselves as per the rules of the contract between the parties involved.
- It can be used to trade in absolutely anything
Not only does Ethereum help invest, spend and save money for you, but the platform can be used to buy and sell everything from real estate to bitcoins.
That’s right. Ether to bitcoin and bitcoin to Ether exchanges are quite common in the world of cryptocurrency, what with users often conducting transactions across multiple platforms. Today, the exchange rate of Ether and bitcoin stands at ฿0.04862665 BTC = 1 ETH.
- It functions as a decentralized app store
Are you a budding developer with software that you’d like to list online? If yes, then you need to get yourself on the Ethereum platform.
But there’s a catch. Ethereum allows publication of apps that are completely decentralized; meaning, they do not require a middleman to manage the transactions between users.
For example, traditional payment gateways are actually the middlemen facilitating payment between buyers and sellers. But, with Ethereum, developers can publish only those decentralized apps, aka ‘dapps’, which directly connect service providers to service users, without any facilitating agent, a censorship body or a notary in between.
- It was absolutely worthless after the June Flash Crash
It was 12:30 PM on June 21, 2017, when Ether traders on the GDAX cryptocurrency exchange noticed something alarming. The Ether cryptocurrency, priced at $319 for the day, plummeted to a historical low of 10 cents in under a second. In a single second, Ether transformed from one of the most profitable currencies to the greatest loss-maker.
The problem started with the falling price of Ether. The knock-on selling effect of the 800+ stop loss orders resulted in Ether losing value, fast. But, the cryptocurrency soon regained its value and is now once again the second-highest valued cryptocurrency in the world.
- Sending and receiving money through Ethereum is as easy as making other digital payments
When you make a payment through a payment gateway, banks use your credit card/account number as a way to verify who you are. They also use the payee’s bank account number to verify who’s receiving the money. This adds greater security to your financial transactions.
Similarly, in order to transact on Ethereum, users need to use two keys, which are a special alphanumeric combination, unique to each user. The public key is what you’ll send to other users, to which they send the ether.
The private key is the key that verifies your identity on Ethereum and allows you to receive the money. This private key also acts similar to an ATM/card pin, which you need to use to send funds of your own.
- It turned 2 in 2017
Introduced to the public on July 30, 2015, Ethereum is a fairly new concept, coming almost 6 years after the introduction of bitcoin. But, despite being just 2 years old, Ethereum has become one of the most powerful cryptocurrency platforms in the world.
Today, 38 countries use Ethereum to transact online. With millions of users in its kitty, Ethereum is turning out to be a powerful player in the world of digital currency.