Ethereum is the second-largest cryptocurrency by quantity, but its versatility can create a much larger learning curve for new investors than Bitcoin.
How does Ethereum Works?
Bill Noble, chief technical analyst at Token Metrics, a cryptocurrency analytics platform, explains that “Ethereum serves two purposes: The first one acts as money and can be seen as a store of value.” Noble also explains that “Ethereum is also like a freeway for regionalized finance.”
Ethereum is a software platform that runs on a blockchain and allows for virtual money and finance.
Users can interact with the platform using Ether, the cryptocurrency associated with Ethereum—or they can buy and hold it as a store of value.
Developers commonly use Ethereum. It seems as though people are investing, as many can foresee the high potential value this crypto will hold.
Ethereum in every way
Vitaliy Buterin invented Ethereum in 2015, based on Bitcoin.
Ollie Leech, learn editor at Coinvest, a cryptocurrency news outlet, voiced his findings—”He realized that Bitcoin is like a pocket calculator, designed to do one thing, and he does it very well. But you can’t do anything else with it.”
So, Buterin designed Ethereum, a blockchain network with an associated cryptocurrency called ether (ETH). Ether has the ability to serve a far bigger function. While you can buy and trade Ethereum as an investment like Bitcoin, it is also a software platform that developers can use to create new applications. Like the apps on our smart phones, these apps may be anything from lending apps to payment platforms. Leech described Ethereum as our smartphone. Creators can build apps on smartphones similarly to how they can build apps on Ethereum.
While mobile phone apps provide more universal applicability, Ethereum apps are more pitched toward crypto users. A developer could create the app, which other crypto users could in turn utilize to lend and borrow. Leech says, “It’s all powered by this idea of smart contracts.”
Smart Contract
A smart contract is a program that runs independently on the Ethereum blockchain. Smart contracts perform all the functions that third parties normally have to take care of. For example, people can complete direct transactions over the network. It is obvious that peer-to-peer lending is gaining popularity on Ethereum right now, says Leech.
A lending app developed on the Ethereum network allows individuals to lend money to one another without involving a bank. The algorithm designed smart contracts power these apps. It performs a specific function when certain conditions are met.
In the case of the peer-to-peer loan, the contract generates the result (lending the money) when the collateral is placed in the correct wallet or account.
Potential benefits of using a smart contract instead of a traditional lender include speed of execution, lack of human error or bias, and lower fees.
Other Uses of Ethereum Like other popular cryptos. Principles of decentralized finance builds Ethereum. This is because the products and services that live on Ethereum are available to anyone who can access the internet.
Smart contracts allow creators to build regionalized applications that can serve different purposes. These applications include financial tools like cryptocurrency exchanges, decentralized lending platforms, and data services like Match, which searches multiple cryptocurrency exchanges for the best prices.
However, there are also categories of apps for things like buying and selling digital artwork, gaming, and developer technology. Ethereum’s open-source concept allows for developers to build entirely new cryptocurrencies on top of it. Cryptos are tokens like Chain-Link and XRP. Some of these assets come in the form of different cryptocurrencies you may have heard of, like Tether (USDT), Uniswap (UNI), or USD Coin (USDA).
Other Digital Assets on Ethereum
Ethereum creates digital assets like cryptocurrencies. However, it is not limited to cryptos. Ethereum also creates the recently introduced Non-fungible tokes (NFTs). The platform powers these digital tokens. The tokens represent ownership of unique items, according to Ethereum’s website.
