But, what is Ethereum? Why is it so powerful? What made experts think that Etherum is more potent than Bitcoin? To know the answers read this article.
Bitcoin is the first Cryptocurrency that led us to a new concept of Decentralized money. To know more about Bitcoin and how it works, do read our article on Bitcoin.
The idea for inventing Bitcoin is to decentralize money. Decentralization of money has many advantages like:
- You cannot manipulate the currency.
- Decentralization brings democracy into currency. The money is not run by governments any more.
- Every transaction is open and can be audited openly, which is fair.
As the concept of decentralized money gained popularity, the usage of Bitcoin also increased.
But the main driving force for Bitcoin to be so popular is Blockchain technology.
The power of blockchain technology is so fascinating. The data stored in the Blockchain is hard to modify. It’s tough to commit fraud in Blockchain.
To know more about Blockchain, you can read here.
The protocols that are once written are challenging to modify. The power to change the game rules is not centralized or is evenly distributed to every participant.
In simple words, there are computes called nodes that are connected with a Blockchain network. These nodes constantly update the blocks whenever a new transaction occurs.
Once the transaction is registered and updated in all the nodes, no one can alter the data because a replica of the same information is stored in different nodes.
The unique feature of Blockchain is its immutability. It provides all sorts of security to the data that we require today.
The Start of Etherium
In 2013 a programmer and developer called Vitalik Buterin had seen the vast scope of Blockchain technology.
He was keen to use Blockchain for Cryptocurrency and generalize it to the entire financial system. Above all, he wanted to scale the usability of Blockchain beyond the financial system.
The thought made him develop a code that became the platform for many ambitious projects on Blockchain. It is the Birth of the etherium.
I know that the concept of Etherum is challenging to understand. So. Let me simplify the complicated outlook of Etherum.
In layman’s terms, we can say that Vitalik Buterin, along with his co-developer, Gavin wood, has invented a new operating system just like Windows and Android.
The name of this new operating system is Ethereum. The software works on Blockchain technology. Ethereum is written in a programming language called Solidity.
The entire code of Etherium is open source, just like Android. So anyone can use the code to develop their apps.
For example, the apps like Chrome browser and Whatsapp are the most common apps developed by Google and Whatsapp. These apps are intended to run on the Android operating system.
Similarly, Ethereum provides a platform for the smooth running of Blockchain-based apps. But the apps in Etherum are called DAPS.
What are DAPPS
DAPPS stands for Decentralized applications. Similar to Android apps, anyone can develop an app for Etherum.
But the main difference between apps and DAPPS is that the second one purely on Blockchain technology.
Let me explain with an example. The Apps like Facebook, Whatsapp are social media apps. These apps are maintained and managed by central organizations like Facebook and Whatsapp.
So the data of the users is stored in their serves. The company will have complete control over the apps and can modify their rules whenever they like.
But if I develop a DAPP similar to Whatsapp and run it on the Ethereum platform, I will lose control of the app once it starts running. Further, I cannot modify the rules.
Everyone can post anything they like. It is the community of users that will decide the rules, but not a single person. Hence a form of democracy prevails in this system.
Hence DAPPS can be a powerful alternative to the most conventional apps.
What is Ether
Etherum itself is not a cryptocurrency. As discussed earlier, it is a platform on which the DAPPS run using Blockchain technology.
On the other hand, Ether is a cryptocurrency required to run the DAPPS on Ethereum. It is a form of fuel to run these apps.
Any transaction in the Etherum network is done in Ethers. Hence people often think that the scope for Ether’s scalability is more than Bitcoin.
DeFi: The new financial system of Ethereum
The Etherum community has started something called DeFi (Decentralized Finance), which is a game-changer in the field of global finance. DeFi is a DAPP developed for Etherum users.
To keep it simple, we can correlate DeFi with a national bank. So how does a bank work? The bank gives loans to its customers and collects them back along with interest. In the same way, DeFi also provides loans to its users in the form of Ethers.
But, from where the DeFi gets the financial support. It is again from the same users. Ethereum users can deposit their Ethers in DeFi and can get good interest over their Cryptocurrency.
On the day of writing this article, DeFi manages 80.63 billion dollars as deposits. It’s so fascinating that everything in DeFi runs with strict protocols called smart contracts.
NFT: Non Fungible Tokens
There are various NFT DAPPS available on the Ethereum platform. Let me split down how an NFT works.
Let us think that I have a rare picture that contains the signature of Einstein, the Great. So I can digitalize the image. It is a rare picture and carries a value with it. Hence I can convert the digitalized version into a Nonfungible token with the help of a DAPP.
Now my asset (The digitalized picture of Einstein’s signature) is converted into a digital contract, and a token is issued against it, which is called an NFT.
As every NFT has a specific value (in terms of Ether), I can collateralize my NFT and take a loan from DeFi.
If I fail to repay my load, the DeFi will transfer the NFT to its account as a form of repayment.
A classic example of NFTs is Cryptokitties. The game Cryptokitties is a leisure game developed by Canadian game developer Dapper labs. The game mainly involves the digital breading of cats (Virtual pets).
So I can buy a cat, breed it digitally, and sell it in the game market. Occasionally, Cryptokitties release rare breeds of cats in the form of NFTs. There will be a big auction to sell these NFTs.
Do you know people have spent millions of dollars on buying these Cryptokitties? Such a crazy game! A crypto kitty was sold for 254 ethers which are roughly estimated to be $164000.
Ethereum Vs. Bitcoin
Ethereum is entirely different when compared to Bitcoin. Bitcoin is a Cryptocurrency where transactions occur in terms of Bitcoins.
On the other hand, Ethereum is an environment where transactions occur in terms of Ether.
The miners in Bitcoin get rewards in bitcoins for registering the ledger transactions in the blockchains.
On the other hand, every transaction in Ethereum is priced with a separate Gas fee. These gas charges are paid to the miners for registering the transactions.
Subunits of Ether
One Dollar can be divided into 100 Cents. Similarly, one Ether can be subdivided into many units. Below is a table that includes various subunits of Ether.
|Units||Value in terms of one Ether|
From the above table, we can say that 1 ETH is equal to 1000000000 units of Gwei. The Gwei units are best to calculate the Gas fee.
On the other hand, 1000000 units of Szabo is equal to I Ether. A primary Ether transaction required 500 Szabo.
To know more about Gas units and Gas fees or Gas prices, read our article on the Gas fee.
I hope you understood the concept of Ethereum. The scope and insight of the Ethereum community are way bigger than Bitcoin.
Banks, Financial institutions, Real estate, Auction houses started using Ethereum and are developing their DAPPs.
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