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What is Ethereum?


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What is Ethereum?

Ethereum is a decentralized, open-source blockchain that supports smart contracts. As of 2023, it is the second-largest crypto asset according to market capitalization. The Ethereum blockchain is also the most-used blockchain worldwide. A young Russian-Canadian Vitalik Buterin is the idea giver behind Ethereum.


What is Ether?

Ether is the currency of the Ethereum network and represents a crypto asset created by the Ethereum protocol.


How many Ether are there?

As of 2023, there are a little more than 120 million ether coins in circulation. Contrary to Bitcoin, Ethereum does not have a hard cap in supply. While Ethereum’s supply will increase indefinitely to pay stakers for providing security to the network, the Ethereum protocol is designed so that the rate of new ETH creation will decline over time. Also, through an update called EIP 1559, Ethereum has a mechanism to burn ether, with the amount of burnt ether depending on the network’s usage. The more Ethereum is used, the more ether is burnt, potentially making the network deflationary.


What is the Merge?

The merge was an Ethereum update, leading to the change of its consensus mechanism in 2022. Proof-of-work mining was swapped out for proof-of-stake. Technically speaking, a base layer blockchain called the Beacon Chain and the original Ethereum Mainnet merged to form the new proof-of-stake chain, hence “The Merge.” Thanks to this upgrade, Ethereum no longer relies on energy-intensive mining and allows the network to be protected using staked ETH instead. Through the Merge, Ethereum is believed to champion scalability, security, and sustainability in the long term.


How does Ethereum work?

Today, Ethereum works as a Proof-of-Stake (PoS) blockchain. For the first years, Ethereum operated as a public blockchain that relied on a Proof-of-Work (PoW) mechanism, forcing miners to provide computing power in order to add new blocks to the chain and be rewarded. With the switch to Proof-of-Stake (PoS), it is no longer the Ethereum miners, but the stakers that provide security to the network.


What are Ethereum Smart Contracts?

Smart contracts are the essential building blocks of Ethereum applications. They are self-executing contracts (meaning execution is dependent on inputs), with the terms of the agreement between buyer and seller being directly written into lines of code. They run on blockchain technology, making them transparent, secure, and tamper-proof. Smart contracts enable the automation of a wide range of processes and transactions. They allow for the creation of decentralized applications that are not controlled by any single entity and enable trust-minimized, peer-to-peer transactions. Additionally, smart contracts can help to eliminate the need for intermediaries in a variety of industries, reducing costs and increasing efficiency. The phrase “smart contract” was first used by Nick Szabo.


What is Ether Staking?

Ethereum staking is the process of holding and locking up Ethereum (ETH) in order to participate in the validation of blocks on the Ethereum. In PoS systems, block validation is performed by so-called “stakers” who lock up their ETH as collateral in order to participate in the validation process. By staking their ETH, these validators earn rewards for their participation in maintaining the network's security and validity.


Ether Price History

The first Ethereum transaction was completed on August 7, 2015, using the block 46147 transaction hash. In the early days of its introduction in 2015, Ethereum traded below $1, but by March 2016, it had reached a high of $10.03 on March 4, 2016. By May 2017, Ethereum had gained popularity, crossing the $100 threshold. At the end of 2017, Ethereum was valued at $774.69, and it surpassed $1,000 in the first week of 2018. Despite this growth, Ethereum was also affected by the cryptocurrency crash of 2018, and its value dropped to below $100 by the end of the year. However, from 2019 to 2021, Ethereum experienced another period of growth, reaching an all-time high of $4,815 on November 9, 2021. In 2022, the value of Ethereum experienced a general decline.


What is Ether’s value?

The underlying value of ETH lies in its use as a platform for decentralized applications and smart contracts, enabling trust-minimized, peer-to-peer transactions. In other words, it is a platform to implement distributed computing on a global scale. Also, ether’s value is tied to its potential as a store of value, similar to gold or other precious meta.l


Is it easy to buy Ether?

It is easy to buy ether. There are several steps to follow: Opening an account with a centralized exchange is the first step. Funding your account is the next step after creating an account, either by PayPal, bank transfer or credit card. Purchasing directly from other people is a substitute for using an exchange. An over-the-counter (OTC) trading service can handle this. Another well-liked method of purchasing ETH is by using an ether ATM. Like conventional automated teller machines, they are devices that you may physically approach. You may look up where Ether ATMs are located in your area, purchase ETH there using fiat money, and have the tokens sent to your cryptocurrency wallet.


Should I buy Ether?

Whether you should buy ether is a personal decision. If you decide to buy ether, you can use it as a digital commodity to make use of smart contracts. You can also just hold on to ether as a store of value or investment, speculating on the fact that more and more people will increasingly use the Ethereum network and is distributed computing capabilities.


When is the best time to buy Ether?

In a nutshell, the optimal moment to purchase Ethereum is when you're prepared to do so. You may manage the volatility of your investment (at least to some extent) and steer clear of the roller coaster by using the dollar-cost averaging strategy. Never invest more in cryptocurrencies than you can afford to lose. They are neither surefire winners nor secure asset classes, especially if they perform poorly. On the correct buy at the right moment, some people have made substantial profits, although this is sometimes more a matter of chance than of market timing skill.


Where to buy Ether?

You can buy ether with Fintech businesses like Robinhood or Revolut. They make it simple for newbie buyers to buy ether and other cryptocurrencies. Crypto exchanges are among the least expensive places to purchase ether and other cryptocurrencies. Binance, Coinbase, Kraken, Bitfinex, Huobi Global, KuCoin, Bistamp, and a few other companies are among them. These are the ones that are most often used since they have the most liquidity, which enables them to provide competitive pricing. You can also use platforms like Mt. Pelerin, honesto or Gato.


What is Ethereum’s Number One Weakness?

Ethereum’s number one weakness is that its blockchain is less scalable than some of its rivals. This is due to its transaction throughput of 15 to 30 transactions per second. Because other blockchains like Cosmos, Solana, and Cardano are currently faster, some people think that they could pose a serious threat to Ethereum's adoption and popularity.


What are Ethereum’s biggest challenges?

The limits of the second-most valuable blockchain network in the world have, up to now, been primarily responsible for the so-called “Ethereum killers'” success. Important trade-offs have allowed them to advance unexpectedly in their quest to outperform the titan of smart contracts. Here are some other challenges of Ethereum:


Scalability

One of the drawbacks of blockchain technology has always been its lack of scalability. As might be expected with broad use, Ethereum transaction volumes skyrocketed during the ICO boom and DeFi summer. Because Ethereum developers are prioritizing decentralization as well as security, scalability is projected to be achieved through modular scaling, meaning the Ethereum blockchain is scaled in layers.


High Transaction Fees

According to Vitalik Buterin, the ideal gas fee for Ethereum should be roughly $0.05. On Ethereum, the average gas fee increased to between $60 and $70 during the DeFi boom and the gas wars that followed. Once hype phases die down, Ethereum's transaction fees might not look like a problem. However, under the surface, they are and will only be solved once high scalability is achieved.


Centralization Fears

After starting the Beacon chain in 2021 and merging with Ethereum mainnet in 2022, miners were replaced by validators who staked ether under the new setup (ETH). As institutional investors and significant exchanges compete for a sizable portion of ETH staking power, more concerns about centralization have risen.


Scams

Scams can be another major issue. The name “ETH2” has been used by the Ethereum network and several other crypto groups to possibly scam crypto holders during the merge phase. Furthermore, as Ethereum is a general-purpose blockchain to launch other tokens, some take advantage of this by launching scam tokens.


Privacy

Because Ethereum's blockchain is completely transparent, every transaction is not only recorded but also made visible to the public. Transparency may be good, but when taken too far, it becomes a major drawback of the Ethereum blockchain, especially for large institutions and DeFi traders that need privacy in their daily activities.


 

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