Let’s start with the basics of Ethereum. The alt coin is a decentralized blockchain powered cryptocurrency, with its own native currency, Ether or ETH, and proprietary language called Solidity. Developed in 2015 by a small group of crypto pioneers, Ethereum has risen over the past decade to be the world’s number two cryptocurrency, second only to Bitcoin. Ethereum was developed by a group including Joe Lubin, and Vitalik Buterin, now the Ethereum CEO, and the world’s youngest crypto billionaire at only 27 years old. Let’s take a deeper dive into the basics of Ethereum.
As all cryptocurrency projects of today, every blockchain has its own unique and important use case. This is how it will be used on a day-to-day basis by users, in order to provide some type of service or experience. Ethereum specializes in smart contracts and decentralized applications, or “dApps”, and non-fungible tokens, NFTs. NFTs are perhaps the newest and most ripe for growth in the coming years, with billions of dollars of institutional level capital pouring into this emerging market.
Ethereum uses a number of different tokens in it’s decentralized, open-source ecosystem, the most prevalent and significant being the ERC-20. Much like Bitcoin, Litecoin, and other cryptos, this ERC-20 token can be sent and received on the blockchain. ERC-20 has emerged as the technical standard for smart contracts on the Ethereum network.
These tokens can be used to create, publish, and monetize “dApps”, as well as pay network fees, often called “gas fees”. The name comes from the comparison to travel in a car, where gas is needed to get from point A to point B. When Ethereum is requiring computational power to process transactions on the blockchain, a fee is charged for the transaction. The fee is then paid to the miners for using their computational power to facilitate this transaction on-chain. This is because, like Bitcoin, Ethereum is currently using the proof-of-work validation mechanism. In 2022, Ethereum plans to move from the energy driven PoW model, to a consensus-based model, called proof-of-stake, PoS. At this time, miners will not be necessary to carry out transactions, and this gas fee will be completely restructured. This will surely be a game-changer for the cryptocurrency, and only time will tell how positive the response in the community will be. However, as of now, Ethereum miners set the gas fee based on supply and demand for the computational power needed to process these transactions. These gas prices are called gwei or denoted as nanoeth. These micropayments contribute to upholding the main Ethereum node protocol, the Ethereum Virtual Machine, or EVM.
The Ethereum Virtual Machine contains every node and is vital to maintaining consensus across the entire Ethereum blockchain. The Ethereum Virtual Machine runs its own proprietary programming language, called Solidity, a unique code with influence from C++, Python and JavaScript. Solidity is an object-driven language, responsible for the creation of smart contracts, an essential use-case to the Ethereum network.
Simply put, smart contracts are code written to the blockchain, containing predetermined sets of conditions. If these conditions are executed, the contract is carried out. These contracts typically contain basic “if-else” statements, found in many other common coding languages. Blockchain-based smart contracts are the 21st century solution to paper contracts, or any type of analog agreement. These contracts and conditions can be written to the digital ecosystem for eternity. Smart contracts can assign exclusive ownership and rights to many forms of property and assets, both digital and physical.
The practical use-cases are endless with smart contracts. These uses span many industries including the financial system, supply chain, government, identity security, insurance, and mortgage systems. These contracts are efficient, secure, and as always decentralized, making it free of manipulation and needless trust. The integral part of the contract should be the conditions, not trust in the third-party institution issuing the contract. Smart contracts have the ability to automate many processes typically carried out by humans currently. Removing human error from these contracts is also a much more efficient way to ensure the conditions are met accurately and timely. These examples include electronic record storage/filing, mortgage contracts, and cross border payments.
Smart contracts are responsible for today’s hottest investment mania, non-fungible tokens – NFTs. NFTs are digital collectibles with an encrypted smart contract attached to assign ownership as the item is exchanged. These digital items include playing cards, music, artwork, and digital avatars. Artists and collectors are thrilled at the opportunity to exchange these works in digital cyberspace, and have exclusive, non-fungible ownership of these assets. It may seem abstract now, but when virtual worlds become an inhabited ecosystem, sharing these works will be akin to displaying a Picasso on the wall. With Facebooks move to Meta, we may be closer to this than we are aware. Virtual real estate ownership has already exploded in popularity, using the Ethereum blockchain, and will be sure to expand as these digital environments adopt tokens and mediums of exchange for users to trade.
Often called the silver to Bitcoin’s gold, there is no doubt Ethereum is here to stay. Ethereum has earned its number two spot and deserves to be in this stature. The uses are endless and exciting to all participants, as the future of Ethereum seems to keep getting brighter. Currently trading around $4,800 USD per ETH, Ethereum is up over 900% on the year. Heading into 2022, this data is impressive and with the changes next year will bring, Ethereum is sure to continue this performance.
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