Ethereum

Definition

Ethereum is an open-source blockchain platform that enables developers to build and deploy decentralized applications (dApps) using smart contracts. It introduced the concept of a programmable blockchain, allowing users to create complex protocols and automate processes without intermediaries. This innovation has significant implications for various industries, including finance, supply chain, and governance.

5 Must Know Facts For Your Next Test

1. Ethereum was proposed in late 2013 by programmer Vitalik Buterin and development began in early 2014, officially launching on July 30, 2015.
2. Unlike Bitcoin, which focuses solely on peer-to-peer currency transactions, Ethereum's primary purpose is to serve as a platform for decentralized applications and smart contracts.
3. The transition from Ethereum's current proof-of-work consensus mechanism to a proof-of-stake model aims to reduce energy consumption significantly, addressing environmental concerns.
4. Ethereum has faced criticism for its scalability issues, particularly during periods of high demand when network congestion leads to increased gas fees and slower transaction times.
5. The environmental impact of Ethereum is primarily linked to its energy-intensive mining process, which consumes large amounts of electricity, prompting discussions about sustainability in blockchain technology.

Review Questions

• How do smart contracts function on the Ethereum platform, and what benefits do they offer compared to traditional contracts?
  • Smart contracts on the Ethereum platform are self-executing agreements where the terms are written into code. They operate automatically when predefined conditions are met, eliminating the need for intermediaries. This reduces costs, increases efficiency, and enhances transparency since all transactions are recorded on the blockchain. The use of smart contracts also minimizes the potential for disputes as the contract terms are immutable and enforceable without third-party involvement.
• Discuss the significance of Ethereum's transition from proof-of-work to proof-of-stake in relation to environmental sustainability.
  • Ethereum's shift from proof-of-work to proof-of-stake is significant for environmental sustainability as it aims to drastically reduce energy consumption associated with validating transactions. In proof-of-work, miners compete to solve complex puzzles using vast amounts of computing power, resulting in high energy usage. Proof-of-stake allows users to validate transactions based on the number of coins they hold and are willing to 'stake,' leading to a more energy-efficient system that lessens Ethereum's carbon footprint.
• Evaluate the challenges Ethereum faces regarding scalability and its environmental impact, considering its role in the broader context of blockchain technology.
  • Ethereum's scalability challenges arise from its architecture, which can lead to network congestion during peak usage times. This results in higher gas fees and slower transaction speeds. Coupled with its environmental impact due to energy-intensive mining practices, these issues present significant hurdles as Ethereum seeks mainstream adoption. The need for solutions like layer 2 scaling options and transitioning to proof-of-stake highlights the balancing act required in advancing blockchain technology while ensuring sustainability and user accessibility.

Related terms

Smart Contracts: Self-executing contracts with the terms of the agreement directly written into code, which run on the Ethereum blockchain.

Decentralized Finance (DeFi): A movement within the blockchain space that aims to recreate traditional financial systems, like banking and lending, using decentralized technology.

Gas Fees: Transaction fees paid by users on the Ethereum network to compensate miners for validating and processing transactions and executing smart contracts.