Ethereum

Definition

Ethereum is an open-source, blockchain-based platform that enables developers to build and deploy decentralized applications (dApps) through smart contracts. This platform allows for programmable transactions and has gained prominence for its ability to facilitate various applications beyond cryptocurrency, making it a foundational element in the realm of blockchain and distributed ledger technology.

5 Must Know Facts For Your Next Test

1. Ethereum was proposed by Vitalik Buterin in late 2013 and went live in July 2015, enabling a more versatile blockchain ecosystem compared to Bitcoin.
2. The platform uses a decentralized virtual machine called the Ethereum Virtual Machine (EVM), which allows anyone to execute code regardless of the programming language used.
3. Ethereum introduced the concept of 'gas', a fee mechanism that compensates miners for processing transactions and executing smart contracts.
4. In 2021, Ethereum underwent a major upgrade called Ethereum 2.0, transitioning from a proof-of-work consensus mechanism to proof-of-stake to improve scalability and energy efficiency.
5. The Ethereum network supports various decentralized finance (DeFi) applications, NFTs (non-fungible tokens), and token standards like ERC-20 and ERC-721, leading to its popularity in the crypto space.

Review Questions

• How do smart contracts function within the Ethereum platform, and what advantages do they offer compared to traditional contracts?
  • Smart contracts on the Ethereum platform function by executing automatically when predefined conditions are met. This eliminates the need for intermediaries, reduces transaction costs, and increases transparency. By encoding agreements directly into code, smart contracts minimize disputes and enhance trust between parties since the outcomes are predictable and tamper-proof.
• Evaluate the impact of Ethereum's transition to Ethereum 2.0 on its scalability and energy consumption compared to its previous model.
  • The transition to Ethereum 2.0 significantly improves scalability by introducing a proof-of-stake consensus mechanism, which allows for faster transaction processing and reduces network congestion. Additionally, this new model drastically lowers energy consumption as it no longer relies on resource-intensive mining practices associated with proof-of-work. This makes Ethereum more sustainable while maintaining its robust functionality for developers and users alike.
• Assess how Ethereum's capabilities extend beyond cryptocurrency, influencing various sectors such as finance and digital art through decentralized applications.
  • Ethereum's capabilities allow it to be at the forefront of innovation across multiple sectors by supporting decentralized finance (DeFi) applications that provide financial services without traditional intermediaries. In digital art, Ethereum enables the creation and trading of non-fungible tokens (NFTs), transforming how artists monetize their work and how collectors acquire unique digital assets. This versatility demonstrates Ethereum's potential to revolutionize industries by fostering trustless transactions and empowering users through decentralized ecosystems.

Related terms

Smart Contracts: Self-executing contracts with the terms of the agreement directly written into code, allowing for automatic and trustless execution of transactions on the blockchain.

Decentralized Applications (dApps): Applications that run on a peer-to-peer network rather than being hosted on centralized servers, leveraging blockchain technology for greater transparency and security.

Ether: The native cryptocurrency of the Ethereum platform, used to pay for transaction fees and computational services on the network.