Ethereum

Definition

Ethereum is a decentralized, open-source blockchain platform that enables the creation and execution of smart contracts and decentralized applications (DApps). It is known for its cryptocurrency, Ether (ETH), which is used as a medium of exchange within the Ethereum network and to pay for transaction fees and computational services.

5 Must Know Facts For Your Next Test

1. Ethereum was proposed by Vitalik Buterin in late 2013 and went live on July 30, 2015, with the goal of improving upon Bitcoin's limitations by enabling more complex transactions.
2. The Ethereum network uses a cryptocurrency called Ether (ETH) which fuels the network's operations, incentivizing miners to validate transactions and secure the network.
3. Ethereum supports a unique programming language called Solidity, which allows developers to write smart contracts for DApps, providing a platform for innovation in decentralized finance (DeFi) and other sectors.
4. The Ethereum blockchain operates on a consensus mechanism called Proof of Stake (PoS), which aims to reduce energy consumption compared to the older Proof of Work (PoW) model.
5. Ethereum has undergone significant upgrades since its launch, including the transition to Ethereum 2.0, which aims to enhance scalability, security, and sustainability.

Review Questions

• How does Ethereum's ability to execute smart contracts differentiate it from other cryptocurrencies like Bitcoin?
  • Ethereum's ability to execute smart contracts sets it apart from cryptocurrencies like Bitcoin, which primarily function as digital currency. Smart contracts are self-executing agreements coded onto the blockchain that automatically enforce the terms without intermediaries. This allows Ethereum to support decentralized applications and complex financial transactions that go beyond mere currency transfers.
• Evaluate the implications of Ethereum's transition from Proof of Work to Proof of Stake on its network performance and environmental impact.
  • The transition from Proof of Work (PoW) to Proof of Stake (PoS) significantly improves Ethereum's network performance by enhancing transaction speed and scalability. PoS reduces the energy consumption associated with mining, addressing environmental concerns related to blockchain technology. This shift not only makes the network more sustainable but also encourages wider adoption by making it more efficient and cost-effective for users.
• Assess how Ethereum has influenced the development of decentralized finance (DeFi) and what potential future trends may arise from this innovation.
  • Ethereum has been at the forefront of the decentralized finance (DeFi) movement by providing a robust platform for creating financial applications that operate without traditional intermediaries. Its smart contract capabilities enable complex financial products like lending protocols, decentralized exchanges, and yield farming. As DeFi continues to evolve, we may see increased integration with traditional finance systems, greater regulatory scrutiny, and advancements in cross-chain interoperability that could expand Ethereum's ecosystem and user base.

Related terms

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

Decentralized Applications (DApps): Applications that run on a blockchain network rather than being hosted on centralized servers, utilizing the decentralized nature of platforms like Ethereum.

Blockchain: A distributed ledger technology that records transactions across many computers in a way that ensures security, transparency, and immutability.