Ethereum

Definition

Ethereum is a decentralized, open-source blockchain platform that enables developers to build and deploy smart contracts and decentralized applications (dApps). It extends the capabilities of blockchain technology beyond simple transactions, allowing for programmable interactions that can automate processes and facilitate trustless agreements between parties.

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, marking a significant advancement in blockchain technology.
2. Ethereum's blockchain allows developers to create dApps across various industries such as finance, gaming, supply chain, and more, increasing its utility and adoption.
3. The Ethereum network uses a consensus mechanism known as Proof of Work (PoW), transitioning to Proof of Stake (PoS) through an upgrade called Ethereum 2.0 to improve scalability and reduce energy consumption.
4. The Ethereum Virtual Machine (EVM) is the runtime environment for executing smart contracts on the Ethereum network, allowing developers to write applications in various programming languages.
5. Ethereum's ICO (Initial Coin Offering) in 2014 raised over $18 million, which was unprecedented at that time and showcased the potential for crowdfunding projects using cryptocurrency.

Review Questions

• How does Ethereum differ from Bitcoin in terms of functionality and purpose?
  • While both Ethereum and Bitcoin operate on blockchain technology, their primary functions differ significantly. Bitcoin is primarily a digital currency used for peer-to-peer transactions, whereas Ethereum serves as a platform for developing decentralized applications and executing smart contracts. This capability allows Ethereum to support a broader range of applications beyond simple currency transactions, making it more versatile in addressing various use cases.
• Discuss the implications of transitioning from Proof of Work to Proof of Stake in Ethereum 2.0.
  • The shift from Proof of Work to Proof of Stake in Ethereum 2.0 aims to enhance the network's scalability and energy efficiency. By allowing validators to create new blocks based on the amount of Ether they hold and are willing to 'stake', this transition reduces the environmental impact associated with mining. Furthermore, it introduces economic incentives for users to hold onto their Ether rather than selling it, potentially increasing its value and stability within the ecosystem.
• Evaluate the potential impact of Ethereum's decentralized applications on traditional business models and industries.
  • Ethereum's decentralized applications have the potential to disrupt traditional business models by providing greater transparency, reducing reliance on intermediaries, and enabling peer-to-peer interactions. Industries such as finance may see a shift toward decentralized finance (DeFi) platforms that eliminate banks as intermediaries, while sectors like supply chain management can benefit from enhanced traceability through smart contracts. As these dApps gain traction, they could significantly alter how businesses operate, challenging existing regulatory frameworks and prompting innovation across various sectors.

Related terms

Smart Contracts:

Self-executing contracts with the terms of the agreement directly written into code, which automatically execute actions when predefined conditions are met.

Decentralized Applications (dApps): Applications that run on a blockchain network rather than being hosted on centralized servers, providing users with greater control and transparency.

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