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 by allowing programmable scripts to be executed on the network, facilitating a wide range of applications from finance to gaming.

5 Must Know Facts For Your Next Test

1. Ethereum was proposed by Vitalik Buterin in late 2013 and went live in July 2015 as a way to expand the potential of blockchain technology beyond Bitcoin.
2. The Ethereum network uses its native cryptocurrency called Ether (ETH), which is used for transactions, smart contract execution, and as a form of collateral in various decentralized applications.
3. Ethereum introduced the concept of 'gas', which measures the computational effort required to execute operations, ensuring that users pay for their transaction complexity and network congestion.
4. The platform supports a wide range of tokens following the ERC-20 standard, allowing developers to create their own tokens for various purposes within the Ethereum ecosystem.
5. Ethereum is transitioning from a Proof of Work (PoW) consensus mechanism to Proof of Stake (PoS) with its Ethereum 2.0 upgrade, aiming to improve scalability, security, and energy efficiency.

Review Questions

• How does Ethereum differentiate itself from Bitcoin in terms of functionality and application?
  • Ethereum distinguishes itself from Bitcoin primarily through its ability to support smart contracts and decentralized applications. While Bitcoin functions mainly as digital currency for peer-to-peer transactions, Ethereum's programmable nature allows developers to create complex applications that can automate processes across various industries. This versatility opens up possibilities for innovations like DeFi and NFTs, making Ethereum a foundational platform for blockchain technology.
• Discuss the significance of gas fees in the Ethereum ecosystem and how they impact user experience.
  • Gas fees are critical in the Ethereum ecosystem as they dictate the cost of executing transactions and smart contracts. They ensure that miners are compensated for their work while also preventing network spam. High gas fees can lead to frustration among users during periods of network congestion, as it can become expensive to perform transactions or interact with dApps. This economic model influences user behavior and can affect the overall adoption and efficiency of Ethereum-based applications.
• Evaluate the implications of Ethereum's transition to Proof of Stake on its scalability, security, and energy consumption compared to its previous Proof of Work model.
  • The shift from Proof of Work (PoW) to Proof of Stake (PoS) in Ethereum's transition to Ethereum 2.0 has significant implications for the network. PoS is expected to enhance scalability by allowing for faster transaction processing and reduced congestion since it eliminates the resource-intensive mining process. Additionally, PoS enhances security through its economic incentives for validators, who are required to stake ETH as collateral. Most importantly, this change dramatically reduces energy consumption, addressing one of the major criticisms of PoW systems while fostering a more sustainable blockchain ecosystem.

Related terms

Smart Contracts: Self-executing contracts with the terms of the agreement directly written into code, which automatically enforce and execute the contract when predetermined conditions are met.

Decentralized Finance (DeFi): An ecosystem of financial applications built on blockchain technology that aims to recreate traditional financial systems in a decentralized manner.

Gas Fees: Transaction fees that users pay to miners on the Ethereum network for executing operations and validating transactions, measured in 'gwei'.