Ethereum

Definition

Ethereum is an open-source blockchain platform that enables developers to build and deploy decentralized applications (dApps) and smart contracts. Its native cryptocurrency, Ether (ETH), is used to facilitate transactions and computational services within the network. Ethereum's ability to support complex programmable transactions makes it a significant player in the cryptocurrency landscape, influencing the rise of decentralized commerce and blockchain technologies.

5 Must Know Facts For Your Next Test

1. Ethereum was proposed by Vitalik Buterin in late 2013 and went live in July 2015.
2. The Ethereum network allows for the creation of dApps that can operate without central authority, enabling users to interact directly with each other.
3. Ether (ETH) is not just a currency; it is also used to pay for transaction fees and computational services on the Ethereum network.
4. Ethereum introduced the concept of 'gas,' a measure of the computational effort required to execute operations, which helps manage network resources effectively.
5. Ethereum has undergone significant upgrades, including Ethereum 2.0, which aims to improve scalability, security, and sustainability by transitioning from a proof-of-work to a proof-of-stake consensus mechanism.

Review Questions

• How does Ethereum's functionality as a platform for smart contracts differ from traditional contract systems?
  • Ethereum's smart contracts operate on a blockchain, enabling them to be self-executing and tamper-proof without requiring intermediaries. In contrast to traditional contract systems that often rely on legal enforcement through courts or intermediaries, smart contracts execute automatically when predefined conditions are met. This automation reduces the risk of fraud and increases efficiency in transactions.
• Evaluate the impact of decentralized applications (dApps) on business models within the context of blockchain technology.
  • Decentralized applications (dApps) fundamentally change traditional business models by removing the need for centralized authority and intermediaries. This decentralization fosters greater transparency, lower transaction costs, and enhanced user control. As dApps gain traction, businesses can operate more efficiently, cater directly to consumers, and innovate service offerings without the overhead associated with traditional centralized systems.
• Assess how Ethereum's transition to Ethereum 2.0 will influence the broader landscape of cryptocurrency and decentralized commerce.
  • The transition to Ethereum 2.0 represents a major shift towards a more sustainable blockchain ecosystem by adopting a proof-of-stake consensus mechanism. This change is expected to significantly improve transaction speeds and reduce energy consumption compared to its previous proof-of-work model. As Ethereum becomes more efficient and scalable, it will likely attract more developers and businesses to create dApps and leverage smart contracts, further accelerating the growth of decentralized commerce and enhancing its position in the cryptocurrency market.

Related terms

Smart Contracts: Self-executing contracts with the terms of the agreement directly written into code, enabling automatic execution when conditions are met.

Decentralized Applications (dApps): Applications that run on a blockchain or peer-to-peer network rather than being hosted on centralized servers, promoting transparency and user control.

Blockchain: A distributed ledger technology that records transactions across multiple computers, ensuring security, transparency, and immutability.