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 just cryptocurrency transactions, allowing for a wide range of applications in various industries, including finance, supply chain, and gaming.

5 Must Know Facts For Your Next Test

1. Ethereum was proposed by Vitalik Buterin in late 2013 and officially launched in July 2015.
2. The Ethereum network uses Ether (ETH) as its native cryptocurrency, which is used to pay for transactions and computational services on the platform.
3. Ethereum introduced the concept of 'gas', a unit that measures the computational work needed to execute operations, helping to prevent network abuse.
4. The platform supports various programming languages, with Solidity being the most popular for writing smart contracts.
5. Ethereum is transitioning from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) model through an upgrade known as Ethereum 2.0, aiming to improve scalability and energy efficiency.

Review Questions

• How does Ethereum's use of smart contracts differentiate it from other blockchain platforms?
  • Ethereum's implementation of smart contracts allows for self-executing agreements that automatically carry out actions when predetermined conditions are met. This feature enhances the functionality of the Ethereum platform by enabling a wide range of decentralized applications beyond simple financial transactions. Unlike other blockchains that primarily focus on transferring value, Ethereum provides a flexible environment for developers to create innovative applications that can operate independently without intermediaries.
• Discuss the implications of Ethereum's transition from proof-of-work to proof-of-stake on international finance and investment strategies.
  • The shift from proof-of-work to proof-of-stake in Ethereum aims to enhance scalability and reduce energy consumption, making it more appealing for institutional investors concerned about environmental impact. This transition can also lead to lower transaction costs and increased efficiency in executing cross-border transactions, positively influencing international finance by promoting greater adoption of decentralized finance solutions. Additionally, as Ethereum continues to grow, it may attract more traditional financial institutions seeking to leverage blockchain technology for their operations.
• Evaluate how Ethereum's role in decentralized finance (DeFi) might reshape traditional financial systems globally.
  • Ethereum's foundation for decentralized finance (DeFi) has the potential to significantly disrupt traditional financial systems by offering peer-to-peer services without intermediaries such as banks. This could democratize access to financial products and services, enabling individuals across the globe to participate in lending, borrowing, trading, and investing without reliance on centralized institutions. As DeFi platforms gain traction, they may challenge existing regulatory frameworks and lead to innovations in financial services, requiring traditional systems to adapt or integrate with blockchain-based solutions to remain competitive.

Related terms

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

Decentralized Finance (DeFi): A financial ecosystem built on blockchain technology that aims to recreate traditional financial systems and services in a decentralized manner.

Gas Fees: Transaction fees required to execute operations on the Ethereum network, calculated based on computational power needed for processing transactions.