Market Dynamics and Technical Change

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Ethereum

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Market Dynamics and Technical Change

Definition

Ethereum is a decentralized, open-source blockchain platform that enables developers to build and deploy smart contracts and decentralized applications (dApps). It introduced the concept of programmable money and is often considered the second most popular cryptocurrency after Bitcoin, playing a pivotal role in the evolution of blockchain technology and the disruption of various industries.

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5 Must Know Facts For Your Next Test

  1. Ethereum was proposed in late 2013 by programmer Vitalik Buterin and development was crowdfunded in 2014, launching in July 2015.
  2. The Ethereum network operates using Ether (ETH) as its native cryptocurrency, which is used to pay for transaction fees and computational services on the network.
  3. Ethereum introduced the concept of 'gas,' which is a unit that measures the amount of computational effort required to execute operations, ensuring efficient resource allocation on the network.
  4. The platform has gone through significant upgrades, including Ethereum 2.0, which aims to improve scalability and security by transitioning from a proof-of-work to a proof-of-stake consensus mechanism.
  5. Ethereum has significantly influenced various sectors, enabling innovations in finance, gaming, supply chain management, and digital identity verification through its smart contract capabilities.

Review Questions

  • How does Ethereum's introduction of smart contracts differ from traditional contracts in terms of execution and trust?
    • Ethereum's smart contracts automate the execution of agreements through code on the blockchain, eliminating the need for intermediaries. Unlike traditional contracts that require third parties for enforcement, smart contracts self-execute when conditions are met, providing increased efficiency and reducing potential disputes. This trustless mechanism enhances security and transparency in transactions.
  • Discuss the impact of Ethereum on the development of Decentralized Finance (DeFi) platforms.
    • Ethereum has been instrumental in the rise of Decentralized Finance (DeFi) platforms by providing a flexible framework for building financial applications that operate without central authorities. Through smart contracts, DeFi applications can offer services like lending, borrowing, and trading while maintaining transparency and security. This shift enables greater access to financial services for individuals around the world and challenges traditional banking systems.
  • Evaluate how Ethereum's transition to Ethereum 2.0 may reshape its influence in various industries.
    • The transition to Ethereum 2.0 aims to enhance scalability, security, and energy efficiency by moving from a proof-of-work to a proof-of-stake consensus mechanism. This upgrade is expected to increase transaction speeds and lower costs, making it more attractive for developers and businesses. As Ethereum becomes more efficient, it can foster greater innovation in sectors such as finance, gaming, and art through NFTs, thereby solidifying its position as a leading platform for decentralized applications and further disrupting traditional industry models.
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