Ethereum

Definition

Ethereum is a decentralized blockchain platform that enables developers to build and deploy smart contracts and decentralized applications (dApps). Unlike Bitcoin, which primarily serves as a digital currency, Ethereum offers a broader functionality, allowing users to create complex programmable transactions that execute automatically when certain conditions are met. This versatility has made Ethereum the foundation for numerous innovative projects and has significantly impacted the cryptocurrency landscape.

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 native cryptocurrency of the Ethereum platform is called Ether (ETH), which is used to pay for transaction fees and computational services on the network.
3. Ethereum operates on a proof-of-stake consensus mechanism known as Ethereum 2.0, which aims to improve scalability, security, and sustainability compared to its original proof-of-work model.
4. The platform supports a variety of token standards, including ERC-20 and ERC-721, enabling the creation of fungible and non-fungible tokens (NFTs) respectively.
5. Ethereum's capability for executing smart contracts has led to the rise of decentralized finance (DeFi) applications, which offer financial services without traditional intermediaries.

Review Questions

• How do smart contracts function on the Ethereum platform, and what benefits do they provide compared to traditional contracts?
  • Smart contracts on Ethereum are self-executing agreements written in code that automatically enforce the terms of a contract when conditions are met. They eliminate the need for intermediaries, reduce transaction costs, and increase efficiency by executing transactions without delay. This decentralized approach enhances trust and transparency since the contract code is stored on the blockchain and cannot be altered once deployed.
• Discuss the implications of Ethereum's transition to a proof-of-stake consensus mechanism for its users and developers.
  • The transition to a proof-of-stake consensus mechanism in Ethereum 2.0 significantly impacts users and developers by improving network security, reducing energy consumption, and enhancing scalability. Users can participate in staking by locking their Ether to help validate transactions, earning rewards in return. Developers benefit from increased transaction speed and lower fees, making it more feasible to create and run decentralized applications and services on the platform.
• Evaluate the impact of Ethereum's capabilities on the broader landscape of digital currencies and decentralized finance (DeFi) innovations.
  • Ethereum's unique capabilities have transformed the digital currency landscape by enabling a wide array of decentralized finance (DeFi) innovations that challenge traditional financial systems. By providing tools for building dApps and smart contracts, Ethereum fosters a competitive environment where users can access financial services such as lending, trading, and insurance without relying on intermediaries. This shift not only democratizes access to finance but also encourages innovation within the blockchain ecosystem, influencing other platforms to adopt similar functionalities.

Related terms

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

Decentralized Applications (dApps): Applications that run on a peer-to-peer network rather than being hosted on centralized servers, utilizing blockchain technology for enhanced security and transparency.

Ethereum Virtual Machine (EVM): The runtime environment for executing smart contracts in Ethereum, providing a sandboxed environment where code can be run securely and independently of the network.