Ethereum is the second Cryptocurrency for market capitalization. What is Ethereum? How does it work? Will it rise? These questions are very common. In this article we will try to focus on some key facts about Ethereum in order to get a better uderstanding on it.
Ethereum is a protocol that makes it possible to build decentralized applications (dapps). Let’s go back to 2008 when Satoshi Nakamoto published the “whitepaper” that introduced Bitcoin to the world. Satoshi offered a solution to move data in a decentralized and secure way: the Blockchain. Satoshi’s application (Bitcoin) allows you to move not only “digital currencies”, but any type of data for a variety of purposes. You can create any kind of decentralized application.
It is also possible to create a “smart contract” on Blockchain, i.e. a contract that allows you to schedule a data transfer on Blockchain given a particular condition. With this goal, Russian computer scientist Vitalik Buterin created Ethereum to exploit this potential.
How Ethereum works
The Ethereum protocol is powered by a cryptocurrency (Ether), which is used to pay transaction fees. At least in the first phase, it was based on proof-of-work, exactly like Bitcoin. There were some people (called miners) who validated the transactions. Unlike Bitcoin, Ethereum has unlimited inflation. It is programmed to maintain a constant block reward, with an ever growing supply of coins. Being not scarce is a disadvantage for price, compared to other coins that are available in limited supply. Another difference is that Ethereum blocks are generated at intervals of a few seconds. This makes it faster for transferring funds and manage any kind of information.
What is Ethereum used for?
Ethereum is a protocol that allows to create decentralized applications (also called “dapps”) of various types on its Blockchain. These applications can be managed through special coins built on the Ethereum Blockchain, called tokens. For example, projects to manage in a decentralized way payment systems, socials, storage and cloud systems, and many other dapps. A major development of this system are the ICOs, i.e. token emission in exchange of ETHs (or other cryptos) to support new dapps. ICO means “Initial Coin Offering”, referring to the term “IPO”, which in the traditional market refers to the initial offer of shares. Projects collect funds in the form of ETHs and in return they emit project-related tokens that circulate on the Ethereum Blockchain.
In this way, the ICOs help to populate the Ethereum network. There’s the risk that in such a crowded network some useless dapps can clog the network, as we saw 3 years ago with the LINKs. In this case, the network can slow down: using the Ethereum network becomes more expensive, until the point of possibly “freezing” it. There are ongoing projects that aim to “scale” up the Ethereum network in order to support a greater amount of transactions. This is a necessary step for the growth of Ethereum, since its potential userbase is bigger than its actual capacity. In fact, as can be seen below, the number of transactions executed using ETH has continued to increase in recent years. There is also a downside of this “availability”: the whole history of ETH transactions is much “heavier” to download than the ones of other cryptos. Downloading the blockchain is very important to ensure the validity of transactions and the network’s resistance, since it allows you to check for any alterations to it.
Also, in many cases, ICOs are fraudulent and subject to speculative bubbles, creating market fluctuations in the value of Ethereum. The price of Ethereum is not very stable by itself, and this is a big obstacle to the adoption of both Ethereum and the tokens that run on the ETH blockchain.
Ethereum market price and ICO
The nature of ICOs is very important to understand the future of Ethereum. ICOs are a form of fundraising based on the emission of tokens. ICO means “Initial Coin Offering”, referring to the term “IPO”, which in the stock market indicates the initial offer of shares to investors. Usually, these tokens are created from the Ethereum platform, and ETH are often used to raise funds for these operations. ICOs are very risky investments, but very profitable during periods of strong speculation. This makes ETH price grow because of the increase of its use to raise funds. So, when the market is euphoric, it can grow very fast, and fall faster in moments of panic. Ethereum is a coin to approach with caution!
Around Ethereum is born a new market of ICOs, tokens and smart contracts made up of many different realities. Knowing how the Ethereum works is important to understand this ecosystem that today offers several opportunities for developers, traders, and users: an extremely complex and fascinating reality that you need to understand at best.
How can I buy and invest in Ethereum?
Below you can find the four best exchanges for ETH: – COINBASE for depositing via Visa or Mastercard, SEPA Bank Transfer or International Bank Transfer; – BINANCE JERSEYfor depositing via SEPA Bank Transfer or International Bank Transfer; – BITSTAMP for depositing via Visa or Mastercard, SEPA Bank Transfer or International Bank Transfer; – KRAKEN for depositing via SEPA Bank Transfer or International Bank Transfer;