What is Ethereum: Cryptocurrency Universe Guide Part Five

 

What is Ethereum? 

Ethereum is a system first introduced at the North American Bitcoin Conference by Ethereum founder Vitalik Buterin. Although it is generally seen as an altcoin, Ethereum is an innovative system that aims to develop blockchain technology and use it in more areas.

 

Ethereum in short is a Crypto Operating System that takes the cryptocurrency Ether (ETH) as its power source. The aim is to enable users to create new software on the blockchain system that Bitcoin is connected to. Thanks to this freedom that Ethereum provides to users, it allows to issue many altcoins.

 

The purpose of the Ethereum system is to prevent the storage of information such as personal data by third parties and their use for different purposes. Today, almost all the transactions we make on the internet (shopping, banking transactions, our use of social media, our internet history, etc.) are recorded in data banks as data. For what purposes this information will be used is a complete unknown. With the Ethereum system, these transactions are stored on many different devices in a completely scattered and anonymous way. Thus, access to this information becomes impossible and turns the entire internet into a decentralized platform.

 

How does Ethereum work?

You may have heard that the Bitcoin blockchain is very similar to a bank's ledger or even a checkbook. This blockchain is a scoreboard that keeps track of all transactions made on the network from the very beginning, and all computers on the network contribute their computing power to ensure that this scoreboard is accurate and secure.

 

The Ethereum blockchain, on the other hand, is more like a computer. While it provides documentation and security of transactions like the Bitcoin blockchain, it is much more flexible than that. Developers can use the Ethereum blockchain to develop a wide variety of tools, from logistics management software to games and the entire universe of DeFi applications (covering lending, borrowing, swapping and more).

 

To achieve all this, Ethereum uses a "virtual machine" similar to a giant, global computer made up of many individual computers running Ethereum software. Running all these computers requires investment in software and electricity by the participants. To cover these costs, the network uses its own Bitcoin-like cryptocurrency called Ether (or more commonly ETH).

 

ETH makes everything work. You interact with the Ethereum network using ETH while paying the network to execute smart contracts. As a result, fees paid in ETH are called "gas".

Gas prices vary based on how busy the network is. A new version of the Ethereum blockchain, called Ethereum 2.0, which aims to increase the efficiency of the blockchain, began to be made available in December 2020.

 

Who Is the Founder of Ethereum And When Did Ethereum Come Out?

Towards the end of 2013, Vitalik Buterin shared his idea of ​​Ethereum with his friends. Of course, this idea not only reached Buterin's friends, but also began to take hold in the minds of many. According to the information we reached, nearly 30 people met with Vitalik Buterin and conveyed their opinions about the idea to the young software developer.

 

However, there is something very important here. Vitalik Buterin was only 19 when he developed the idea for Ethereum. In other words, the Ethereum network, with billions of dollars in transactions today, was developed by a 19-year-old teenager.

 

In addition, we see that the founder Vitalik Buterin is the founder of the platform called Bitcoin Magazine, which is well known to those who follow crypto money closely.

 

Buterin, who encountered Bitcoin in 2011 while the crypto money world was still crawling, left the university due to this curiosity, attended the meetings of the Bitcoin communities and became one of the main characters of the crypto money industry. Released on July 30, 2015, Ethereum caused a lot of controversy. Some crypto analysts even said that it may surpass Bitcoin in the future.

 

What is the Purpose of Ethereum?

Brian Behlendorf, the founder of Apache Web Server, has called this centralized design the "original sin" of the internet, perhaps a little too far. Some who think like Behlendorf have argued that the internet was created to be decentralized.

 

Technologies such as blockchain serve this purpose. Ethereum is one of the newcomers to these technologies. While the purpose of Bitcoin is to eliminate PayPal and internet banking; Ethereum's goal is to eliminate third-party systems that store data, transaction mortgages, and track complex financial instruments using blockchain technology.

 

What Features Does Ethereum Offer?

Each individual can easily join and use the various resources available on the Ethereum network with the added benefits of anonymity and decentralization, similar to the use of various sites and portals on the internet or various mobile applications.

 

Even a tech-savvy or complete novice can easily build, launch, run and monetize applications on the Ethereum network. It can also earn profits by contributing to certain activities, such as mining, which are necessary to keep the Ethereum network strong and operational.

 

At the core of Ethereum is the blockchain, which acts as a store of all necessary transactions that take place on the network. Blockchain protocol also provides the necessary mechanism to help you decide on important tasks such as verifying a user's identity, contributor's contribution to the network or authenticity of transactions, applications, addresses and usernames. Storage and content serving is also taken care of by the blockchain, but is limited to storing transaction details and encoding code snippets.

 

Ethereum has a native cryptocurrency called "Ether", which acts as a means of payment for network contributions, app developers, and users. Basically, Ether is the digital currency of the Ethereum system. An app developer can pay app fees in Ether and get paid by users in Ether.

 

Is It Wise to Invest in Ethereum?

Because the price of Ethereum has risen dramatically in recent years, people who bought and held years ago have done handsomely. However, rather than being concerned about missing out on yesterday's price changes, it's critical to understand what you're investing in. Those who purchase Ethereum on this basis are purchasing a cryptocurrency that is not backed by any hard assets or cash flow.

 

That may seem insignificant, but it is the primary distinction between stocks and cryptocurrency. Because a stock represents a fractional ownership in a company, its performance over time is determined by the company's continued success. If a company's earnings grows, its stock is likely to follow suit over time. Stockholders have a legal ownership stake in the company's assets and cash flow.

 

Ethereum, on the other hand, and most other prominent cryptocurrencies, are backed by nothing. The only thing keeping the price up is the optimism of other investors, who all believe they'll be able to sell the cryptocurrency for a higher price later to someone else — a concept known as the "greater fool theory" of investing. The only thing propelling Ethereum and other cryptos upward is speculation. For this reason, among others, Warren Buffett, the legendary investor, refuses to touch cryptocurrencies, referring to it as "rat poison squared."

 

How to Mine Ethereum? 

Miners play a very important role in the Ethereum network by ensuring that transactions between users are verified and added to the blockchain transaction ledger. Miners also enable the generation of new cryptocurrencies without the need for a third-party central authority. When you mine, you get ETH as well as a transaction fee. There is a lot of debate about how profitable Ethereum mining is. But if you think that the value of ETH will continue to increase or you just want to be on the Ethereum network, here are the steps to take:

 

1. Powerful Hardware

To mine Ethereum, you need to purchase special computer hardware called a GPU. When choosing a GPU, it's important to consider the cost of the actual hardware as well as power consumption and hash rate. Hash rate is the rate at which the mining device is running. Speed ​​is important in cryptocurrency mining because miners are basically trying to solve a question and get a reward before anyone else. The higher the hash rate, the higher your chance of getting a reward.

 

2. Software Installation

After purchasing your mining hardware, you need to install the necessary software. The next step is to download the Ethereum blockchain and connect your node to the network. You could use a service like Geth that constantly tries to connect to other nodes until they have peers to other nodes in the network. Once installed, your node will connect to all other nodes and the Ethereum network itself. This allows you to start mining, deploy your own smart contracts, build decentralized applications and send transactions.

 

3. Test Yourself

Before you start mining, you can test Ether on your own private network. This allows you to test your mining abilities, experiment with smart contracts, and try out new decentralized applications. You don't need any special hardware to use Ether on a testnet. Your computer with Geth or a similar client installed is sufficient. Since you will be alone as a user in a private testnet, it will be your responsibility to find all blocks, confirm transactions and execute smart contracts.

 

4. Join a Mining Pool

If you join a mining pool, you can pool your computing power with other miners to increase your chances of solving cryptographic puzzles and earning Ether. The winnings are shared among all miners in the pool based on their computational power. If you want to do it alone, you can start mining by downloading a mining program. 

 

5. Get Payment

After you have successfully mined a block, you will be paid ETH and transaction-related fees. The reward is transferred almost instantly to the Ethereum wallet associated with the miner or pool of miners. You can use various Ethereum calculators to calculate your approximate income. Your estimated earnings are based on factors such as your hash rate, electricity consumption and initial setup costs.

 

What Are the Differences Between Ethereum and Bitcoin?

These two cryptocurrencies have been compared for a long time. However, the purpose of their emergence is different. In short, they have independent goals. When we look at Bitcoin, it is the first crypto money to be named based on the technology called blockchain.

 

Ethereum, on the other hand, took Bitcoin as an example. However, with the innovations that Ethereum offered to the crypto money ecosystem, the technology that Bitcoin offers to people has improved a lot. At this point, we can say that the system of Ethereum has a more modern structure than Bitcoin. In Bitcoin, it takes 10 minutes for miners to process blocks and create a complete block, while in Ethereum this process is quite short. The time Ethereum miners spend creating a block is 15 seconds. As you can see, there is a huge difference between Bitcoin and Ethereum.

 

Another difference between Ethereum and Bitcoin is the amount of supply. While the maximum amount that Bitcoin can reach is 21 million, this amount of supply in Ethereum is not certain. Currently, there are 18 million 700 thousand Bitcoins in the markets. As we said, there is no limitation in Ethereum, but with the limitation imposed on Ethereum mining, a maximum of 18 million Ether can be produced in a year.

 

Another difference between Ethereum and Bitcoin is mining. The electronic devices that Ethereum miners use to obtain ETH are GPUs. But to mine Bitcoin, you have to compete with mining pools where millions of dollars are invested.

 

When we examine Bitcoin, we see that the blocks are at most 1 MB in size. However, limiting this amount to 1 MB causes Bitcoin to be slow compared to Ethereum. As it turns out, Ethereum has a faster structure than Bitcoin. We hope that this blog post will be beneficial for you. We will continue to create useful works in order to get inspired by everyone. We are sure that we will achieve splendid things altogether. Keep on following Finage for the best and more.  


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