Introduction to Ethereum
By: Abby Hindle, Halal Incorp
Cryptocurrency has been a popular topic for a while now, generating a lot of buzzes online. If you’ve been paying attention to that buzz you will have heard the word Ethereum come up, probably many times. But what actually is Ethereum? How is it used? And what are the potential pros and cons?
Powered by blockchain technology, Ethereum is a decentralised global software platform most known for its native cryptocurrency (ether, or ETH as it is often shortened). It is designed to be secure and decentralised and is the go-to blockchain for many people, especially developers and enterprises. It supports smart contracts natively.
Introduction to Ethereum
Ethereum was developed as a concept by Vitalik Buterin and launched in 2015 by Joe Lubin, founder of ConsenSys, and Buterin. The intention was to explore the potential for blockchain technology beyond secure virtual payments. As mentioned above, Ethereum is powered by blockchain technology. This basically means that in a long chain of ‘blocks’, all the information in each block is added to each freshly made block.
This creates a network throughout with identical copies of the blockchain distributed. Security of the network is ensured, as the validity of the blockchain is assessed by a network of automated programmes which reach a consensus on a transaction’s validity. Until consensus is reached, no changes to the blockchain can be made. To reach consensus Ethereum uses the proof of work protocol, which involves a network of participants running software to assess the validity of an encrypted number (also known as ‘mining’).
The first person (miner) to prove the number is given ether, a new block is opened, and the mining process starts again. Eventually, Ethereum will be moving towards using proof of stake consensus protocols, where Eth is staked by its owners. This means it cannot be used in transactions and is used as an incentive to continue mining. Ether owners who have staked ether are randomly selected to validate a transaction and are thereafter rewarded with more ether.
Introduction to Ethereum
If you are familiar with cryptocurrency, you are probably most familiar with bitcoin. Bitcoin is the most well-known and one of the most popular cryptocurrencies and it is useful to compare it to Ethereum to give people an idea of what Ethereum is. However, there are differences of note between the two. Ethereum, for example, is more heavily programmable, whereas bitcoin only supports bitcoin cryptocurrency.
Bitcoin’s main function is as a payment method, whereas Ethereum was conceived of as something that could go beyond that. One significant similarity that is worth noting is that both, as users of the proof of work protocol. When Ethereum switches to the proof of stake protocol it will consume much less. Many high-profile enterprises are adopters of Ethereum. One major example is Microsoft which, since 2015, has had a partnership with ConsenSys to develop Ethereum on their Azure cloud platform.
If you were to invest in Ethereum cryptocurrency, what are the advantages and what are disadvantages? The first potential warning is that cryptocurrency is inherently not stable. It is a highly speculative investment with a lot of risks, and it is advised that potential investors do so only with small amounts of money they are prepared to lose. Crypto investing is not regulated in the UK, so if something goes wrong there is no protection for consumers.
Introduction to Ethereum: Warnings aside, there are advantages to Ethereum. Anyone looking to invest in cryptocurrency is probably looking for a more high-stakes investment as it is, so it all comes down to deciding which risky investment seems best for you. Ethereum is, according to eToro, very easily exchanged for other cryptocurrencies. Transaction times are speedy compared to bitcoin and it allows developers to build new tools by providing access to a variety of dApps (decentralised apps). Interest has been growing in cryptocurrency in the past few years, and in April 2021 the first 100 million euro two-year digital bond was issued via the Ethereum blockchain.
Cryptocurrency is a notoriously volatile area. Out of all the cryptocurrencies available to the public, however, Ethereum stands out as an intriguing option for investors.
Disclaimer: The view of the author does not necessarily represent the views of Halal Incorp