Facts About Ethereum

• Ether is a cryptocurrency, instrumental in fueling the Ethereum network. Ether is used for all computational, transactional, and processing charges performed on this network.

• The Ethereum network facilitates Smart Contracts, a type of ethereum account.

• Anybody can create smart contracts on the Ethereum network, a simple computer program that facilitates the exchange of valuable physical and digital assets, including money, property, royalties, and shares to the parties that have mutually agreed upon.

• Unlike conventional contracts, which sign an agreement and get verified by an authority, smart contracts are transactions that are immutable and authentic as independent evaluators assess them and need no third-party verification.

• Ethereum Virtual Machine (EVM) that operates in a sandbox environment is an engine that understands Solidity language, which is used to write smart contracts. Once a smart contract is made, it gets converted into bytecode, and EVM is used to decode and interpret smart contracts.  

• An unlimited number of Ethereum miners operate constantly across the globe to verify, validate, and confirm the transactions made via smart contracts. This is called Proof of Work (PoW).

• Ethereum transactions require computational resources to execute each transaction. Gas refers to the fee required for the successful completion of a transaction on Ethereum.

• The gas fee is also paid for the validation, verification, and confirmation of contracts made on the Ethereum Network.

• Proof of Stake (PoS) is introduced as an alternative mechanism to overcome the painful PoW process.

• PoS is a consensus mechanism, where validators are chosen based on the number of Ethers they own and they come to a consensus on the transaction made and testify it.

How Does Ethereum work?

Ethereum is a cryptocurrency that works on a blockchain-based computing platform. 

It is a shared database that stores information, known as nodes, in multiple copies on computers around the world. Any Ethereum miner that participated in this process can verify all past transactions, recorded in digital ledgers. 

No centralized entity governs and monitors these ledger holders. The Ethereum network, consisting of tens and thousands of miners who are scattered around the globe, participate in this process collectively.

Unlike its predecessor, Bitcoin, which is also a digital currency and other popular currencies that are strictly used to facilitate financial transactions, Ethereum is a cryptocurrency with multiple applications and use cases beyond monetization. Ethereum can be used to promote decentralized finance (DeFi), Identity Management, and healthcare. It can also be used to purchase non-fungible tokens. 

Unlike traditional financial systems and institutional structures that are highly centralized and hierarchical in operations and decision making, Ethereum applies cryptography, where there is no need for a federal bank or government to monitor it. Unlike conventional institutes that rely on the Internet, websites, and servers to store and process information, the Ethereum network uses Smart Contracts and Distributed Applications (ĐApps) to facilitate a highly decentralized system that functions without intermediaries and third-party validators so that it eliminates frauds and scams. 

What Is Ethereum Mining?

Ethereum relies on mining, a process that unearths a new transaction or block and adds it to the Ethereum blockchain. Proof-of-Work (PoW), a consensus mechanism, confirms the transaction. Miners that unlock a puzzle by identifying a block get incentives in Ether.

This is a process similar to banks that charge its users for maintaining records and facilitating transactions. Ethereum mining is a record-keeping process, in which a network of global users or Ethereum miners rather than an intermediary, verifies transactions and adds them to the public ledger. Ethereum miners constantly work on computers to solve the puzzle posed to them to produce random values, until the time one of them is successful in getting the correct one. The correct answer unlocks the Ether. This consensus mechanism is called Proof of Work. 

“Node” is yet another important feature of the Ethereum network; each node contains a copy of the ledger that records all ether transactions. Companies and enthusiasts that are keen in validating transactions maintain thousands of Ethereum nodes all over the world and each of them verifies every block that a miner creates.

Ethereum nodes are expected to function as a “world computer” on which, using specialized programming languages, people can build applications that remain open source. If a miner unlocks the Ether and broadcasts the block across the network, other miners stop working on the current block and move on to the next block.

Ethereum is gradually moving towards Proof of Stake (PoS), an alternative consensus mechanism that allows Ether owners as stakeholders in the validation process. This is meant to scale Ethereum via the Eth2 upgrades. Considered an energy-efficient and time-saving process, PoS is yet to overcome technical and functional challenges.

Ethereum Use Cases

Ethereum is used for a myriad of innovative applications in finance, gaming, advertising, web browsing, supply chain management, and identity management

Decentralized Autonomous Organizations (DAO)

DAOs were one of the earliest innovative use cases of Ethereum. Decentralized autonomous organizations or DAOs are blockchain-based organizations that operate without central authorities. They are governed by rules coded in software and administrative decisions are voted upon by a community of stakeholders. 

Decentralized finance (DeFi)

Ethereum promotes a decentralized financial system, known as “DeFi,” through a global computer network that links users to the marketplace through decentralized applications (dApps), which is efficient, secured, and remains user-controlled. Through smart contracts, it executes physical and digital exchange of properties and transactions, loans, minting of stable coins, and decentralized exchanges. “MakerDAO” is a project that applied Ethereum smart contracts to create stable coin (DAI) backed by Ether, which resists market fluctuations and remains stable at $1.

Digital identity

For the past several decades, the world has been relying on physical presence and documents like identity proofs. The onset of Ethereum facilitates digital proofs for identity management, where an individual can present their passport in a digitally verified form that is free from tampering.

Tokenizing real-world assets

Ethereum promotes tokenization of physical and digital arts and properties as Non-Fungible Tokens (NFT). NFTs are offering multi-trillion-dollar markets with the blockchain-based representation of real-world assets including, real estate, music, images, and artwork, offering direct and unlimited monetization opportunities to its creators. Blockchain start-up PolyMath raised $59 Million in an ICO to build one of the first compliant platforms to tokenize the real-world assets on the Ethereum blockchain.

Legal and Financial Services

A UAE-based crypto startup launched the First Islamic Crypto Exchange (FICE), the only crypto exchange in the world meant for the compliance of Sharia laws. Crypto-wallets are used for instant money transfers as remittances, royalties, and financial services in Venezuela and the Philippines.

Health Applications

The healthcare industry can make the best use of Ethereum to store and share patients’ records that can be accessed from across the globe. This is useful for early diagnosis of and decision making around patients’ healthcare, especially when time is of the essence. Sensitive data on clinical trials, patient records, vaccine formulas, etc., can be shared instantly, which is secure and immutable. 

Security Infrastructure

Data on Ethereum transactions are not stored in any servers for hackers to attack it. Since it relies on independent DAOs for its operations, it offers a secured network.

Data Privacy

Since it would not rely on search engines and login mechanisms to enter user data, there’s no need to track user activity or information, ensuring complete confidentiality of the sensitive data shared across the platform.

Direct Interaction with no Intermediaries

A customer can directly contact an artist for a painting or image to eliminate add-on, intermediary, or brokerage costs. An artist can sell his works in a virtual gallery without paying for auction houses so that the creator will ripe all the benefits.

Contracts and transactions

Smart contracts on the Ethereum platform facilitate all agreements related to property, business deals, project agreements, etc., where independent miners verify and validate them through proof of work. It remains safe, and secured, without any need for third-party verification.

Enterprise Ethereum Alliance (EEA)

EEA is an important development for promoting Ethereum use cases in industries. As many as 86 companies and multinationals, including JPMorgan Chase, Microsoft, CME Group, BNY Mellon, State Street, Toyota, Merck, ING, Broadridge, and Rabobank have joined the collective intending to use blockchain technology to run smart contracts at Fortune 500 companies.

John Hancock, a financial company, for example, aims to keep track of compliance with know your customer (KYC) and anti-money laundering (AML) regulations, using Ethereum in its wealth management unit. European aircraft maker Airbus is planning to shift its supply chain management to a blockchain that relies on Ethereum. Companies that are part of EEA may also store their data in decentralized locations on Ethereum platforms to ensure data safety.

Empowering Democracy

An incumbent, loyal to a particular political party can cast his vote and select the representative of his choice using blockchain technology that cannot be tampered with.

Gambling

The nearly $240 billion US gambling industry is known for all kinds of malpractices and scams. The onset of the internet promoted online casinos in the late 90s, which are lacking in transparency. Adaption to Ethereum can disrupt the malpractices in the online casino industry to avoid scams.

Data storing

Currently, the world is generating 2.5 quintillion bytes of data daily and it is growing exponentially year after year. Data storage options remained in stark contrast in the future. Ethereum offers safe alternatives for data storage. 

The Issues Ethereum Encounters

• Ethereum is away from the mainstream users and utilities and therefore faces several scalability issues. 
•  It is not inclusive of the marginalized and does not represent the geographic, ethnic, and racial diversity.
• It is governed by a secluded network of experts that verify and validate its authentication; though PoW appears to have been purely based on the consensus of majority experts, PoS is a biased mechanism, which is based on the number of Ethers at the disposal of each validator.
• Plutocracy, the ability of a secluded group to manage the entire wealth, is one of the major concerns of the Ethereum ecosystem.
• It is not financially accessible because it is very expensive to purchase and to be able to pay for various transaction and processing charges.
• Access to the Internet and smartphone ownership among the population across geographies is not even to facilitate decentralized and democratic wealth transfer and management.

The Future of Ethereum

Ethereum is the second most popular digital currency today and is expected to continue to grow in use and popularity, surpassing Bitcoin in every aspect.

With enterprise alliance and acceptance of major institutions and companies across the globe, Ethereum is expected to capture a $270 trillion market with the digitization of the contract in the global economy, where major NDAs, agreements, and transactions will happen digitally more and more.

By launching phase 0 of Ethereum 2.0 in December 2020 and phase 1 of Ethereum 2.0 in 2021, the Ethereum network aims to upgrade from Proof-of-Work to Proof-of-Stake to make it more scalable, efficient, and run faster with less computing power. This is expected to reduce the transaction fees and gas fees, making Ethereum more accessible. 

With several use cases beyond financial transactions, Ethereum is expected to emerge as the market leader. As of April 2021, the Ethereum market cap reached over $250 billion US and it is expected to go further surpassing other cryptocurrencies in the market. 

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