What is Ethereum (ETH)? How is it Better than Bitcoin?
Contrary to popular belief, Ethereum is not a currency, but rather, it is an open-source decentralized blockchain that enables a peer-to-peer network of computers that are used to create application codes known as smart contracts.
The Ethereum blockchain has a native currency called Ether or ETH, which is used to pay transaction fees or gas fees on the network. Since the inception of Ethereum, the Ether has grown over 400,000% and has become the second largest cryptocurrency by market capitalization.
What are Smart Contracts?
Smart contracts are self-executing programmable contracts that are used to perform automated transactions without the interference of a third party, as long as certain predetermined conditions are met.
With the innovation of smart contracts, users can easily interact with the blockchain and perform tasks like trading, investing, borrowing, and lending without a middleman or an external party.
Brief History of Ethereum
Founded by a group of programmers including but not limited to; Vitalik Buterin, Gavin Wood, Anthony Di Lorio, Charles Hoskinson, etc, the Ethereum blockchain was officially launched on the 30th day of July 2015, with the sole aim of becoming a global platform where users anywhere in the world can build applications in a decentralized manner on the blockchain.
Ethereum was first described in 2013 in a white paper created by Vitalik Buterin a co-founder of Bitcoin Magazine. Since its launch, Ethereum has undergone several protocol upgrades which are important changes affecting the underlying functionality.
Before now, the Ethereum merge was one of the most anticipated events in the crypto sphere until it finally happened on the 15th of September 2022. ETH 2.0 is also known as the consensus layer and the aim is to move the blockchain from its original proof of work system to a much more efficient proof of stake network.
The upgrade to ETH 2.0 made the crypto more scalable and sustainable. Theoretically speaking, ETH 2.0 have improved the blockchain's overall transaction speed and reduced the usage of power by 99.95%
Uses of Ethereum
Ethereum is currently the second largest cryptocurrency in the world by market cap only second to Bitcoin, however, unlike Bitcoin, Ethereum has several use cases which is already attracting big organizations, the likes of Google, Facebook, etc.
There are speculations that, in the long run, Ethereum might become bigger than Bitcoin because of its numerous uses. Let us take a look at some of Ethereum's use cases below.
1. Building Decentralized Applications (DApp):
Ethereum`s blockchain has made it possible for just anyone anywhere in the world to run decentralized applications (DApp) on it. So far, thousands of these dApps have been built on the blockchain with millions of users and this has generated billions of dollars for the ecosystem and crypto space at large.
Transactions on the blockchain are being fueled by Ether the native currency of the blockchain which is also given as a reward to miners for verifying transactions on the blockchain.
2. Digital Identity:
Technology is growing at an incredible seed and all forms of traditional methods of doing things are nearly becoming obsolete, from communication down to identification. Thanks to the Ethereum blockchain, we no longer have to carry our physical passports around as a means of identification.
First one has to claim or ascertain ownership of a particular identity, this is usually done simply by providing sensitive information like your full name and password.
The user can use his password and username in the future to claim the identity of what was initially provided. Once the system confirms the authenticity of the information provided, he is granted his claim.
However, there is a trusted authority that determines whether a claim is valid.
3. Medium of Payment
Bitcoin is not the only cryptocurrency that is being used to pay for goods and services online however, it is the most widely accepted. Ethereum`s smart contract functionality has made it just as easy to exchange anything of value. In this case, the buyer and seller can simply initiate their agreement on a smart contract and record it in a computer code.
4. Decentralized Finance (DeFi):
Due to its smart contract functionality, Ethereum can be used to produce stablecoins. A very good example is the project Marker Dao which uses Ethereum`s smart contract to develop a stablecoin DAI backed by Ether and is programmed to be 1$ at all times.
NFTs are digital ledgers for a product purchased on the internet. It is an online secure certificate that contains the precise data of transactions between two parties.
For example, if John buys a piece of artwork online, an NFT will be created for it and it will contain information like; this is one out of 10 images sold by Victor to John, it is a great way to show authenticity for items purchased on the internet.
An NFT can have only one owner at a time and is protected by Ethereum's blockchain such that no two NFTs can be identical and another NFT cannot be created by merely copying and pasting data from a previous NFT.
Ethereum vs Bitcoin
Ethereum and Bitcoin are the gold and silver of the crypto market respectively, as much as these two giants are quite similar in the sense that, they are both decentralized tokens stored in digital wallets for an expected increase in value over time, both depend on the blockchain to validate transactions, are both used to purchase certain products and services online, they are not the same.
While Bitcoin is primarily a store of value like gold, Ethereum has more real-world use cases, it is used to create decentralized applications or dApps in the form of smart contracts on the blockchain without the interference of a third party.
Ethereum is also more scalable than Bitcoin for a fact, while Bitcoin can only process seven transactions per second, Ethereum can process from 20,000 to 100,000 transactions per second. In comparison, the popular payments processor Visa can undertake up to 24,000 transactions per second.
Bitcoin has been the most successful virtual currency, but experts have it that, Ethereum might become bigger than Bitcoin in the future. Although the two currencies were not created to compete against each other but rather to complement one another in different sectors, they have now become a major competition in the stock market.
Bitcoin and Ethereum rely on the proof of work system, however, Ethereum developers have decided to move the blockchain to a more scalable, sustainable, and efficient proof of stake system which is by far less energy-consuming than the former.
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Abdulhafeez Yusuf is a content writer at the International Youths Organization for Peace and Sustainability. He is currently an Agricultural student at Bayero University in Kano, Nigeria. His passions include web design, digital marketing, real estate, and Web3.
Inputs and Edits by Aswin Raghav R.