There are many cryptocurrencies globally, and Ethereum is quite arguably the best one. It is the second most popular cryptocurrency after Bitcoin.
While Bitcoin does not have any other feature besides being a good store of value, Ethereum is a full-fledged blockchain technology with various features. One can build decentralized applications and platforms on the blockchain.
It has become the platform of choice for decentralized application hosting and smart contracts. Moreover, blockchain technology is also the base for other cryptocurrencies like Shiba Inu.
Vitalik Buterin founded Ethereum and seven other co-founders with a clear goal of creating a decentralized network that can empower people to conduct transactions and build applications.
You must be wondering, how does Ethereum work? So, here is everything that you need to know about it.
What is blockchain technology?
A blockchain mimics the functioning of a ledger, but it is instead a public ledger that collects or documents information across various devices or nodes. Blockchain technology verifies the transaction, and once payment is verified, the system creates new blocks.
These nodes or a network of computers check on the others to ensure everything happening on the blockchain runs smoothly. This eliminates the need for an authoritative entity to oversee the whole system.
1. Is Ethereum different from Bitcoin?
Yes, it is quite different from Bitcoin.
Although Bitcoin is a popular cryptocurrency running on its blockchain, Ethereum is only a store of value. Bitcoin can only be used to either invest or as a form of payment; the blockchain of Ethereum can’t host other applications and decentralized financial projects.
On the other hand, it is a multi-functional currency and a blockchain with many features.
Moreover, the transaction speeds of Ethereum and Bitcoin are also different. Its transaction can be validated within seconds, but a Bitcoin transaction can take minutes to be verified.
Also, the general aim of both technologies varies. Bitcoin aims to provide people with an alternative to the national currencies while being a secure store of value. But, Ethereum was designed to provide smart programmatic contracts and serve as a base for applications.
However, both the currencies are decentralized and use blockchain technology to verify transactions. You can store both the currencies in the same crypto wallet or trade them.
2. How does Ethereum work?
- Smart contracts
It is a significant component of how Ethereum works as smart contracts set the conditions enforced by the algorithm and the code of the technology.
A smart contract is like a regular contract only. Still, unlike a human, it is enforced by the algorithm when all the underlying regulations or conditions of the contract are fulfilled.
These contracts are called smart contractors because they are designed to run autonomously without human intervention or third-party intervention. It follows the same coding language as the Ethereum blockchain, Solidity.
- ERC-20 tokens
The Ethereum network has Ethereum cryptocurrency and can function as the base layer for other cryptocurrencies.
Other programmers can take advantage of the blockchain to build their currency.
These third-party tokens or coins are developed on the ERC-20 protocol designed by it.
Currencies like Shiba Inu, Leash, Bone, XRP, Tether, etc., are based on the ERC-20 platform.
3. How does Ethereum get its funding?
If a developer or programmer uses the blockchain for a transaction or smart contract execution, fees will be charged for processing such orders on the network. This cost or fee is referred to as the gas fee in the Ethereum network.
Decentralized applications on the Ethereum blockchain network
- MetaMask: It is a browser plugin that connects your average day-to-day browser to the network for swapping tokens and peer-to-peer sharing.
- Rarible: An Ethereum-based art marketplace has slowly become the go-to platform to buy crypto and other artworks. Rarible is also the first community-owned art platform.
- Catalog: It is a platform that enables users to invest in original music from various artists. Herein, the artists do not have to pay a cut or fees to the platform, and they get a hundred per cent of the sale amount.
These are some of the common applications on the Ethereum network. However, there are hundreds of such applications, and each solves a unique problem.
4. How can you buy ETH?
Ethereum’s cryptocurrency is called Ether (ETH), but the name is commonly known for its blockchain technology.
So, if you are looking to buy it to become vested in the whole Ethereum ecosystem, you must choose a trustable platform.
Consider choosing a platform that is easy to use, offers a myriad of security measures, and charges affordable transaction fees.
This is all the basic information you need about Ethereum. But, if you are planning to buy the currency, you must conduct thorough research before investing your money.