There are thousands of digital currencies roaming the virtual world, but if Bitcoin is the so-called future of money, what is Ethereum?
For someone new to the cryptocurrency space, this is the logical question to ask, given that they likely see Ethereum and its native Ether cryptocurrency (ETH) alongside Bitcoin all over the world on exchanges and in the news.
However, it is not entirely fair to view Ethereum as being in direct competition with Bitcoin as it has different purposes, features, and even technology.
CoinTelegraph defines Ethereum as a decentralized blockchain network powered by the Ether token that allows users to transact, earn interest on their holdings through staking, use and store non-fungible tokens (NFTs), d ” trade cryptocurrency, play games, use social media and much more.
CoinTelegraph explains, “Many see Ethereum as the next stop on the Internet – if centralized platforms like Apple’s App Store represent Web 2.0, a decentralized user-powered network like Ethereum is Web 3.0.”
This “new generation web” supports decentralized applications (DApps), decentralized finance (DeFi) and decentralized exchanges (DEX), for example.
How does Ethereum work?
CoinTelegraph explains that, like Bitcoin, the Ethereum network exists on thousands of computers around the world, with users participating as “nodes”, rather than a centralized server.
This makes the network decentralized and highly immune to attack, and therefore unable to fail – if one computer fails, it doesn’t matter because thousands more are blocking the network.
Ethereum is essentially a single decentralized system that runs a computer called the Ethereum Virtual Machine (EVM). Each node contains a copy of this computer, which means that all interactions should be verified so that everyone can update their copy.
Network interactions are also considered “transactions” and are stored in blocks on the Ethereum blockchain.
Miners validate these blocks before committing them to the network and serving as a transaction history or digital ledger.
Mining to verify transactions is known as the Proof of Work (PoW) consensus method. Each block has a unique 64-digit code identifying it.
The miners use their computing power to find this code, proving that it is unique. Their computing power is the “proof” of this work, and the miners are rewarded by ETH for their efforts.
Additionally, like Bitcoin, all Ethereum transactions are fully public. The miners broadcast the completed blocks to the rest of the network, confirming the change and adding the blocks to everyone’s copy of the ledger.
Each transaction is accompanied by a fee, called “gas”, which is paid by the user who initiates said transaction. The gas essentially serves as a limit, limiting the number of actions a user can take per transaction – it’s also in place to prevent spam on the network.
Because ETH is more of a utility token than a value token, its supply is endless, and in theory the ether will always be in demand, meaning inflation should never devalue the asset. beyond its use.
However, Ethereum gas charges can be quite high depending on network activity. Indeed, a block can only contain a quantity of gas which varies according to the types and amounts of transaction. As a result, miners will choose the transactions with the highest gas fees, which means users compete to complete transactions first. This competition pushes costs higher and higher, congesting the network during peak periods.
Interacting with Ethereum requires cryptocurrency, which is stored in a wallet. This wallet connects to DApps, acting as a passport to the Ethereum ecosystem.
Cryptocurrency replaces data here, which means users are free to browse and interact anonymously.
Ethereum vs. Bitcoin
While Bitcoin is the most common cryptocurrency, the Ethereum community has ambitions to expand the project.
The former is supposed to be digital currency, and it serves that purpose quite well. But Bitcoin has its limits.
Ethereum, on the other hand, intends to overtake our current internet infrastructure. It plans to automate many processes that still require intermediaries such as the use of an app store.
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How to buy Ethereum
You won’t be able to buy cryptocurrency from a bank or online broker like Vanguard or Fidelity. Instead, you will need to use a cryptocurrency trading platform. There are many cryptocurrency exchanges available, ranging from simple dashboards to complicated charts for advanced traders.
Different platforms have different prices, security measures, and other features, so it’s a good idea to do your research before signing up.
For more information on Ethereum, visit the CoinTelegraph website here.
DISCLAIMER: Nothing in this article should be read or understood as financial and / or investment advice. Readers should obtain their own financial advice from a suitably qualified independent financial advisor before making any investment decision.
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