What is Ethereum? Complete Guide for Beginners

Ethereum is, for many, one of the main cryptocurrencies competing with Bitcoin today. For others, it is a network with even greater potential. In this text we will learn about What is Ethereum?how it works and what applications it was designed for. So, let’s take a closer look at this creation!

What is Ethereum?

THE Ethereum is a platform that allows the programming of various decentralized structures. Just like Bitcoin, it is also possible to transfer values ​​with Ethereum. However, its greatest feature is that it allows users to create applications, games and even entire startups within this network.

Ethereum was created precisely because of limitations in the Bitcoin network. When the cryptocurrency was launched, many users complained that its use was limited to sending money. Creating more complex applications on the Bitcoin blockchain was possible, but the process was unfeasible.

To the sidechainsstructures that run parallel to the Bitcoin blockchain, were not practical for this purpose. This limitation was noticed by a young Russian-Canadian programmer named Vitalik Buterin. In 2013, he announced that he would launch a new blockchain, called Ethereum.

Just like Bitcoin, thousands of computers distributed around the world are used to protect Ethereum. It is virtually impossible for there to be a single point of failure. After all, there are currently more than 10,000 computers that secure the blockchain, the so-called network nodes. You can check them on the website Ethernodes.

Since its launch, the platform has been growing and gaining more and more users. Several applications have been created using the Ethereum blockchain. Both individuals and companies are already benefiting from the benefits brought by the network. Here are some: examples from companies already using Ethereum:

• Microsoft;
• BMW;
• Santander
• Google;
• Amazon;
• MasterCard.

Vitalik Buterin

Unlike Bitcoin, Ethereum has a creator whose face is known throughout the cryptocurrency world. His name is Vitalik Buterin, a Russian-Canadian programmer born in Russia in 1994. When he was six years old, his family moved to Canada in search of better opportunities. And it was there that Buterin’s genius blossomed.

In 2011, Buterin’s father was responsible for giving him his first exposure to Bitcoin. At the time, he was only 17 years old, but he was already considered a gifted child. He already had extensive knowledge of mathematics, programming, and economics. In 2012, he won a bronze medal at the International Mathematical Olympiad.

At the end of the year, Buterin returned to Toronto. Also in 2012, he was one of the creators of the Bitcoin Magazineone of the most well-known publications on Bitcoin. He spent the next few months working on the white paper of Ethereum, published in 2013. He attended the University of Waterloo, but dropped out in 2014.

That same year, Buterin received the Thiel Fellowship, a grant from PayPal co-founder Peter Thiel’s organization worth $100,000. After receiving the grant, he went on to work on Ethereum full-time, alongside Joseph Lubin.

Buterin has contributed as a developer to other open source software projects. He has also contributed to Cody Wilson’s DarkWallet, Bitcoin Python libraries, and the cryptocurrency marketplace website Egora. He is currently part of the Ethereum Foundationan NGO that takes care of the development of Ethereum, and is an active voice in the cryptocurrency community.

Ether

Before talking about the token, it is important to clarify something about the terms Ethereum and Ether. In many cases, Ethereum is used to talk about both the blockchain and its token. In this text, however, we will adopt nomenclature separated: Ethereumwhen we talk about blockchainand Ether when we talk about cryptocurrency.

After the release of the white paper Ethereum, the cryptocurrency was officially launched on July 30, 2015. It was launched through an Initial Coin Offering (ICO). This offering saw the early mining of 11.9 million Ethers (ETH), the network’s native cryptocurrency.

With this, the Ether (ETH) token was launched, which is the fuel for Ethereum. Contrary to what many people think, Ethereum did not have the first ICO in history, but it did popularize this concept of financing. ETH is the token that powers the Ethereum blockchain, and is essential for carrying out any transaction.

Whether it’s for creating an ICO, a company or a network, ETH is necessary. Due to the high demand for Ethereum from individuals and companies, the token quickly gained value. Today, it is second only to Bitcoin in market value, and continues to be in high demand.

Ethereum Quote

On August 7, 2015 (the date of the first historical record), ETH was worth US$3.36, approximately R$17.80 today. The price of the cryptocurrency peaked in 2018. As the Bitcoin bubble lost strength, the price of ETH soared and reached its peak that year, when it was traded at US$1,329.

ETH recently hit an all-time high of $4,815 in 2021. However, the cryptocurrency remains highly demanded and is the leader among all alternative currencies (altcoins), second only to Bitcoin.

Ethereum and price

Just like Bitcoin, the price of ETH also depends on the supply and demand for the cryptocurrency. However, in Ethereum, this price varies according to other factors. For example, the more the network is used to run decentralized programs, the greater the demand for the token, which will impact its price.

In Bitcoin, demand is usually tied to its use as a currency or digital asset. In Ethereum, demand is linked to the use of computing power. Since the blockchain aims to be a “decentralized supercomputer,” the greater its use, the greater the demand for the token.

Blockchain and the Purpose of Ethereum

Bitcoin’s purpose is to be used as a currency, that is, a means of transferring value. On the other hand, Ethereum’s focus is to be a platform that allows the programming of decentralized applications and smart contracts. Yes, it is possible to use ETH to transfer value, but that is not its main function.

Ether is used as a currency to buy computing power on the world computer, Ethereum. With this computing power, people and companies can develop various applications on the blockchain. These applications are completely decentralized and do not depend on a server or central body to function.

This has a huge advantage for applications built on Ethereum. For example, a company could build a gambling system that no government can censor or block. Or someone could build a fiat-backed token that cannot be confiscated or issued by any state.

Furthermore, there are many applications for Ethereum. In recent years, blockchain has been used in increasingly innovative ways. Let’s take a look at the main current uses of Ethereum below. We’ll look at each aspect of these features in more detail in the following articles:

• ICO: the aforementioned ICO is a way of raising money through the issuance of tokens. This method does away with banks, angel investors and other intermediaries, connecting companies directly to investors;
• Games: the blockchain games are a growing trend. They operate on decentralized networks and enable things like the creation of tournaments with cryptocurrency rewards and the creation of digital collectibles, among others;
• NFTs: speaking of collectibles, we have the non-fungible tokensor NFTs for short. These tokens are specially marked items, which makes them unique and therefore collector’s rarities. And with blockchain, they cannot be forged or copied;
• DeFi: acronym for decentralized finance. The goal of DeFi is to provide the same traditional financial services, but without a central authority. This means that users will not need to rely on banks to lend money, access credit, or collect interest on crypto investments.

Advantages of Ethereum

There is no way to say for sure whether Ethereum is better than Bitcoin or other cryptocurrencies. What we can say is that the project has its advantages. Among the advantages of Ethereum are:

• Immutability: Every transaction that occurs on the Ethereum blockchain is immutable. There is no way to reverse, block, or cancel transactions once they are recorded on the Ethereum blockchain;
• Decentralization: By using a consensus mechanism, Ethereum eliminates the need for a central authority or intermediary. Therefore, many of its applications can be executed without human intervention;
• Reliability Ethereum has been around for over 5 years, with new applications being created and running on the blockchain. Despite the DAO Affair (which we will see later), the network has never been successfully breached or attacked in this period;
• Schedule: Because Ethereum is programmable, it allows developers to use it to build decentralized applications. This can include financial services, games, smart contracts, and more.

Disadvantages of Ethereum

As you might expect, Ethereum also has its drawbacks. Some of them are expected to be addressed with the Ethereum 2.0 update, but not all of them have been addressed. Some of the drawbacks include:

• Scalability: Ethereum does not support applications that depend on scale to function. As a result, it is common for the network to become overloaded or have extremely high usage rates at peak times;
• History: even though it has not suffered direct attacks, Ethereum has several negative histories. The network has even been the victim of a serious split (hard fork). This still leaves users wary of using it for some applications;
• Size: Ethereum’s blockchain is much heavier than Bitcoin’s. As a result, nodes may face storage issues in the future. This could harm the network and make it more centralized.

What about Ethereum today?

Like all cryptocurrencies, ETH is subject to high volatility, which makes it a high-risk, high-reward investment. Prices can rise and fall by 20-50% in a matter of hours, which can be both an opportunity and a warning. Additionally, ETH and Bitcoin serve different purposes, which may require different investment strategies.

If you want to invest in ETH, it is advisable to exercise due diligence and only invest what you can afford to lose. And be aware that Ethereum is not a store of value, but a network for other applications. It is also important to know that offers such as “Free Ethereum” should be avoided. It is common for scammers to offer to give you double the amount of ETH on a deposited amount.

Given the amount of work that has gone into establishing Ethereum, it’s safe to say that it’s here to stay. So, the appreciation of its token could still yield good profits. However, when it comes to investing, there are no guarantees. And never invest in something without really understanding it.

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