Everything you need to know about Ethereum
Ethereum is a blockchain platform for decentralized applications, and the second-largest cryptocurrency (ETH) by capitalization. Most of the popular DeFi and NFT projects operate on the Ethereum network.
What are the features of Ethereum?
The main difference between the Ethereum network and Bitcoin was the support for full-fledged smart contracts. This is a computer algorithm that allows you to conduct transactions without the participation of a third party. In fact, this is a “digital contract” with predetermined conditions that are executed under certain conditions. This allows you to transfer business operations to the blockchain and avoid the “human factor”. Smart contracts have an unlimited number of application scenarios.
Virtual machine (EVM)
EVM (Ethereum Virtual Machine) is a “distributed computer” responsible for executing smart contracts. If the main function of the Bitcoin network is transactions between accounts in a distributed ledger, then the EVM can handle much more complex transactions programmed in smart contracts (which, nevertheless, basically transfer between blockchain addresses).
Non-Fungible Tokens (NFTs)
Ethereum has also gained popularity as a blockchain for NFTs due to the ERC-721 standard. These are non-fungible tokens, each of which contains unique information – an image or some other file. NFT is a unique digital item in the singular that cannot be reproduced. In 2022, soulbound tokens also began to gain popularity.
Did token sales come from Ethereum?
In 2017, the cryptocurrency market began to grow sharply, it was talked about at the global level. Against this background, hundreds of projects appeared that tried to repeat the success of Ethereum: they published a white paper and conducted an ICO. Due to the availability of ERC-20, anyone could issue their own token.
The peak of activity of token sales occurred in the 1st quarter of 2018 – the total amount of fees for them amounted to about $ 7 billion. But then public token sales practically ceased: prices for cryptocurrencies began to fall, in addition, token sales were criticized by the authorities of various countries.
Investors have lost confidence in ICOs as they have become a popular tool for scammers. Gradually, new token sale formats appeared: IEO (Initial Exchange Offering) – selling project tokens through a special service on the exchange, as well as IDO (Initial Decentralized Offering) – attracting investments through asset farming.
How is Ethereum being developed?
Developers have come up with several ways to increase the throughput of Ethereum and at the same time reduce the size of fees. One of these areas is second-level solutions (Layer 2).
These are applications and frameworks that are deployed on top of the main “first-level” blockchain (Layer 1). An additional “layer” allows you to reduce commissions for transfers and increase the speed of transactions.
L2 solutions on the Ethereum blockchain are implemented using the Rollups technology, which allows you to include hundreds of transactions passing through the second level in one transaction of the first level. Examples of such applications are Arbitrum, Optimism, dYdX, and StarkNet.
Another direction is sidechains. These are “parallel” networks that are connected to the main blockchain and between which transactions can be carried out. An example of an Ethereum-compatible sidechain is Polygon PoS (one of the elements of the Polygon network).
What is Ethereum 2.0 (Eth2)?
Ethereum 2.0 (Eth2) is a major update that was announced back in 2017 and is designed to increase the scalability of this blockchain platform through major changes to its architecture. At the beginning of 2022, the Ethereum developers abandoned this term.
The Ethereum upgrade is divided into several major upgrades:
- Transition to the Proof-of-Stake consensus algorithm (successfully took place on September 15, 2022);
- Implementation of sharding technology: division of the blockchain into manageable segments (shards) and parallel execution of operations in each of them;
- A new eWASM virtual machine that will support smart contracts developed in popular programming languages.
This information and many more you can learn in The Crypto Academy to start your journey to not only investing in Ethereum but get to know the crypto world and everything related to it.