What is Ethereum and why is it so important in the cryptocurrency market?

Ethereum is one of the most promising cryptocurrencies today and its valuation does not stop growing, due to the constant information that several countries, stock exchanges and monkeys and banks worldwide are analyzing how to regulate this virtual currency.

A few weeks ago the Ethereum currency began to rise like foam, after learning that Japan, Russia and China want to regulate this currency. Add to this the interest of the United States SEC in this currency ahead of Bitcoin and it could also start operating shortly on the Nasdaq as a valid currency to buy and sell securities.

The popularity, in addition to being the most powerful alternative to Bitcoin, is due, among other things, to the fact that Bitcoin has blockchain technology behind it, which is of great interest to banks for carrying out financial transactions and/or as a simple decentralized virtual currency. Ethereum has taken the concept of the blockchain a step further. Its blockchain makes this virtual currency more than just a cryptocurrency. It has turned it into a distributed computing platform.

VITALIK BUTERIN

[Upgrade] Before going deep into the Ethereum cryptocurrency, we must know a little more about the developer of this cryptocurrency, which is none other than Vitalik Buterin. Buterin is a Russian programmer, who was born in the town of Kolomna, in Moscow Oblast, on January 31, 1994. When he was six years old, his parents decided to emigrate to Canada in search of better job opportunities. Already in school he stood out for his intellect and he was moved to a classroom for specially gifted children, where he stood out above all for his skills in mathematics, programming and economics.

He did not finish university, leaving it in 2014 when he received the Thiel Fellowship and from that moment he started working, focusing on Bitcoin. Through the photo of Bitcoin, he began to gain great prominence, where he talked about the cryptocurrency and where he took the opportunity to advertise a blog he had about this cryptocurrency. He offered users to write on his blog for 5BTC, which at that time was around $ 3.5, valuation. The medium did not last long, since this cryptocurrency had no followers, so it gave up on the project. It was in 2011, when they contacted him to develop the specialized publication Bitcoin Magazine. Buterin accepted and became one of the most important writers in the medium and became a co-founder.

Regarding Ethereum, he is one of the co-creators of this digital cryptocurrency, which is based on a 'combination of a decentralized digital mining network and a software development platform'. We are not talking about a simple cryptocurrency, we are talking about a blockchain that facilitates the development of new cryptocurrencies, based on the code of this blockchain, since it is open source.

ETHEREUM, THE CURRENCY

Basically Ethereum was born as a 'more' cryptocurrency. This currency differs in some sections from Bitcoin, these being the algorithm used, the block time, the difficulty in the calculation and the reward for mining. The big difference with the other coins is that there is no maximum number of coins in this case, since this coin allows the expansion of the amount of mineable coins, not like other coins. Bitcoin has an end and when all the coins have been mined, there will be no more mineable coins and they can only be changed hands. When that moment arrives, theoretically the goods and services that can be acquired through Bitcoins, should go down in value, or what is the same, in price. That is a major problem for the economy, since inflation is bad, but deflation is also a major problem and Bitcoin tends to the latter, since when there is no more, this currency should lose value.

Ethereum differs from this system, since there is no coin limit, which allows this coin to grow without ceasing, yes, as long as users generate these coins and continue trading. Bitcoin is currently the most used virtual currency in the world, but Ethereum has the advantage that it is more consistent in its base and is destined to replace this cryptocurrency at some point. There are still many Bitcoins and the increase in Ethereum is not a fad, it has several factors.

SMART CONTRACTS

The power of Ethereum allows the use of the blockchain to simply have a virtual currency and distribute it. Ethereum gives us the ability to create smart contracts. Bitcoin has features that allow the creation of this type of contract, but Ethereum is much more powerful for this type of contract.

A smart contract, for those who do not know what it is, is a piece of software code that is executed in a transparent way for the user and that usually includes some financial transaction. What Ethereum allows is to create a distributed software without restrictions that runs through blockchain and that allows payments to be made. For us to understand, this piece of software code is based on 'if this action occurs, do this other action', through a blockchain distribution that does not allow manipulation. Within the world of currencies, there is often more talk of contract than software in this regard.

The great advantages of these smart contracts is that they are completely immutable, or what is the same, once generated they cannot be modified or falsified. The second added value is that they are safe. These do not run on a central server, they run on a distributed network, which allows for greater security.

USES OF BLOCKCHAIN ​​CONTRACTS

Many of you are wondering what these smart contracts are for. The most important thing is that these allow us to carry out many of the transactions and actions that financial systems allow on a regular basis, without the need to depend on intermediaries we would have to trust. One of the things they allow is insurance, which consists of paying an intermediary a certain amount of money, called a premium, in exchange for a payment commitment before an event.

Perhaps the clearest example is the payment of insurance when we have an accident with the car, which covers the repair costs and we do not have to pay for them out of our pocket. Here we trust an insurance company, which is supposed to be a serious and reliable entity (although this is another debate). Smart contracts save us from having to place trust in third parties. Simply the money of the payment commitment and the corresponding premium are linked by means of a contract that will be executed automatically. This system would also be valid for the world of betting, since it operates in a system similar to that of insurance.

Said system can also be used to create savings bank accounts, in which only a certain amount of money is withdrawn per month, savings accounts with a certain date of capital use, a payment system for employees on certain dates and, in general, any Financial product that requires a trust in which there is an intermediary, can be replaced by a smart contract where trust is eliminated as a factor, since this becomes an auditable digital chain that is transparent for both parties. These smart contracts can also be used for online voting with economic repercussions. We can launch a contract that frees funds when a certain percentage of positive votes is reached.

THE COUNTERPART OF SMART CONTRACTS

As with everything in life, everything has a negative side. These have two major problems. The first is the immutability of the contracts or what is the same, the contract once made cannot be modified, which is great for the confidence of the system, but if a bug or failure appears, it means that there is no going back. Once we launch the contract to the blockchain network, it can no longer be withdrawn, except if we allow it to be canceled, but that affects trust, which decreases.

It has a second problem, based on linking external services to a smart contract. If we hire, for example, an insurance through Ethereum, we save ourselves having to trust the insurance company, since it will be executed automatically when the required condition is met. The problem is, how does the contract know that the condition has been met? If we talk about commodity prices or stocks this is easy, so to speak, but in the case of common insurance, such as home or automobile, we need an expert to give the go-ahead.

It is clear that these smart contracts provide great security, but they still have some defects that should be solved over time or maybe not, that depends on many factors, which we should still link to a smart contract.

THE RIVALS OF ETHEREUM

Ethereum is not alone, far from it. The main threat of this coin is that it is quite easy to replicate, which will allow anyone who sets out to develop a clone that allows the original coin to be downplayed. The example is Bitcoin, which has many clones and alternatives that compete in the market, but despite the fact that Bitcoin is far from perfect, but it was the first to come out. That is the key to Ethereum, which has come out before its clones and direct competitors and that, a long time ago.

Perhaps the big problem with Ethereum is that the nodes are excessively focused on the creators themselves. The great advantage of smart contracts is their distributed system, which allows safe and reliable operations. The concentration of the nodes suppresses one of its main characteristics, therefore, it could be said that manipulation is within the reach of the creators or attackers, who through brute force could access and manipulate the nodes.

THE CHANGE FROM PROOF OF WORK TO PROOF OF STATE

[Upgrade] Recently, Vitalik Buterin, developer of this cryptocurrency, has repeatedly dropped his interest or intention to make this cryptocurrency go from Proof-of-Work to Proof-of-Stake (proof of stake). Currently this cryptocurrency depends on validations through proof of work, or what is the same, user teams must perform calculations to validate the blocks of the blockchain. This means that the more power, the faster the block is validated and whoever has more power receives the more reward.

The consensus-proof change is especially criticized by large farms, since you do not depend on the power of your machines, but you depend on the amount of token you have in your wallet. Thus, everyone who has an Ethereum wallet and token in it, will receive an 'x' amount of token, each time a block is validated. The amount will depend on the number of coins available in general and the amount of coins you have. If we have 1 token and there are 100 tokens, we have 1% of the coins. If the reward is 10 token, we will receive 0.1 token.

The advantage of this system is that it allows to validate operations more quickly, clearing the network and making the blockchain ledger even more distributed. Energy efficiency is improved, since doing the validation node function, in PoS, requires very little energy consumption, while a miner consumes a lot of energy.

It has negative aspects, since large fortunes or investors, could buy many of these cryptocurrencies and store them for a long time, while they continue to buy. This would cause them to have more weight and the reward would be greater for them and that they would benefit from the rise in value of the cryptocurrency, since the less circulating there is, the more value this cryptocurrency will have.

CONCLUSION

Logically, if everything were good and perfect, we would live in the country of the lollipop in the street of the gummy, but all technology has its positive and negative sides. Ethereum is the currency that is currently pointing the highest and poses as the great competition of Bitcoin. We already know that the New York Stock Exchange could shortly admit this currency to operate and that Russia, China and Japan want to regularize it so that banks can operate with it. Banks around the world are becoming interested in cryptocurrencies and many large banks analyze Ethereum, among others, to allow them to operate with them in their offices. Cryptocurrencies and Ethereum are the future.