Ethereum explained: What is it and why is it important?

Bitcoin may have revolutionised the concept of financial assets, but let’s face it, it still bears some downsides. So, years later, the market welcomed the subsequent rise of altcoins (alternative cryptocurrencies), where each provides different rules, technology, and services to cater for the shortcomings of the premier currency, as well as to appeal to various types of users. 

When it comes to specially enhanced functions, it’s none other than Ethereum. While it has long been deemed the second-best and largest crypto after Bitcoin, its network is actually highly programmable — a much faster and more powerful platform. Let’s unpack what more it entails here on this page. 

What is Ethereum?

First things first, a lot of users have misconceived that Ethereum is a digital coin. On the contrary, it’s an open-source blockchain-based platform that singly holds its own virtual currency, called Ether (ETH). It’s the correct term to use whenever you trade or play online games at Bitcasino.

Launched in 2015 by a group of blockchain innovators, namely Joe Lubin and Vitalik Buterin, it’s a programmable network intended as a marketplace for financial services, games, and apps. Beyond storing transaction records, it empowers businesses to build and publish smart contracts and distributed applications (shortened into dapps).

Dapps are just a fraction of the many Ethereum-powered tools and services. They are more than just any typical apps because they feature the following benefits:

• No owners
• Free from censorship
• Built-in payments (free from third-party payment providers)
• No down time
• Privacy
• Anonymous login (Ethereum accounts would suffice)
• Uses smart contracts for app logic

Smart contracts, on the other hand, are a self-computer programme that executes, controls, or documents agreements between two people in the form of codes. Since they run on the blockchain, they are also stored on a public database and can no longer be altered.

How is it different from Bitcoin?

Let’s just say that Ethereum has a wider scope and is more ambitious than Bitcoin. While the market value of its virtual coin (ETH) is second to Bitcoin, it continues to be a growing platform to cater to all kinds of applications.

Speaking of continuous growth, developers are currently improving the already existing network with Ethereum 2.0. It promises to increase speed, efficiency, and scalability to better store a greater number of transactions.

Is it a good investment?

Like any other leading virtual currencies, Ether is a high-risk investment. It may be open to everyone, but it’s not the right choice for everybody. If you are on the edge of entering the market, just always keep in mind the golden rule: only invest money that you can afford to lose.

What are its best wallets?

Whether you plan on investment or as a daily payment service for online merchants like Bitcasino, part of a successful Ethereum transaction is to have a reliable crypto wallet. So, based on track record, performance, number of users and technology, below are five noteworthy wallets to consider.

1. Ledger (Hardware wallet)
2. Trezor (Hardware wallet)
3. Atomic Wallet (Desktop and mobile wallet)
4. Guarda (Desktop and mobile wallet)
5. Jaxx (Mobile wallet)

Proof of Work (PoW) in Ethereum

What is Proof of Work?

Proof of Work (PoW) was the original consensus mechanism used by Ethereum to validate transactions and secure the network. It is a process that requires participants, known as miners, to solve complex mathematical puzzles in order to add new blocks to the Ethereum blockchain.

How PoW Works in Ethereum

In a PoW system, miners compete to find a solution to a cryptographic problem. The first miner to solve the puzzle earns the right to add the next block of transactions to the blockchain and receives a reward in the form of newly minted Ether (ETH) and transaction fees.

This process involves substantial computational power and energy, which helps deter malicious actors from attempting to alter transaction history. Once a block is added, it becomes increasingly difficult to change, strengthening the integrity of the blockchain over time.

The Role of PoW in Securing Ethereum

Security: PoW ensures that only valid blocks are added to the blockchain, making it extremely difficult and expensive for any single party to manipulate the network.

Decentralization: By allowing anyone with the proper hardware to participate in mining, PoW promotes a decentralized network structure.

Transition to Proof of Stake (PoS)

Although PoW played a crucial role in Ethereum’s early years, the Ethereum community transitioned to a more energy-efficient mechanism called Proof of Stake (PoS) with the Ethereum 2.0 upgrade. This change was aimed at reducing energy consumption and improving scalability, while maintaining the network's security and decentralization.

NFTs (Non-Fungible Tokens)

What Are NFTs?

NFTs, or Non-Fungible Tokens, are unique digital assets that are stored on a blockchain. Unlike cryptocurrencies such as ETH, which are interchangeable, each NFT has a distinct value and identity, making them ideal for certifying ownership of digital items.

Ethereum’s Role in NFTs

Ethereum is the most widely used platform for creating and managing NFTs. Thanks to its smart contract functionality, Ethereum allows developers to create standards like ERC-721 and ERC-1155, which define how NFTs are issued, transferred, and interacted with securely and transparently.

Popular Uses of NFTs on Ethereum

Digital Art: Artists use NFTs to tokenize their work, gaining access to new audiences and revenue streams without traditional intermediaries.

Collectibles: NFT-based digital collectibles, such as CryptoPunks and Bored Ape Yacht Club, have become prominent examples of how scarcity and ownership can be proven on the blockchain.

Gaming: NFTs are used in blockchain-based games to represent unique in-game items, characters, and achievements that players can truly own and trade.

Virtual Real Estate: Some platforms allow users to buy and sell virtual land as NFTs, forming the foundation for digital worlds and metaverse projects.

Why Ethereum?

Ethereum's extensive developer community, established standards, and secure infrastructure make it the preferred blockchain for NFT projects. Its decentralized nature ensures that NFT ownership and transaction history are publicly verifiable and tamper-resistant.

Digital Currency

Ethereum as a Medium of Exchange

One of the primary uses of Ethereum is as a digital currency. Its native cryptocurrency, known as Ether (ETH), can be used to send and receive payments without the need for traditional financial intermediaries like banks. This makes transactions faster, more transparent, and accessible to people around the world.

Supporting Decentralized Applications

Ether is not just a digital coin; it also serves an essential role in powering the Ethereum network. It is used to pay for computational services and transaction fees, often referred to as "gas." This enables developers to build and operate decentralized applications (dApps) on the platform.

Global Financial Inclusion

Ethereum opens the door to financial services for those without access to traditional banking systems. With just an internet connection, users can hold, transfer, and manage their digital assets using Ethereum wallets. This has the potential to increase financial inclusion in underbanked and developing regions.

Store of Value and Investment

Beyond its use in everyday transactions, many people view Ether as a store of value and an investment asset, similar to Bitcoin. As the Ethereum ecosystem continues to grow, its digital currency may offer both utility and long-term value to its holders.

Decentralized Exchange (DEX)

What Is a Decentralized Exchange?

A decentralized exchange, commonly known as a DEX, is a type of cryptocurrency trading platform that operates without the need for a central authority or intermediary. Unlike traditional or centralized exchanges, DEXs run on smart contracts deployed on blockchain networks such as Ethereum. This allows users to trade cryptocurrencies directly with one another in a peer-to-peer fashion.

How Ethereum Enables DEXs

Ethereum’s smart contract functionality is foundational to the operation of decentralized exchanges. Developers can build secure, automated protocols on Ethereum that match buyers and sellers, execute trades, and manage transaction settlement—all without requiring user deposits or a centralized governing body.

Benefits of Using a DEX

DEXs offer several advantages over traditional exchanges. These include enhanced security (since users maintain control of their private keys), increased transparency through publicly viewable smart contract code, and greater accessibility for users across different regions. In addition, many DEXs support the trading of a wide range of ERC-20 tokens, increasing the variety of assets available to users.

Popular Ethereum-Based DEXs

Examples of well-known DEXs built on Ethereum include Uniswap, SushiSwap, and Curve. These platforms have become integral parts of the decentralized finance (DeFi) ecosystem, facilitating hundreds of millions of dollars in daily trading volume without centralized oversight.

Conclusion

By leveraging Ethereum’s decentralized architecture and programmable smart contracts, decentralized exchanges provide a secure and autonomous way for users to trade digital assets. They represent a key innovation in the evolution of finance and continue to grow as adoption of blockchain technology increases.