Patrick Iturra, Asset/Investment Manager & Consulting.
Firstly, let’s introduce Ethereum, an open-source, blockchain-based platform that empowers developers to create and execute smart contracts. In simple terms, Ethereum is a globally distributed computer powered by its own currency, Ether (ETH). This concept was first proposed by Vitalik Buterin in late 2013, successfully financed by a crowdfunding campaign in 2014, and then the network was officially launched on July 30, 2015. Since its inception, Ethereum has played a significant role in shaping the concepts and technical frameworks that have driven a new era of blockchain technology.
The Powerhouse: Ethereum’s Blockchain
Ethereum fundamentally employs blockchain technology, a type of distributed ledger technology (DLT), to secure and maintain all transactions and smart contracts on its network. The term “blockchain” refers to the series of “blocks” compiling this ledger, each recording transaction data. Importantly, Ethereum’s blockchain derives its inherent security from decentralization, as each network participant maintains a complete copy of the blockchain.
Comparing Ethereum and Bitcoin
At first glance, Bitcoin and Ethereum appear similar – both function as blockchain-based cryptocurrencies. However, their intended goals and technical architectures prove distinct upon closer examination. Bitcoin primarily aims to serve as a digital currency that can replace traditional money. On the other hand, Ethereum’s vision is broader, facilitating and verifying secure transactions and providing a platform for creating and managing smart contracts and decentralized applications (dApps).
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Ethereum’s Transition to Proof-of-Stake
In September 2022, Ethereum moved from a Proof of Work (PoW) consensus mechanism to a Proof of Stake (PoS). This significant transition allowed Ethereum to adopt a more energy-efficient and scalable system. This update, Ethereum 2.0 or “Serenity,” aims to enhance the network’s security, scalability, and sustainability. In the PoS mechanism, Ethereum selects validators to create new blocks based on the amount of Ether they own. They are willing to “stake” as collateral instead of the PoW system that requires miners to solve complex mathematical problems.
The Revolutionary Smart Contracts
Where Ethereum truly stands out is in its native support for smart contracts. These self-executing contracts have the terms of the agreement directly coded into them. Designed to automatically execute, control, and document legally relevant events and actions per the contract terms, these contracts eliminate the need for trusted intermediates between contracting entities. As a result, this reduces transaction costs and speeds up the transaction process. Smart contracts provide the foundation for dApps and are instrumental in decentralized finance (DeFi) applications.
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Ethereum Paving the Way for Technological Advancements
Looking at the broader landscape, Ethereum underpins many technological advances in blockchain. It plays a crucial role in creating and managing various digital assets, including non-fungible tokens (NFTs), a type of cryptographic blockchain token representing a unique item or piece of content.
Moreover, the decentralized finance (DeFi) sector, aiming to reimagine and enhance the traditional financial system with more open and transparent protocols, heavily relies on Ethereum. Thanks to Ethereum’s smart contracts, developers can create complex financial products without a centralized authority.
Additionally, Ethereum also plays a significant role in the formation of Decentralized Autonomous Organizations (DAOs). DAOs are organizations governed by smart contracts, with decision-making powers typically allocated to token holders.
Last but certainly not least, various blockchain platforms, including Ethereum, are powering the development of the metaverse, a network of 3D virtual worlds focused on social connection. Ethereum’s decentralized nature, smart contracts, and NFTs
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“I don’t sell houses. I grow your Assets” –Patrick Iturra, Asset/Investment Management & Consulting.