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What is Ethereum?

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Ethereum is open software platforms based on blockchain technology that enables developers build and deploy decentralized applications. Ethereum was initiated in 2013 by Vitalik Buterin, who is a researcher and programmer of crypto currency. This development was funded between July and August 2014 by an online crowd sale. The system went live on 30th of July 2015 with 11.9 million “premined” coins for the crowd sale.

Ethereum has its own in-built crypto currency called Ether. Thus in Ethereum blockchain, the miners work to earn Ether, the native cryptocurrency that fuels the network. Application developers use Ether to pay for transaction fees and services on the Ethereum Network. Ethereum is equipped with smart contracts that can execute the terms of the contracts once the set conditions are met. This feature provides the potential to create a custom private blockchain and specific data operations without exposing the details of the database. Smart contracts can also store details of an application such as domain registration details or membership details. They can be used to facilitate, verify, and enforce the negotiation or performance of economically-laden procedural instructions, and counter-party risk

Just like bitcoin, Ethereum is a distributed public blockchain. Bitcoin and Ethereum differ substantially in purpose and capability. While bitcoin blockchain is used to track the ownership of digital currency (bitcoins), the Ethereum blockchain focuses on running the programming code of any decentralized application. As bitcoin is aiming to disrupt online banking, Ethereum has a goal of using a blockchain to replace internet third parties. Ethereum being a public blockchain can be viewed by all peers since its applications are distributed in nature. No permission is required to view it.

All state transitions on the Ethereum blockchain are transfers of value and information between Ethereum accounts. These accounts are:

  • Externally owned accounts (EOA): These are controlled by private keys executed by human users. Meaning the users are in control of these accounts.
  • Contracts accounts: These accounts are not influenced by human users, but they can be controlled by an EOA which has been programmed with a specific address. They are secure as they cannot independently perform random number generation or API calls unless instructed by an EOA.

Ethereum has four phases of deployment; Frontier, Homestead, Metropolis, and Serenity. Currently it’s in phase two “homestead” and is considered stable. This is so because it has improved on transaction processing, gas pricing and security. Based on developers’ projections that by the time it’s in the last phase, it will have a fundamental change to Ethereum consensus algorithm to enable basic transition from hardware mining (proof-of-work) to virtual mining (proof-of-stake).

Despite Ethereum being functional, investors are still debating on whether to invest in ether. Some see it as a passing cloud whose downfall is around the corner. Others are taking advantage of its surging prices, and still speculating on future prices.  For instance, at the start of 2017 the price of ether was around $8 and in November 2017 it had increased to over $400. However, the prices still remain volatile and caution is required while investing in the cryptocurrency. It is important to conduct research before making investment in Ethereum by considering not only its price movements but also future prospects and developments. As a rule of thumb you should invest what you can afford to lose in the cryptocurrency world.

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