If you are new to the crypto space, you have probably seen Ethereum next to bitcoin in exchanges and news. While ether is often compared to bitcoin, it uses a different technology and has different goals and features. Currently, ether token is the second-largest blockchain project created to solve bitcoin shortcomings. It has attracted lots of attention from crypto enthusiasts and investors due to the benefits it presents to significant benefits. Let us look at how the Ethereum storage system works.
What Is Ethereum?
Ethereum is a decentralised blockchain that provides a platform for building other applications. Unlike bitcoin, which is exchanged and stored like a product, Ethereum is a technology platform. For instance, if Ethereum was an internet platform, applications like email or Facebook are built. Since Ethereum is the blockchain, ether is the cryptocurrency token that functions similar to bitcoin. You can use it to trade in exchanges or for transacting with Ethereum applications.
The main goal of Ethereum was to be a blockchain platform for other applications that provide a secure network for transactions. Since Ethereum is decentralised, information is spread across a network of computers, minimising chances of failure.
Ethereum came into existence in 2013 when Vitalik Buterin published the Ethereum white paper proposing digital currency. In 2014, the Ethereum development team announced the platform and started raising money. By August 2014, they had $18.4 million, with Charles Hoskinson and Mihai Alisie joining the development team. The digital currency went live in 2015, but the first stable ether coin was released in 2016. While the central concept behind Ethereum was smart contracts, it has performed exceptionally as a digital currency with a $1 billion market cap.
Applications of Ethereum Blockchain
Ethereum promotes decentralised finance and allows startups to fundraise from a network of investors. Decentralised fundraising lowers entry barriers for programmers working on high-risk projects. Since the launch of Ethereum, substantial amounts have been raised through crowd sales to finance decentralised applications. For instance, Ethereum development was funded through decentralised fundraising that raised $18 million in bitcoin.
The decentralised blockchain also improves privacy through the development of an identity management system. It isn’t easy to manage your data when you create a digital identity on various websites or social media platforms. Besides, the data is stored in a centralised server that is hackable. Ethereum identity management system gives users complete control of their data and stores them in a network of computers to improve security. Ethereum decentralised applications are also valuable for creating a digital identifying system for government agencies.
Ethereum also has numerous applications in decentralised file storage and reduces the costs of backing up data in online data stores. Over the years, online file storage startups like Dropbox have provided internet users storage space for backing up files at a monthly fee. However, the costs of file storage can skyrocket as your storage needs increase. Ethereum blockchain allows developers to rent out hard drives and unused file storage at a low cost.
Ethereum 2.0
Over the years, we have been using Ethereum 1.0 for decentralised applications. While it effectively executes smart contracts and enables crypto transactions, it is not scalable and can execute an average of six commands per second. The latest upgrade to the Ethereum blockchain seeks to enhance its efficiency and functionality. Ethereum 2.0 or Serenity was launched in 2020 and will roll out in three phases. Compared to Ethereum 1.0, Serenity uses the Proof of Stake (PoS) model instead of Proof of Work, enhancing scalability and security. Unlike the Proof of Work mining model, which requires mining hardware and energy, Proof of Stake only uses a consumer laptop. It lowers the cost of mining ether, boosting crypto-economic stability.
Difference Between Ethereum and Bitcoin
Bitcoin is the most popular crypto, with Ethereum following closely behind it, but the two have different goals and play separate roles. While bitcoin is a digital currency, Ethereum serves as a currency and a platform for developing applications. With its objective to automate various processes and eliminate intermediaries, ether is a method of interacting with the network as opposed to transferring money. Bitcoin is more of a store of value like gold, with a hard cap and its Proof of Work network makes it impossible to scale. However, the recent launch of Ethereum 2.0 that uses Proof of Stake to mine ether coins, Ethereum, will solve its scalability problems.
Benefits of Ethereum
Ethereum provides a secure platform for developing apps by eliminating a central authoritative network. All decentralised applications built on the blockchain are stored in a network of computers, preventing hackers from breaking in or accessing private information. The encryption of data codes also boosts privacy and provides a safe space for transactions. Aside from promoting privacy rights, Ethereum blockchain also reduces third party fees by allowing users to utilise smart contracts. Since the contracts are self-executing, users do not pay intermediary fees and can complete numerous transactions faster.
An Ethereum-based social media platform lacks censorship, unlike internet platforms where app admins can delete a post. That means people can discuss and present different viewpoints and make the content rules concerning the content to be posted. While this may promote offensive content, the community can vote against the content and delete it.
Limitations of Ethereum
Decentralised systems also have downsides caused by code bugs and oversights. If developers make an error when writing the code, it can lead to unintended harmful acts. Besides, it is impossible to avoid the attack or manipulation unless you rewrite the code.
Conclusion
Ethereum provides a secure platform to trade in cryptocurrency and execute smart contracts without third-party interference. Besides, it guarantees the safety of transactions by minimising the use of centralised networks that could expose information to unauthorised persons. With developers creating decentralised applications on the Ethereum blockchain, many users discover exciting ways to utilise the cryptocurrency. The recent increase in value indicates the increased use of Ethereum, and it may soon exceed bitcoin in usage.
