Ethereum (ETH) is the second most widely traded coin in the world after Bitcoin (BTC).
Ethereum is attracting attention for its association with DeFi and NFT, but some people may be thinking, “I’m interested in it, but it seems kind of difficult…”. Therefore, this article will explain the mechanism and features of Ethereum in a way that even beginners can understand.
What is Ethereum (ETH)?
First, we will provide an overview of Ethereum and detail its characteristic feature, “Smart Contracts”. We will also explain ” DApps (Distributed Applications )” a typical service that utilizes Ethereum.
Ethereum was conceived by Russian-Canadian programmer Vitalik Buterin in 2013 and officially released in July 2015. Since then, it has quickly gained popularity around the world and has become a major coin handled by most exchanges and sales venues.
Strictly speaking, however, Ethereum is not a crypto asset itself. Ethereum refers to a decentralized management platform that incorporates a “smart contract” feature into the blockchain.
Until then, the blockchain was a chain of blocks with keys that held information. With Ethereum, however, it is now possible to store not only information but also applications within those blocks.
The application can then be activated automatically when certain conditions are met.
The platform that provides such an environment is Ethereum, and the cryptocurrency used in that environment is a crypto asset called “Ether. However, the name “Ethereum” has now become established as a term for the crypto asset itself.
| Currency Unit | ethylenediaminetetraacetic acid |
| Market capitalization (as of May 2023) | 2nd place |
| Maximum number of cards to be issued | No upper limit on issuance |
| consensus algorithm | point of sale |
| white paper | White Paper |
| Official Site | ethereum.org |
What is a smart contract?
First of all, let’s take a closer look at a unique feature of Ethereum: Smart Contracts. A smart contract is a mechanism that automatically executes contracts without human intervention, and is a typical feature of Ethereum.
Smart contracts utilize Ethereum blockchain technology. As a result, two conditions can be met: the contract cannot be tampered with, and the contract can be prevented from being defaulted.
In addition, since the contracting process can be automated without human intervention, it is possible to shorten transaction periods and reduce labor costs. Because of this convenience, smart contracts are expected to be put to practical use in a variety of industries, including the financial and real estate industries.
What is NFT (Non-Fungible Token)?
Next, we will discuss NFTs, which are based on Ethereum technology.
Non-Fungible Token (NFT) is an irreplaceable token that can be built primarily on the Ethereum (ETH) blockchain. This NFT technology is being used in the gaming and real estate sectors and is about to start a revolution. To be more specific, irreplaceable tokens have the characteristic of being uniquely valuable.
For example, 1 bitcoin held by person A and 1 bitcoin held by person B are of equal value and are “substitutable”, meaning they can be exchanged. On the other hand, “irreplaceable” means that no two items are exactly the same, and are one-of-a-kind, such as a T-shirt autographed by a gold medalist, for example.
NFT has made it possible to prove inherent value through the application of smart contracts. This has led to increased proof of ownership and buying and selling of art and real estate, and in March 2021, “EVERYDAYS: THE FIRST 5000 DAYS” an NFT artwork by digital artist Beeple, sold for approximately $69 million, the highest bid in NFT historyand made a splash It was the highest bid in NFT history at approximately $69 million.
It is expected that the NFT, with its unique features not found in other tokens, will continue to expand the use of the blockchain and promote digitization and simplification in all areas.
What are DApps (Distributed Applications)?
Next, we will discuss DApps (Distributed Applications ), a typical service that utilizes Ethereum.
DApps is an abbreviation for Decentralized Applications.
DApps are characterized by the fact that certain programs are automatically executed when certain conditions are met, of which Bitcoin and Ethereum are said to be representatives. In addition, whereas in traditional applications authority is concentrated in a central administrator, Dapps employ blockchain technology for decentralized management.
Currently, most DApps are developed on the Ethereum platform. This is because many of the services using DApps are developed based on Ethereum smart contracts.
DApps are also being used for game development, including CryptoKitties, the world’s first blockchain game, and Axie Infinity, a social phenomenon in the Philippines. Axie Infinity,” which has become a social phenomenon in the Philippines.
What is DeFi (Decentralized Finance)?
DeFi ( Decentralized Finance) is a generic term for financial services and ecosystems built on the blockchain.
To be more specific, DeFi (decentralized finance) can be defined as “a system of financial services, such as banking, securities, and crypto asset exchanges, that are provided using blockchain.
Many of the DeFi related services being deployed at this time are based on the Ethereum blockchain. Therefore, DeFi is said to be a system closely related to Ethereum.
Difference from Bitcoin (BTC)
Bitcoin and Ethereum differ significantly in their uses, consensus algorithm, and maximum number of certificates issued. The main differences between the two are summarized in the table: as of May 2023, the combined market capitalization of Bitcoin and Ethereum exceeded approximately 769.2 billion USD, accounting for approximately 70% of the total market capitalization of all cryptos.
Reference: Total market capitalization of cryptos – trading view
| bitcoin | ethereum | |
| Main applications | Settlement and remittance | platform |
| consensus algorithm | PW | point of sale |
| Maximum number of cards to be issued | 21 million BTC | undecided |
| Market capitalization (as of May 2023) | Approx. 550 billion USD (1st place) | Approx. 234 billion USD (2nd place) |
Main applications
Bitcoin is used primarily for payment and remittance purposes, whereas Ethereum is often used as a platform.
As mentioned above, Ethereum has the primary role of developing applications using blockchain (smart contracts). And the applications created using blockchain technology are called “DApps”; DApps are being put to practical use in a variety of fields, including finance, real estate, and gaming.
The Ethereum blockchain is also used to develop cryptos as well as applications. cryptos based on the Ethereum blockchain include the OMG and Basic Attention Token (BAT).
consensus algorithm
A consensus algorithm is a set of rules used to check the integrity of transactions of cryptographic assets that take place on the blockchain.
Ethereum used the same PoW (proof-of-work) consensus algorithm as Bitcoin, in which the first miner to solve a computationally demanding problem wins the right to approve the transaction (i.e., the right to receive cryptographic assets as a reward).
PoW, which consumes a huge amount of electricity for mining, has long been considered problematic in terms of its environmental impact. Therefore, Ethereum has announced that it will transition to PoS (Proof of Stake ), which determines who approves transactions based on the amount of currency held, and this was completed on September 15, 2022.
Maximum number of cards to be issued
The maximum number of bitcoins issued is 21 million. A certain amount of new bitcoins are issued for each transaction and paid to miners as compensation. It is said that bitcoin will reach its limit around 2140.
On the other hand, Ethereum currently (as of May 2023) does not have an issuance cap. However, instead of having an issuance cap, Ethereum implemented burning with the London Hard Fork in August 2021. By limiting the supply through burns, the management side of Ethereum ensures the scarcity and price stability of the currency.
The issuance limit may also be set depending on future updates, and is currently undecided.
Ethereum (ETH) 3 Features
Ethereum is the preeminent popular altcoin and ranks second only to Bitcoin in terms of market capitalization (as of May 2023). So here are four outstanding advantages of Ethereum.
- Speed of remittance
- issue ceiling
- reliability
Feature 1: Speed of remittance
With crypto assets, a single transaction must be approved in order to be completed.
The approval process is mining, which occurs “once every 10 minutes” in Bitcoin, but “once every 15 seconds” in Ethereum. This allows for speedy settlements.
Feature 2) Issue limit
Ethereum has no issuance cap. It also does not have a “half-life, ” as in Bitcoin, where the supply decreases as the number of issued coins increases. Therefore, ethereum has the advantage of maintaining a more stable price than bitcoin.
Feature 3) Reliability
The blockchain technology used for crypto assets is resistant to data tampering and is highly reliable in nature. By combining it with smart contract technology, the system can be operated as a more robust system.
While operational security holes may be targeted, it is safe to say that the Ethereum system itself is unlikely to be hacked.
Ethereum (ETH) Challenges and Solutions Update
Despite these many advantages, ethereum currently faces some challenges.
- scalability issue
- The Downside of Smart Contracts
- Soaring Gas Prices
To address this challenge, ETH (Ethereum) implemented a major update , The Merge, on September 15, 2022.
Here are some of the issues and updates for Ethereum.
Issue 1: Scalability issues
The ” scalability problem ” refers to the problem of longer transaction approval times and skyrocketing fees (gas prices) when the volume of transactions becomes too large.
As explained in the advantages of Ethereum, Ethereum allows for quick approval of transactions.
However, even if one block of a blockchain can be processed in about 15 seconds, as the number of blocks increases, approval will still take longer.
Moreover, since Ethereum writes not only transaction information but also the program that executes the smart contract in the block, the amount of information inevitably increases, resulting in slower transaction speed.
These problems are becoming more serious and surfacing as ethereum becomes more widely used. The only way to solve them is to increase the processing speed of the network, i.e., the speed of block generation, and countermeasures are being considered and tested for this purpose.
Issue #2: Adverse effects of smart contracts
Blockchain is resistant to hacking and data tampering. Its security is further solidified by smart contracts.
However, they also mean, on the other hand, that if there was a mistake somewhere in the program or information planted in the ethereum, it would be very difficult to deal with it.
For example, in the past, Ethereum was targeted for operational deficiencies and experienced the theft of 3.6 million ETH. At that time, there was much discussion about how to handle the situation, but the management group decided to turn the clock back and “pretend” that all subsequent transaction data, including the theft, had never happened.
The reason for this action was probably due to Ethereum’s “high tamper-resistance”. The Ethereum community was divided over this hard-line measure, resulting in a split coin called “Ethereum Classic.
So it is not entirely impossible that in the future, if a similar incident occurs, or if a bug or misstatement of information occurs, it could develop into a similar situation and cause confusion.
Issue 3) Rising Gas Prices
Gas is simply “the fee required to use Ethereum “.
Most crypto, including bitcoin, require a fee to be paid to the person who did the work of approving the transaction, called a “minor,” when the money is transferred.
In addition to this transfer fee, Ethereum also requires a fee to execute a smart contract. These fees required for Ethereum transactions are collectively referred to as Gas.
Gas costs can basically be set freely by users. However, miners generally prioritize mining transactions with high rewards, so gas prices naturally tend to skyrocket when transaction volume is high (i.e., when there are many users).
Ethereum (ETH) Update “The Merge” (“The Merge”)
The fact that the Ethereum blockchain continues to operate with huge electricity trial has long been considered problematic from an environmental protection perspective. The Ethereum Foundation has implemented a major update (“The Merge”) on September 15, 2022 as a solution to that problem.
The major purpose of the update is to move from “Pow” (Proof of work) to “PoS” (Proof of stake).
While PoW was a revolutionary system, its growing demand has created some problems, especially with the environmental impact of mining, which consumes enormous amounts of electricity. In particular, there has been criticism of the environmental impact of mining, which consumes enormous amounts of electricity.
The transition from PoW to PoS will change the reward from “computation and processing speed” to “amount and years of ownership”. The Ethereum Foundation estimates that the transition to PoS via “merge” will eliminate the need for mining and reduce energy consumption by up to 99.95%.
In addition to the energy efficiency improvements described above, the transition to PoS has created the potential for future price increases for ETH. Specifically, a decrease in the number of new native tokens (ETH) issued per day, and a decrease in ETH selling pressure due to the presence of a staking lock period.
What is the future of the Ethereum (ETH) price?
Ethereum hit a major all-time high in 2021, but what will the future price be? There are two key factors that will determine the future trend of Ethereum.
- Ethereum update to be implemented.
- There was great news about the practicality and future potential of Ethereum.
For more information and to learn more about the details and upcoming important events, please see the upcoming articles.
Q&A about Ethereum (ETH)
Frequently asked questions about ethereum are presented here in a Q&A format.
Q: What is Ethereum? Please tell me in simple terms.
Ethereum (ETH) is a “platform for decentralized applications”. It is characterized by the ability to incorporate “smart contracts” into the blockchain.
In simple terms, it is an application platform like Google PlayStore or AppleStore.
Q: When was Ethereum created?
Ethereum was conceived in 2013 by Russian-Canadian programmer Vitalik Buterin and officially released in July 2015.
Q: How many Ethereum are issued?
As of January 31, 2022, there are approximately 120 million ETH of Ethereum in circulation.
Note that Ethereum does not have an issuance cap like Bitcoin or Ripple, so new coins will continue to be issued as they are mined.
However, the major Ethereum update “The Merge” on September 15, 2022 will change the specifications of Ethereum issuance and is expected to significantly reduce the amount of new issuance per day. According to the official announcement from the Ethereum Foundation, the amount of new issuance per day will be reduced from 14600 ETH before the update to 1600 ETH, a decrease of approximately 90%.
Q: What is the current price (chart) and market capitalization of Ethereum?
As of May 2023, Ethereum is the second largest crypto asset by market capitalization.
The current price (chart) of Ethereum can be found here.
Q: What is the difference between Ethereum and Bitcoin?
The following table lists the differences between Bitcoin and Ethereum.
| bitcoin | ethereum | |
| Main applications | Settlement and remittance | platform |
| consensus algorithm | PW | point of sale |
| Maximum number of cards to be issued | 21 million BTC | undecided |
| Market capitalization (as of May 2023) | Approx. 622.31 billion USD | Approx. 265.38 billion USD |
Q: What is the future of Ethereum?
We expect the future of Ethereum to be bright.
Ethereum is a “platform for decentralized applications”. Most of the new technologies such as DeFi, NFT, and IEO that have made headlines in the crypto asset industry in recent years have happened within the “Ethereum Ecosystem”.
If various projects are launched on the platform and their applications become popular, naturally more people will want to buy Ethereum. The future of Ethereum as a platform is bright.