What is Ethereum?
|— The Ethereum blockchain was launched in 2015 and quickly became the number two cryptocurrency in terms of market share.|
— Ethereum’s native currency is known as the Ether (ETH) and its smallest unit is known as a Wei (0.000,000,000,000,000,001 ETH)
— Ethereum introduced Smart Contracts to the crypto market, which can execute automatic actions if certain pre-set conditions are met.
— The Ethereum blockchain hosts a vast number of non-native crypto assets on its network. The most famous ones are ERC20 tokens.
Ethereum is currently(*) the second-largest cryptocurrency and has been around for many years. It has made its way to the top by having unique features, including an enormous ecosystem of other cryptocurrencies running on its blockchain. But what is Ethereum exactly? In this article we will be taking a close look at the Ethereum blockchain.
Ethereum’s rise to power
The Ethereum blockchain was created back in 2015 and quickly rose to become the second largest cryptocurrency by market capitalization, right after Bitcoin. Vitalik Buterin, one of Ethereum’s co-founders, envisioned a blockchain where the only limitations for potential use-cases would be developers’ creativity. He outlined the promise of Ethereum and its functions in its whitepaper in 2013. Ethereum is also often called “programmable money” due to its most notable key feature.
While being a decentralized and open-source blockchain like many other crypto assets, it stood out from the crowd by using something called Smart Contracts. These allow the Ethereum blockchain to run an entire ecosystem on its blockchain while also hosting its own native currency: Ether (ETH). The smallest unit of Ether is also known as a Wei (0.000,000,000,000,000,001 ETH).
Proof-of-work or proof-of-stake?
There is sometimes a little confusion about the consensus system Ethereum currently uses. While Ethereum plans to change this in the future, in its current form it still uses a Proof of Work (PoW) protocol. This indeed means that Ethereum are mined similarly to Bitcoin. In this, the miners work to verify transactions and give their computing power to the Ethereum blockchain. They are rewarded for their work with small amounts of Ether and in return provide the Ethereum network with more stability. The reward currently rests at 2 ETH per block mined.
With the upcoming Ethereum 2.0 update, this is all set to change.
Ethereum 2.0 aims to turn the protocol of the network to Proof of Stake (PoS). In it, a set of validators are selected to create the next block. In the case of Ethereum 2.0, each holder of Ethereum can lock away their assets to become a validator and participate in the network. At the time of writing, Ethereum 2.0 is not yet live – we haven’t fully seen how it will work.
What makes Ethereum unique is that it was the first-ever cryptocurrency to have smart contracts. These are automatic responses made when certain conditions are met. For example, a smart contract can be set to automatically send 1 ETH to address A once it receives 2 ETH from address B. This is why the Ethereum blockchain is often referred to as a platform allowing programmable money: it can be programmed through smart contracts to perform certain actions automatically. Everyone can create their own smart contracts, meaning that the options are indeed limitless as Buterin had intended. Once a smart contract is created, it cannot be changed. This is important for security reasons.
Ethereum vs. Bitcoin
ERC Token Ecosystem
One way that smart contracts are used is by supporting other crypto assets on the Ethereum blockchain. Cryptocurrencies that don’t have their own dedicated blockchain, but use the blockchain of another crypto asset are known as tokens. The ones that are on the Ethereum network are called ERC tokens – and most of these fall under the category of ERC-20 tokens. Operations with ERC tokens will still cost transaction fees in the blockchain’s native currency: Ether.
The first-ever ERC token launched back in 2015. That was the crypto asset known as Augur. Since that day, a plethora of tokens have been created on the Ethereum blockchain. There are currently more than 200,000 ERC tokens, which means that there is a huge cryptocurrency ecosystem running on a single blockchain. Thanks to smart contracts, you can even trade these tokens with each other using decentralized tools. At the time of writing, there are several ERC-20 tokens in the top 20 of Coinmarketcap as well as several stablecoins.
Keeping your Ethereum ecosystem secure
Indeed it is possible to own hundreds – even thousands – of different cryptocurrencies that all run on a single blockchain. All of these different crypto assets are manageable through a single Ethereum address. This also means that there is a single Private Key to access your Ether and ERC-20 holdings. As one can imagine, it is crucial to keep that secure.
That is where we come in.
At Ledger, we specialize in providing the highest level of security for your cryptocurrencies. Our hardware wallets keep the access to your cryptocurrencies completely offline. We use only the most cutting-edge Secure Element chips that are resistant to even the most sophisticated physical attacks. We don’t just provide security, but convenience as well! You can manage the vast majority of your ERC-20 tokens along with many other major cryptocurrencies such as Bitcoin, XRP and Litecoin directly through a single application: Ledger Live.
With Ledger, you can securely manage your crypto ecosystem all through a single device.
Keep learning! If you enjoy getting to grips with crypto and blockchain, check out our School of Block video Smart Contracts for Beginners.