The most basic explanation of Ethereum (ETH)

ETH or Ethereum is an intelligent decentralized blockchain with a distinguishing characteristic of support for smart contracts. It is well known for its native cryptocurrency, ETH, which some even call Ether. This description was suitable for someone with significantly less knowledge of technology.

Now, from a techie's point of view, Ethereum is a platform based on blockchain that empowers developers to build decentralized applications and deploy them —meaning a centralized authority would not run it. Because of its features, it enables you to create a decentralized application for which the users of that specific application will be the decision-making authority.

How does it work?

Ethereum, similar to many other cryptocurrencies around the world, is completely based on the blockchain technology. Blockchain can be described as a chain of data blocks. All the data in a block is connected to every newly-created block having new data. With this process repeatedly done, a copy of the blockchain is created and distributed.

Now, this newly created blockchain is validated by using a group of automated programs that stops only after the validation of information related to the transaction is completely done. Therefore, this blockchain cannot be changed unless the network reaches a consensus.

At present, Ethereum's work is based on a proof-of-work protocol, where a group of users runs some software intending to prove that an encrypted number is valid. This process is commonly known as mining. The first miner who successfully verifies the number's validity is rewarded in Ether. After that, an entirely new block is created, and information collected from the previously used block is encrypted again and kept inside the newly created block along with new data, and the mining cycle continues.

Proof-of-Stake Protocol

At this point, Ethereum works on a proof-of-work consensus protocol. However, as mentioned earlier, it has shifted towards a new proof-of-stake protocol, where instead of miners verifying transactions, Ethereum will validate transactions by using the owners of significant stakes. By repeating this process multiple times over time, validators collect Ether as a reward for successfully verifying a transaction. Even a new investor can utilize this system with the help of validators and collect bonuses by committing their coins to them.

What does Ethereum do?

With the flexibility of Ethereum, we can do many things, such as

Currency: We can send Ether as payment or even receive Ether as payment if cryptocurrency is accepted as payment for that transaction. To use this, one must have a Cryptocurrency wallet to store and use cryptocurrency.

Smart contracts: In simple terms, Smart contracts are similar to a permission-less app that runs on its own when the contract's terms are satisfied.

Decentralized finance: By utilizing Ethereum legally, some people can avoid the government's control over the flow of money and assets.

Ethereum vs Bitcoin

Both cryptocurrencies enable you to use digital money without depending on payment providers or banks. However, Ethereum is programmable, which means you can build and deploy decentralized apps on its network.

Being programmable means, you can build and deploy apps that utilize the blockchain to store data or control how your app works. Furthermore, when it comes to what Ethereum can do, there is no limit as it allows for innovation to emerge on the Ethereum network.

While Bitcoin is only a payment network, Ethereum is inclined towards being a marketplace of financial services, games, social networks, and other apps that respect your privacy rights.

Future of Ethereum

Web3

Web3 is still in a nascent stage, but the community of developers is expecting that Ethereum will most probably power it because many developed applications already use it.

Non-Fungible Tokens

NFTs are tokenized digital assets based on Ethereum. In simple terms, tokenization assigns one digital asset a unique digital token that helps to identify and store it on the blockchain.

It defines ownership because the encrypted data only stores the address of the owner's wallet. These NFTs can be traded or sold and are viewed as transactions on the blockchain. The network validates the transaction, and if successful, ownership is transferred.

These are only a few possibilities, but the scope of Ethereum is limitless when it comes to innovative ways to use it.

Conclusion

ETH or Ethereum is still growing at a rapid pace. It is the second most popular cryptocurrency in the world and is expected to become the most popular because of its distinguishing characteristics and vast scope of application.