Ethereum for beginners: Get to know the second biggest cryptocurrency

  • Discover the key differences between Ethereum and Bitcoin
  • Why Ethereum is the leading layer 1 blockchain
  • What the Ethereum Merge meant for the network
  • The future of Ethereum for beginners
Ethereum for beginners, Ethereum for beginners: Get to know the second biggest cryptocurrency

Ethereum is a layer 1 blockchain that enables the development of decentralized applications (dApps) and smart contracts. Founded in 2015 by Vitalik Buterin, a Russian-Canadian programmer who was just 19 years old at the time, Ethereum is the second-largest cryptocurrency after Bitcoin.

However it’s important to note that Ethereum is more than just a cryptocurrency. While Bitcoin was designed to be a peer-to-peer electronic cash system, Ethereum was designed to be a platform for decentralized applications (dApps).

Bitcoin vs Ethereum, the key differences

While Ethereum and Bitcoin share some similarities, such as being decentralized and based on blockchain technology, there are some key differences between the two.

One of the biggest differences is that while Bitcoin is primarily used as a store of value and a means of payment, Ethereum is used for much more. Ethereum’s blockchain allows for the creation of smart contracts, which are self-executing contracts with the terms of the agreement directly written into code. 

This opens up a world of possibilities for dApps that can automate a wide range of processes, from voting systems to supply chain management, as well as processes, products and services for decentralized finance (DeFi).

Another key difference is that while Bitcoin has a limited scripting language that restricts the types of contracts that can be created, Ethereum’s Turing-complete programming language allows for the creation of any type of contract. This makes it a more versatile and exciting platform for developers.

Ethereum’s role in the wider crypto community

Ethereum is often seen as the backbone of the wider crypto community. That’s why understanding Ethereum for beginners is vital to understanding the sectors closely related to crypto such as DeFi and NFTs. 

Many cryptocurrencies, such as Chainlink, and other crypto services such as the decentralized exchange Uniswap, are built on top of the Ethereum blockchain. Additionally, the majority of initial coin offerings (ICOs) – a fundraising method used by startups to raise funds for their projects – are conducted on Ethereum.

The Ethereum network plays a key role in the broader DeFi ecosystem. DeFi refers to a new financial system built on top of blockchain technology and designed to be open, transparent, and accessible to anyone with an internet connection. 

DeFi applications built on Ethereum allow users to lend, borrow, and trade cryptocurrencies without the need for intermediaries like banks or exchanges.

As well as decentralized finance, GameFi projects use Ethereum as their base layer. Many popular blockchain based games are built on Ethereum, such as Axie Infinity, Decentraland and the NFT marketplace OpenSea. This makes Ethereum integral to the whole GameFi sub-category of cryptocurrency and NFTs (non-fungible tokens). 

Ethereum for beginners

Ethereum for beginners: The Merge moves from proof of work to proof of stake

Like Bitcoin, Ethereum initially used a proof of work (PoW) consensus mechanism to validate transactions and add new blocks to the blockchain. However, in 2021, Ethereum began transitioning to a proof of stake (PoS) consensus mechanism.

PoW requires miners to solve complex mathematical puzzles in order to validate transactions and add new blocks to the blockchain. This process is energy-intensive and requires specialized hardware, making it difficult for the average person to participate in the network.

In contrast, PoS relies on validators, who are chosen based on the amount of cryptocurrency they hold and are willing to “stake” as collateral. Validators are incentivized to act in the best interests of the network, as they risk losing their stake if they act maliciously.

In September 2022 the Ethereum Merge took place. This was one of the final key steps in transition to proof of stake. The original Ethereum mainnet merged with the separate proof of stake network called the Beacon Chain, and now both exist as one PoS chain.

The change makes the Ethereum network far more energy-efficient (by 99%) and a lot less centralized, as more users can take part and become validators, staking their ETH on the blockchain. It also improves the network with increased scalability and better security. 

The future of Ethereum for beginners 

Ethereum is constantly evolving, with new upgrades and improvements being made to the network on a regular basis. One of the most anticipated is the Shanghai Update Ethereum is going through in April 2023. This will be the last step in transitioning the network to PoS, allowing validators to withdraw their staked ETH.

Another game-changer for Ethereum is the rise of NFTs, which are unique digital assets that are stored on the Ethereum blockchain. NFTs have exploded in popularity in recent years, mainly through digital and algorithmic art. But they can also be applied to everything from sports and events to music and real estate.

Ethereum for beginners, Ethereum for beginners: Get to know the second biggest cryptocurrency

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