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Ethereum is a blockchain network on which decentralized applications, contracts and other services built around cryptocurrency are built. Its native token, Ether (ETH), is the second-most valuable cryptocurrency by market capitalization. While they are distinct concepts, “Ether” and “Ethereum” are often used interchangeably as the name of the token.
Ethereum’s platform is not just used to record transactions. It also:
Supports decentralized finance, or DeFi, in which services that traditionally need an intermediary from the traditional banking or legal system can be performed by the network instead. It does this by supporting smart contracts, which are financial agreements between two or more parties that are stored on the network and are automatically executed when the contract’s conditions are met.
Hosts decentralized applications, or Dapps, which are made by developers using the network's programmable language.
Is used to build other cryptocurrencies, like Binance coin.
Is home to popular non-fungible tokens, or NFTs, which are one-of-a-kind digital assets that you can buy and trade with others.
Ethereum: Key facts
High. Ethereum has been the second-most-valuable cryptocurrency for years. In November, its market cap was about $130 billion.
No max supply. There isn’t a cap on the total number of ETH that will go into circulation, but its current supply of about 120 million is expected to remain relatively stable.
Medium to high. Ethereum’s network approves new blocks every 12 seconds, on average.
Medium to high. Users bid to get their transaction requests picked up. This supply-and-demand approach means that prices vary. During times of high network use, prices have surged to over $190.
High. In 2016, Ethereum underwent a controversial hard fork to escape a serious hack, called the DAO hack, that took place on the network. Nothing as serious has occurred since then on this heavily-trafficked network. The merge, like any technology, still needs to develop a track record before it can be adequately judged .
Pros of Ethereum
It already has an extensive user base
Ethereum is among a few projects with high levels of adoption. There are routinely more than 1 million transactions per day on the Ethereum network. For comparison, Cardano transactions have recently been closer to 100,000 per day. Some of the most popular consumer-oriented crypto projects, such as games and NFTs, are built on Ethereum.
Recent upgrades could lead to better performance
Ethereum’s merge may convince skeptics that blockchain technologies can work without a huge environmental cost. Ethereum, like Bitcoin, had historically used a “proof-of-work” system to ensure that transactions on the network are recorded correctly. Ethereum has now moved to a “proof-of-stake” system, which instead uses a process known as staking. Proof-of-stake systems use much less energy.
» Ready to invest? Here’s how to buy Ethereum.
Cons of Ethereum
It’s not cheap to use
The cost of a single transaction on the Ethereum network has, at times, exceeded $20. And while that may not be a considerable amount for a trade worth thousands of dollars, the fees for small transactions can sometimes be higher than the value of Ethereum changing hands. These transaction costs may not matter if you’re simply holding ETH, but they could be a roadblock to the growth of the Ethereum network as a whole.
Ethereum processes somewhere around a dozen transactions per second. That is dramatically slower than some other blockchains, and far slower from legacy technologies such as the Visa network, which can carry out 24,000 transactions per second.
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Ethereum vs. Bitcoin: Notable differences and price history
Ethereum and Bitcoin, which have the two biggest market capitalizations among cryptocurrencies, have notable differences.
Founder involvement. Vitalik Buterin, Ethereum cofounder, still guides its development. Bitcoin’s pseudonymous founder, Satoshi Nakamoto, has been silent for a decade.
Technology. In September, Ethereum started using a technology called proof-of-stake to approve blocks of new transactions. Using a process called staking, users post their own ETH as collateral. In contrast, Bitcoin uses proof-of-work, in which miners run resource-hungry computers to confirm new blocks.
Function. Bitcoin’s design is focused almost exclusively on recording transactions. In contrast, Ethereum can be used to write applications, execute smart contracts, host NFTs and more. Many other cryptocurrencies are built and run on Ethereum’s network.
The author did not own Ethereum at the time of publication.