Ethereum is the second-largest cryptocurrency by volume, but its varied applications can make it more difficult for new investors to get started than Bitcoin.
“Ethereum serves two purposes: one, it operates as money and may be used as a store of wealth,” explains Bill Noble, CEO of Token Metrics, a cryptocurrency analytics company. “However, Ethereum serves as a decentralized finance highway.”
Ethereum is a software platform that works on a blockchain, rather than a “digital gold” like Bitcoin. Users can use ether, the Ethereum-related cryptocurrency, to interact with the site or acquire and hold it as a store of value.
What Is Ethereum?
On the heels of Bitcoin, programmer Vitalik Buterin created Ethereum in 2015.
“He discovered that Bitcoin is like a pocket calculator,” says Ollie Leech, learn editor at Coindesk, a cryptocurrency news outlet. “It’s meant to do one thing, and it does it incredibly well, but you can’t do anything else with it.”
As a result, Buterin launched Ethereum, a blockchain network with its own money, ether (ETH), that has the capacity to achieve far more.
While Ethereum may be purchased and traded like Bitcoin, it is also a software platform that developers can utilize to construct new applications that are typically crypto-adjacent or otherwise meant to make buying, selling, and using cryptocurrency easier.
People can, for example, conduct direct transactions across the network. According to Leech, peer-to-peer lending is gaining traction on Ethereum right now. Individuals can lend money to one another without using a bank thanks to a lending software built on the Ethereum network.
These apps’ smart contracts are nothing more than algorithms that perform a certain purpose when certain criteria are satisfied. When the collateral is transferred into the correct wallet or account in the instance of a peer-to-peer loan, the contract fires off the outcome (lending the money). Speed of execution, lack of human mistake or bias, and lower fees are all potential advantages of using a smart contract instead of a traditional lender.
Other Uses of Ethereum
Ethereum, like other famous cryptos, was founded on the ideas of decentralized finance, as the products and services available on Ethereum are accessible to anybody with an internet connection.
Smart contracts enable developers to create decentralized programs that can be used for a variety of reasons. Financial tools such as cryptocurrency exchanges, decentralized lending platforms, and data services such as Matcha, which searches various cryptocurrency exchanges for the lowest pricing, are among these applications. However, there are dapps for purchasing and selling digital artwork, games, and developer technologies, among other things.
Developers can build entirely new cryptocurrencies on top of Ethereum, such as Chainlink and XRP, which are known as tokens, because to the open source idea. Some of these assets are in the form of cryptocurrencies such as Tether (USDT), Uniswap (UNI), and USD Coin, which you may have heard of (USDC).
However, cryptocurrencies aren’t the only digital assets that may be created on Ethereum; recently, NFTs, or non-fungible tokens, have emerged as another example. According to Ethereum’s website, these digital tokens are powered by Ethereum and are used to represent ownership of unique goods.