Exploring Ethereum Technology: a detailed overview of the ETH cryptocurrency

What is Ethereum and how does this cryptocurrency differ from Bitcoin?

Bitcoin and Ethereum are two foundational cryptocurrencies that have helped accelerate the development of blockchain. However, their technologies differ significantly in their operating principle and goal setting. Ethereum is based on blockchain technology (as is Bitcoin). The difference is the use of smart contracts, which makes Ethereum development platform for DApps. These contracts are programmed to automatically fulfill the terms of the contract - directly written into the action code.

Bitcoin, in turn, was created as a decentralized alternative to fiat currency. It was supposed to become a means of accumulation and exchange. Blockchain technology creates a decentralized ledger for Bitcoin transactions, eliminating the need for a regulatory authority.

However, the Ethereum development blockchain was created to do much more. Using this platform, developers can create and run various applications. They can be anything from video games to complex financial systems. Ether, the native cryptocurrency of Ethereum, is used to conduct and manage transactions within its environment.

As a result, Ethereum technology became the foundation for thousands of projects based on crypto tokens and provided a platform for their DApps.

The fundamental difference between Ethereum and Bitcoin lies in the technical base. The block time in Ethereum is shorter than in Bitcoin. This means that Ethereum technology allows transactions to be processed faster. This quality is necessary for situations that require high transaction speeds.

Many people compare Ethereum and Bitcoin based on the difference in their capabilities. While Bitcoin is primarily a medium of exchange, Ethereum is a development platform with advanced features such as smart contracts. This has led to a significant market capitalization of cryptocurrencies running on decentralized blockchain technology.

What is ETH?

In 2015, Ethereum co-founder Vitalik Buterin created ETH. Since then, this cryptocurrency development has become the second in the world in market value after Bitcoin. Unlike traditional currencies, ETH is not regulated by government agencies. This token is a tradable asset class on a variety of cryptocurrency exchanges.

ETH stands out from other currencies in that it is not just a store of value and exchange. ETH can be used to conduct operations on the Ethereum network, such as executing smart contracts and working with DApps. To carry out these transactions, users must pay a fee in ETH, called “gas”. With its help, miners confirm transactions on the blockchain.

ETH plays an important role in the rapidly evolving decentralized finance (DeFi) environment, which seeks to replicate and modernize the services of the traditional financial system, such as lending and borrowing, and enable trading without intermediaries. ETH is widely used as collateral, currency, and unit of account in various DeFi economic protocols.

Traders and users hold ETH for various reasons. Some hold the currency for a long time, speculating on the growth of the Ethereum network and the increasingly widespread adoption of blockchain technology. Others manage the coin more actively: they use it for trading and to gain access to network capabilities.

To summarize, ETH is a key component of the Ethereum network and the basis for the decentralized finance environment.

How do Ethereum smart contracts work?

Ethereum technology is known for its use of smart contracts. These contracts are different from traditional protocols. In their case, the terms of the agreements are programmed in the form of computer code. Smart contracts are located on the Ethereum blockchain, an open system that guarantees that underlying actions or agreements will be carried out without violation, control, deception, or interference by third parties.

How smart contracts work

Think of a smart contract as a vending machine. When you select an item (digital trade or contract), pay the required amount of ETH and then the machine (smart agreement) immediately executes the trade according to the terms in the code. This system eliminates the need for intermediaries (lawyers or brokers), which reduces costs and increases efficiency.

Automation capabilities in blockchain

When specified conditions are met, smart contracts automatically and forcibly fulfill obligations under the transaction. Thus, in such contracts the processes of supervision and processing of transactions are automated. This capability is a game-changer in the finance, real estate and legal industries, where complex agreements are not uncommon.

DApp and more

The Ethereum blockchain serves as a platform for many decentralized applications (DApps). These applications run on a peer-to-peer network rather than on a single computer. The benefits of Ethereum-based decentralized applications stem from the security, reliability, and transparency of this blockchain technology. The range of applications is growing rapidly: from DeFi to NFTs.

Ethereum smart contracts provide a reliable, transparent and efficient approach to supporting digital trade and agreements. This technology has the potential to bring many positive changes to different industries.

Does Ethereum technology have practical applications?

Ethereum's most notable application is in decentralized finance (DeFi), namely smart contract-based lending and other financial transactions. Ethereum is so popular due to its decentralization, transparency, automation and stability. These qualities provide the technology with many different application scenarios in different industries .

Banking, crowdfunding, and web hosting are just some of the few areas where Ethereum technology has changed the way people think about transactions and interactions. For example, Ethereum technology offers new ways to process lending, borrowing, and trading digital assets.

Smart contracts on Ethereum can be used to create reliable crowdfunding initiatives without the need for trust. Meanwhile, prediction markets are using this technology to create centralized platforms for predicting the outcome of events. Ethereum is also used to create decentralized web services . As can be seen, the influence of technology has permeated many areas.

Ethereum blockchain technology powers many practical applications in various industries. Below are several companies that are actively using its capabilities.

Take-Two: In August 2023, the publisher of the Grand Theft Auto game franchise announced the development of Sugartown , an Ethereum-based Web3 game. The plot of Sugartown tells how pets accidentally opened a portal in their city to another world, from which creatures called Ora poured out. Using their ingenuity, the Ora transform Sugartown into a paradise filled with fun activities and entertainment.

ING: The Dutch bank has been involved with many Ethereum-based projects. For example, with Komgo , which is designed to make sharing documentation easier. The ING banking group took part in the creation of the consortium for the settlement of Fnality , as well as the bilateral letter of credit Bamboo.

TD Ameritrade: TD Ameritrade is a brokerage firm that uses Ethereum to power ErisX, a CFTC-regulated Ethereum smart contract spot exchange. Moreover, on this platform, the company allows clients to trade Ethereum futures.

The examples above show that the Ethereum blockchain enables secure, open and efficient trading of digital assets and the issuance of NFTs, and can underpin many financial transactions.

How does Ethereum's transition to Proof of Stake affect ETH?

Ethereum's transition from Proof of Work to Proof of Stake, known as the "Merge" , had a major impact on the issuance and regulation of ETH.

Issue before merger

• With the POW algorithm, miners produced ~13,000 ETH per day.

• The annual inflation rate was 4.61%.

Post-merger issue

• With the POS algorithm, validators issue ~1700 ETH per day.

• Now the annual inflation rate is 0.52%.

• The overall issuance of new ETH coins decreased by ~88%.

Environmental friendliness

• The merger marked the end of energy-intensive mining.

• Validators receive smaller rewards, which reduces emission.

Burning ETH

• A minimum fee is required for transactions. It is subject to burning, which removes ETH from circulation.

• On days of high network load, burning can offset the rate of ETH issuance and potentially lead to deflation.

System validators

• Validators are eligible for rewards if they have a minimum of 32 ETH frozen in their wallet.

To maintain network stability, there is a withdrawal limit.

The transition to the POS algorithm greatly reduced the rate of ETH inflation and increased the environmental friendliness of the blockchain development. Now the supply and demand for ETH is not so dependent on the rate at which the currency is issued and the burning of transaction fees. This can sometimes lead to zero inflation or deflation.

What risks and challenges do Ethereum and ETH face?

Many believe that the nature of the risks and difficulties threatening Ethereum and ETH lies in functionality and cost issues.

Competition from other blockchains

There are networks like Solana and Cardano that offer faster and cheaper transactions. Potentially, they can weaken Ethereum’s position in the market. However, competition also has a positive side - it is an incentive for development.

Scalability and storage

As the Ethereum blockchain expands, the problem of scalability becomes more serious. The need for more and more memory is growing faster than in the case of Bitcoin. If you do not find an effective solution to this problem, the load on your network may exceed its capacity and cause performance problems.

High transaction fees

Transactions on the Ethereum network can be prohibitively expensive due to high fees. This could result in a situation where users only engage in large transactions, which would negatively impact the day-to-day use of the technology.

Risk from legislation

Laws regarding the decentralized finance and NFT sectors may change. If these sectors are banned or restricted, the demand for transactions on the Ethereum network may fall.

Security Threats

Ethereum's layered architecture is susceptible to a variety of threats Replay attack : Hackers can copy and reuse transaction data if timestamps or a unique number (nonce) have not been added.

False Deposit Attack: If the platform makes a mistake in confirming the tokens being traded, it could result in asset theft.

Trap attack: Users try to steal ETH from someone else's wallet, but actually lose the currency themselves.

Short URL attack: due to insufficient verification of the entered values ​​during the exchange, the transfer amount can be calculated to be greater than it is.

Airdrop Hunting: Excessively profiting from airdrops leads to unjust enrichment.

Arbitrary writes to storage: Attackers can potentially change data in smart contracts.

Denial of service attack due to gas depletion: agreements can use up all the gas in a block, causing the remaining transactions to be unable to be processed.

What are the future prospects for Ethereum and ETH?

The future prospects of Ethereum and ETH are determined by a combination of market analysis, new technological developments, and innovations in token standards.

Market analysis

Ethereum is expected to fluctuate between $1,800 and $1,900 throughout 2023, with resistance at $1,760 and minor drops to $1,600. The average traded price will be around $1,880.75. Some analysts are forecasting yields of ~5%. According to technical analysis, the ascending triangle pattern indicates a bullish trend, which signals a possible continuation of the Ethereum rally.

By November 2023, the value is projected to increase by 4.3% to approximately $2,038.14. In November 2023, market participants were neutral with bullish sentiment prevailing. The fear and greed index was at the "Greed" mark.

Technological developments

Ethereum's transition from POW to POS algorithm as part of the "Merge" reduced energy consumption and improved security. Future updates (such as Danksharding ) should improve the scalability and efficiency of the technology, as well as increase its speed. These measures have the potential to strengthen Ethereum’s position in the cryptocurrency market.

With these technological innovations and a dedicated developer community, Ethereum is poised for continued growth and success.

Innovation in Token Standards

One of the most notable innovations of 2023 is the ERC-6551 standard for token-linked accounts (TBA) . This new Ethereum token standard greatly expands the capabilities of NFTs, allowing them to function as separate wallets with smart contracts.

This technology removes the limitations of the previous ERC-721 standard, facilitating user interaction and creating a more comfortable environment for managing digital assets.

• Protocol

• Ethscriptions

The Ethscriptions protocol is another innovation in the Ethereum blockchain . It allows users to share images directly without creating ERC-721 tokens. These images differ from NFTs in that they use calldata to be stored directly on the Ethereum blockchain, and are more cost-effective to create and transfer.

Ethereum Follow Protocol (EFP)

Brantley Milligan pitched the idea to the EFP in the spring of 2023. This protocol allows users to follow each other on the Ethereum blockchain development service.

The main idea is to create a system for social graphs based on Ethereum, which can be combined with existing platforms such as the Ethereum Name Service (ENS).

The future of Ethereum looks promising: positive trends in the market, regular technology updates and the introduction of new token standards designed to expand the capabilities and scope of the platform.

Due to the reasons described above, Ethereum has the potential to further grow and strengthen its position in the digital currency market. As is the case with all projects and tokens, we recommend keeping your finger on the pulse of Ethereum development and following the news in order to learn about the latest developments in time.

Conclusion

Ethereum stands out from other platforms thanks to decentralized applications and smart contracts based on the Ether (ETH) coin.

The Merge update, which changed the Ethereum algorithm from POW to POS, demonstrated the technology's commitment to development and environmental protection. The desire for progress can be seen in Ethereum's growing range of capabilities that go beyond transactions and pave the way for new innovations in the field of decentralized finance. Despite certain difficulties (for example, due to scalability problems or competitors), Ethereum continues to move forward and attract new users.

As long as Ethereum is willing to evolve and implement new technological solutions, the impact of this technology on the world of digital finance will continue to grow. What do you think is the future of Ethereum in this rapidly changing ecosystem.