Introduction The Decentralized Finance (DeFi) Revolution is taking over traditional finance (TradFi) and centralized exchanges (CEX), with billions in...
You’ve probably heard about the cryptocurrency Ethereum and how it is now second only to Bitcoin. But what is Ethereum? And how does it work?
The Basics of Ethereum
Ethereum is a digital currency very similar to Bitcoin, but its use cases go far beyond just an exchange of value. Ethereum is a decentralized computing network which hosts a number of smart contracts and dApps that have unlimited capabilities. Because the system is decentralized, anyone can make a dApp which runs on the Ethereum network, without needing approval from any outside source.
How Does Ethereum Work?
Ethereum is run on blockchain technology, meaning there is a decentralized network of nodes which all keep a record of transactions. When someone submits a transaction to the network, it is verified by the nodes, and if a consensus is reached, the transaction is executed and posted to a ledger. On the Ethereum network, a transaction can also be the execution of a smart contract or dapp.
Ethereum uses a consensus method to verify transactions known as proof of stake. This means that the nodes which verify transactions are selected based on their percentage stake in the Ethereum system. The current requirement to host a node which stakes Ethereum is to hold at least 32 ETH.
What is Ether?
You may come across the word Ether or ETH regarding financial transactions made on the Ethereum blockchain. This is because when you say ‘Ethereum’ you are referring to the blockchain which hosts smart contracts, when you say ‘Ether’ you are referring to the token which has monetary value and can be used to complete transactions on the Ethereum blockchain. In essence, Ether is part of Ethereum, but it is a much more specific word for the financial value portion of the blockchain.
If you’re finding it difficult to wrap your head around Ethereum, smart contracts, or Dapps, not to worry, you aren’t alone, the world of blockchain is very complicated. If you need more information about Ethereum, or other blockchain technologies, visit Stably’s blog at stably.io/blog/.
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