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What Is Ethereum (ETH)?

Standing in second place on our list of top cryptocurrencies is Ethereum, or Ether, which uses the ETH ticker. With a market cap of just under $13 billion and billions of dollars of daily volume, Ethereum is one of the leading digital asset in its class. But what exactly is Ethereum, what does it do, and how does it work? In this article, we'll answer those questions and more.

About Ethereum and Ether

Ethereum is a blockchain-based computing platform, or network, that comes with its own cryptocurrency - technically referred to as Ether, but known to many as just Ethereum. The Ethereum network was created in 2013 by Russian developer Vitalik Buterin, and it was one of the first blockchain-based cryptocurrencies to offer smart contract functionality.

What Are Smart Contracts?

Smart contracts are computer scripts which can be run on decentralized networks just like Ethereum. Smart contracts are extremely powerful, since they run like regular computer applications, but with all the benefits of blockchain and other distributed ledger technologies (DLTs), like trustworthiness, security, and transparency.

One application of smart contracts could be to send a user some set amount of Ether on a given date. Once the smart contract is created and published to the Ethereum network, other parties would be able to check the contract for themselves, and then - as long as the Ethereum network functions correctly - the Ether would be sent on that date no matter what, with no interference from centralized parties.

A certain amount of computing power is needed to run smart contracts, so publishing smart contracts on the Ethereum network isn't free. This is the purpose of Ether: it can be redeemed at any time to publish smart contracts on the Ethereum network.

How Does Ethereum Work?

Like many other cryptocurrencies, Ethereum uses a blockchain to power its network. The Ethereum blockchain, a long list of transactions dating back to the first ever Ethereum transactions, allows any user in the network to trace funds back to their origin and verify the authenticity of new transactions.

To add new information to the blockchain, Ethereum uses a Proof-of-Work (PoW) consensus mechanism, just like Bitcoin. This means that users who want to verify transactions on the Ethereum network have to solve tough cryptographic puzzles with powerful computers - hence the "work" in Proof-of-Work.

Ethereum has plans to move to a Proof-of-Stake (PoS) consensus mechanism in the future. This would mean that users who want to verify transactions on the Ethereum network would have to possess a certain number of Ether.

Ethereum's PoS update, referred to as Casper V2, is planned to take place in mid-to-late 2019.

Who Maintains Ethereum Development?

Development of the Ethereum network and its associated cryptocurrency is managed by the Ethereum Foundation. Ethereum's creator, Vitalik Buterin, is a member of the Foundation's council and actively manages the development of Ethereum - even continuing to work on it himself.

Ethereum and Ethereum Classic

In 2016, an Ethereum-based decentralized autonomous organization - in other words, an organization that operates on the basis of smart contracts - called The DAO raised more than $150 million in its ICO. However, the project was hacked in mid-2016, causing over $50 million of Ether tokens to be lost.

Following this event, the Ethereum community made a decision to return the stolen funds by forking Ethereum blockchain. However, not all users agreed with this decision, instead choosing to continue to operate on the original blockchain (on which the stolen funds remained stolen). This original blockchain and its network have come to be known as Ethereum Classic.

Why Use Ethereum?

Now you know what Ethereum is and how it works, why use it? As it turns out, Ethereum has a variety of use cases as a computing network, a currency, and a store of value.

Ethereum Use Cases

  • As a computing network - Ethereum is one of the first decentralized networks to offer smart contract functionality. It's proven to be secure, cheap, and relatively efficient. As such, Ethereum is one of the first choices of developers looking to create trustless, decentralized applications in the form of smart contracts.

  • As a currency - The Ethereum network is significantly more efficient than some alternatives. As such, Ether makes a faster and cheaper currency then Bitcoin and many other cryptocurrencies!

  • As a store of value - Although Ether has no maximum supply (unlike Bitcoin), it's still a popular choice as a store of value. This is because the Ether currency has a certain utility aspect - it can always be redeemed in exchange for publishing smart contracts on the Ethereum network.

Should I Invest in Ethereum?

Ethereum is considered one of the best cryptocurrency projects in existence. It has a clear purpose which has been achieved, and constant development has ensured the project continues to grow and improve… but should you invest in Ethereum?

Of course, we can't answer that question! While Ethereum is indeed an impressive project, there's no guarantee that the price of Ether will go up in the future.

Ethereum ICO and Price History

The Ethereum project raised funds for its development in one of the industry's first ICOs, or Initial Coin Offerings. The Ethereum ICO took place in August 2014, and raised $16 million for the project's development. Over 50 million Ether were sold, putting the coin's price at around 31 cents.

Our price history for Ether goes as far back as August 2015, when the token was worth just under one and a half dollars. In 2016, the Ether token saw considerable growth as it rose to over $15 by the middle of the year. Towards the end of 2016, Ether's price fell several dollars; by 2017, Ether was sold for around 10 dollars per piece.

In March 2017, the price of Ether saw exponential growth, and by June 2017 it was valued at over $350. After a small rebound, Ether climbed up to its all-time-high of $1224 in January 2018. Since then, Ether has fallen to just a tenth of that price.

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