What is Ethereum and how does it work

By: Obinna Tony

What is Ethereum and how does it work

July 26, 2022 7:01 AM

Ethereum is a unique digital currency and can also be known as cryptocurrency. It’s an outlet where exchange exclusively takes place online. Ethereum is one of the many other popular cryptocurrencies and as of April 2022, it ranks second in total size just behind Bitcoin. Bitcoin has been a huge cryptocurrency which has been automatically viewed to mean crypto as a whole.


As one of the many other cryptocurrencies, Ethereum is the brainchild of 8 co-founders that was discovered in 2015. The platform or cryptocurrency is referred to as Ethereum while the individual unit is called Ether. It operates on a decentralised computer network or distributed ledger which is known as a blockchain. This helps to manage and track currency. The great appeal of Ethereum comes from its decentralised network.


Ethereum can power quite a several applications and in turn, offer an array of functions which includes:


Currency: cryptocurrency enables users to send and receive ether as well as pay for their goods and services. This is dependent on whether it’s accepted for payment. Platforms like Coinbase lets one have full custody of their coins in a digital wallet. This is to make them less exposed to hackers.


Smart Contracts: they are permission-less apps and they automatically execute when the condition of a contract has been met.


Decentralised App or dApps: Ethereum powers digital apps which let users play games, be able to invest, allow users to send money, track an investment portfolio, follow social media and a lot more of others.


Non-fungible tokens (NFTs): the tokens are powered by Ethereum and let artists who want to sell their arts as well as other items to buyers through smart contracts.


Decentralised finance (DeFi): through Ethereum, users may be able to escape centralized control which is also viewed as government, over the movement of money or assets.


Ethereum can easily be viewed as a token that powers many other apps than just a cryptocurrency that lets users send money to each other. As of April 2022, there were over 120.4 million ether existing. There could be the mining of new coins but there is a limited total annual issuance. Ether coins with other arrays of cryptocurrency are mined by the computers on the network. Mathematical equations that effortlessly unlock coins or their fractions are performed.


In recent years, Ethereum has grown significantly and it has been proven to be a good investment for those that bought it earlier and still have it in check. Those who buy and invest in Ethereum are buying cryptocurrencies that are not backed by any hard assets or cash flow. This is the key difference between legal stocks and cryptocurrency.


If you are on the verge of buying cryptocurrencies, you have to position your mind as a business owner. You invest some amount of money in mining rigs to produce the cryptocurrency and then you will have to expend costly electricity while you mine it. But it’s easier for you to buy Ethereum rather than mining it and it barely needs a lot of effort.


In conclusion, while mining Ethereum, it’s ideal you understand the intending risks associated with it. The potential loss and gain of investment. So, it’s pertinent to follow a smart approach because of the volatility of its nature. Also, you can be minimal about how you invest, especially for those who would put all their money into it.