Ethereum differs from Bitcoin in its main purpose and functionality. While Bitcoin was created primarily as a digital alternative to traditional currencies, aiming to revolutionize the way we think about money, Ethereum was designed as a platform to facilitate and execute smart contracts and decentralized applications (dApps). This is done through its native programming language, Solidity, which allows developers to write sophisticated programs directly on the blockchain.
Ethereum uses its currency, Ether, not just as a store of value, but also to power transactions and applications on its network. This flexibility makes Ethereum a multifunctional platform that extends beyond financial transactions, serving as a foundation for a wide range of applications from games to decentralized finance solutions.
Ethereum has transitioned from a Proof of Work (PoW) to a Proof of Stake (PoS) consensus mechanism as part of its Ethereum 2.0 upgrade, commonly referred to as “The Merge.” This transition eliminates the need for energy-intensive mining activities. In the PoS system, validators, instead of miners, are chosen to verify transactions and create new blocks based on the amount of Ether they hold and lock up as a security deposit.
This shift reduces the environmental impact by drastically lowering energy consumption. It also aims to improve the scalability and security of the network, making Ethereum more sustainable and efficient.
Ethereum 2.0, also known as Eth2 or “Serenity,” represents a significant upgrade to the existing Ethereum blockchain, aimed at improving its scalability, security, and sustainability. This upgrade involves moving from the current Proof of Work (PoW) consensus mechanism to Proof of Stake (PoS), which is less energy-intensive and aims to handle transactions more efficiently.
Ethereum 2.0 introduces shard chains, which are smaller partitions of data that allow for parallel processing, increasing the network’s capacity and speed. These changes are expected to address current bottlenecks in performance and make Ethereum more scalable, secure, and sustainable for its wider adoption in decentralized applications.
Ethereum’s versatility extends beyond financial transactions. Its ability to execute smart contracts allows for the development of decentralized applications (dApps) that serve a variety of purposes across different sectors. For example, in the gaming industry, Ethereum can facilitate in-game purchases and prove ownership of unique digital assets through non-fungible tokens (NFTs).
In the realm of decentralized finance (DeFi), it enables automated lending, borrowing, and trading of cryptocurrencies without traditional financial intermediaries. Ethereum is also used in supply chain management, voting systems, and digital identity verification, showcasing its potential to revolutionize different industries by providing a secure, transparent, and efficient way to automate and record transactions and agreements.
Ethereum uses smart contracts to automate and enforce agreements directly on its blockchain, providing a high level of security and reliability without the need for intermediaries. These contracts are self-executing, with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network.
Smart contracts automatically execute the actions necessary when predetermined conditions are met, such as transferring funds, releasing information, or registering a vehicle. This technology is foundational to numerous applications on Ethereum, enabling everything from complex financial transactions in DeFi to the creation and exchange of NFTs, and more.