Before we dig into how Ethereum works, let’s take a look at what exactly Ethereum is. The Ethereum blockchain is an open-source distributed ledger that allows users to write their own software applications. It enables developers to build decentralized apps (dapps). These dapps are powered by smart contracts, which can be written in a variety of languages, although mainly they are written in Solidity.
A smart contract is a computer program that executes automatically when certain conditions are met. A smart contract is self-executing because it cannot be altered by any parties involved. Smart contracts make it possible for people all over the world to execute transactions without having to trust one another directly. They also remove the need for a third party, such as a bank or clearing house. All information is stored on the public record, so no single entity controls access to it.
Why Ethereum is the most popular smart contract platform
Although other cryptocurrencies are available, Ethereum has emerged as the leading smart contract platform. In fact, there are more than 1,600 dapps currently listed on the Ethereum blockchain. For example, there are already several games on the Ethereum blockchain that allow players to gamble with virtual currency.
The biggest reason for this popularity is the fact that Ethereum is designed to operate on its own without the need for a central authority. Because Ethereum doesn’t rely on a central server or a human administrator, many believe that Ethereum will become the de facto standard for smart contracts.
Any user on the network can verify the validity of each transaction. This gives complete autonomy to the network. No single entity can influence decisions taken by the community. This is why Ethereum is considered to be a decentralized application platform.
Here are some of the major use cases of Ethereum:
Smart contracts:
These are programs that run automatically when specific conditions are met. They are executed through code instead of words. For instance, if you buy something from an online store using Ether, your transaction will automatically be recorded on the Ethereum network. Smart contracts enable multiple use cases, such as lending/borrowing, as well as decentralized exchanges.
Decentralized autonomous organizations (DAOs):
They are similar to corporations, but they don’t have a board of directors. Instead, DAOs operate autonomously using the Ethereum network. Ethereum itself doesn’t have DAO at the moment, but many projects built on the Ethereum blockchain do have DAOs, and their native tokens are usually used to cast votes.
Cryptocurrency exchanges:
Instead of storing user data on servers, these decentralized crypto exchanges (DEX-es) keep it on the blockchain. This means that the exchange won’t have access to sensitive information, and everything is done automatically via a smart contract. Some of the most popular examples of DEX-es are Uniswap and Sushiswap.
Can Ethereum Surpass Bitcoin?
As mentioned above, Ethereum was created as a smart contract system. But Ethereum (so far) has remained behind Bitcoin’s shadow.
In order to accomplish this goal, Ethereum must overcome several challenges. One of them is scalability. Currently, Ethereum only supports a few transactions per second. That is not enough to handle the demand for payments made through the network. This is different from Bitcoin, which they are designed to be more like digital gold.
Another challenge is security. The Ethereum protocol relies heavily on proof-of-work (PoW) mining. In addition, it requires miners to pay a fee in order to maintain the integrity of the network. If there were no fees, then the miners would have the incentive to attack the network just for fun.
Thankfully, Ethereum is very close to fully transitioning to Proof-of-Stake (PoS) consensus algorithm through a mechanism they call Ethereum Merge. This will be the first step toward the full realization of Ethereum’s fast and efficient network.
What Did the Ethereum Merge Accomplish?
Ethereum Merge is designed to “merge” Ethereum’s Proof-of-Work blockchain with Ethereum’s Proof-of-Stake. After the merge procedure, the Ethereum chain started to fully work through the PoS mechanism. This has greatly reduced Ethereum’s energy consumption.
After the Merge, Ethereum’s energy resources has significantly dropped.
Ethereum will implement its other solutions by the end of 2023. However, at the very least, we won’t see the critics pointing out Ethereum’s crazy energy usage anymore