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What is Ethereum?

What is Ethereum?

Ethereum is the world’s leading programmable blockchain for building smart contracts or decentralized applications (DApps). The Ethereum network maintains a shared ledger of digital value. Smart contracts allow you to program new forms digital value never thought possible. But, we’ll get to that a bit later.

Ether (ETH) is the network’s native currency. Think of ETH like digital money. However, the participants that comprise the network control the issuance of ether in a decentralized manner. Ether’s used to pay for transaction fees called gas. You pay gas whenever you transfer ETH, transfer tokens, or interact with a smart contract or DApps.

Ethereum

What is a smart contract?

Imagine you walk up to a vending machine wanting to buy a bottle of water. You know how this process works. You select your choice and insert your money. And voila, the machine dispenses your beverage.

But hold on, why did you trust this machine with your money? You trusted the vending machine because there’s a contract between you and the machine. Pay $1 and you’ll get 1 bottle of water as advertised. The vending machine is programmed to process this transaction once the conditions are met.

A smart contract is like a vending machine, but better because it’ll never eat your quarters. They’re contracts or agreements enforced by the Ethereum blockchain. Or rather, applications or scripts programmed to run on the Ethereum network capable of creating and managing digital value. Smart contracts are what make ETH programmable money. You can build complex irreversible agreements without the need for a middle man.

Popular uses of Ethereum

Let’s take a look at a few examples of how people use ether, smart contracts, and DApps on Ethereum.

Creation, ownership, storage, and/or transfer of digital assets

At its heart, the Ethereum blockchain is a distributed ledger of digital assets owned by accounts and smart contracts. These digital assets are represented on the blockchain by tokens created by smart contracts. Tokens built on Ethereum serve a variety of purposes: currencies, tokenized physical assets like gold, a share of ownership in a DApp, etc.

Decentralized Finance (DeFi)

Decentralized finance, or DeFi for short, is the nickname of financial smart contracts, decentralized applications (DApps), and protocols built on Ethereum. Financial DApps are the hottest use case of Ethereum at the given moment. Popular DeFi applications are stablecoins, peer-to-peer lending protocols, decentralized exchanges, asset management protocols, and derivative markets.

DeFi is unique because smart contracts are publicly accessible and highly interoperable. Similar to Lego, individual parts of DeFi can be pieced together to make something new. And so, decentralized finance excites many people because of how it empowers individuals and creates new opportunities like never before.

Games and collectibles

Games built on Ethereum use smart contracts to establish the rules and ownership of in-game assets. With items represented as tokens in your Ethereum wallet, you know you truly own your inventory. Never have to worry about losing access to their items, servers shutting down, or getting banned. And because your items are tokens on Ethereum, they can be interact with other smart contracts.

ERC-721 tokens are Ethereum tokens that are cryptographically, or in other words provably, unique. And so, this makes them perfect for representing collectibles, artwork, or anything that’s one of a kind.

Governance

The decentralized and trustless nature of smart contracts make them ideal for coordinating people and resources. Decentralized autonomous organizations or DAOs are the most popular way of accomplishing this goal. DAOs are entities similar to organizations you are familiar with like corporations, cooperatives, non-profits, etc.

However, these organizations exist as smart contracts on the blockchain. It’s programming determines the rules for membership and operation of this organization. Thus, DAOs have no central operating authority who can disrupt their operation or steal their assets. Reducing the effort, trust, and resources needed to coordinate has led to interesting experiments in profit models and on-chain governance. Take for example MolochDAO, a benevolent DAO made out of self-interest.

Identity

Ethereum provides a neutral and secure platform to build identity systems. Identity DApps leverage the secure and decentralized nature of the Ethereum network to safely store personal information. These DApps store items such as government ID, medical records, banking information, and many more pieces of data. Also, login credentials powered by Ethereum allows you to log into sites using the private keys to your Ethereum wallet.


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