Ethereum, Smart Contracts & The future of Cryptocurrency
In the year 2009, Sakashi Nakamoto, a legend whose real name is still unknown to date changed the financial sector forever with the introduction of the first decentralized cryptocurrency, Bitcoin. It has gone on to revolutionize electronic financial transactions and led to the development of other cryptocurrencies whose popularity and widespread use grows by the day.
In comes Ethereum
One of the major cryptocurrencies whose popularity has skyrocketed is Ethereum. Its market capitalization is only second to bitcoin in market capitalization which stands at over $35 billion. Bitcoin’s market capitalization may be much higher but Ethereum’s circulation has grown so much that it’s facilitating almost as much electronic trade as Bitcoin.
Just like with Bitcoin, Ripple, Litecoin, Dash and Monero, one can use Ethereum to pay electronically for goods and services from merchants who accept digital currencies. It however sets itself apart from all other digital currencies by its use of advanced technology, one of which is smart contracts.
What is a smart contract?
Ethereum is in essence not a digital currency but a blockchain platform for the execution of decentralized smart contracts. It does however have its own form of digital currency known as Ether. A smart contract is a program that executes a command if and when certain conditions are met. The program validates the set conditions automatically based on a code and determines whether the set asset should be transferred to a certain party or refunded to the original owner.
This program has enabled Ethereum to attract huge interest from investors as well as cryptocurrency users. It also restores the much needed faith in digital currencies that has been eroded by the constant allegations of money laundering. It also makes digital transactions safer and more transparent. The smart contracts program could soon even replace lawyers and management in companies as processes become automated.
What else makes Ethereum the best currency?
The block time for Ethereum is significantly shorter compared to Bitcoin. The average block time for Bitcoin is 10 minutes while Ethereum’s is 10 seconds. This is because Ethereum makes use of the GHOST protocol. A faster block time enables for faster confirmations and transactions.
Ethereum is written in a Turing complete language while Bitcoin is not. This gives it the ability to make any calculation given enough time, no matter how complex. Bitcoin, which is written in stack language that is not Turing complete is not as flexible.
Ethereum uses Gas costing method on their transactions. This method is based on the complexity of computation as well as the bandwidth usage. Bitcoin transactions are limited by the block size. Ethereum also differs from Bitcoin in terms of their economic models. Bitcoin block rewards halve every four years with the current value being 12.5 bitcoins. Ethereum rewards its miners a consistent 5 ether for each block based on its algorithm, Ethash, which is a proof-of-work algorithm. This encourages decentralized mining by individuals. Block rewards are rewards given to cryptocurrency miners to keep them running.
Most of the available bitcoin have been mined. The beneficiaries were mostly early miners who own over two thirds of all available coins. Ethereum however raised its initial capital through crowd funding. Over half of the coins will be owned by miners by its fifth year.
The future of cryptocurrency
Digital currencies are becoming more accepted as a form of payment all over the world. The government of Japan has even recognized them as legal tender. This widespread acceptance will drive their value through the roof. Ethereum has already shot up by over 5,000% since the start of the year and the growth is expected to continue. The continued invention and technological advancements will continue to set it apart from its competitors. Ethereum is without a doubt the currency of the future.