Ethereum is used to transfer funds between system participants. This system is open, has protection from hackers and is of interest from the creators of startups. Projects offer users to invest in the development of the company, which will bring dividends to the project and investors.
Ethereum monetary units are called ether. Unlike Bitcoin, ether does not restrict users to the functionality of money transfers only.
Ethereum is used to exchange values and record transactions for smart contracts. Internet exchangers sell ether at overvalued rates, and the total capitalization of the Ethereum network exceeds $30 billion.
Creating Cryptocurrency Ethereum
Ether was first mentioned at the end of 2013. In the spring of 2015, Ethereum received a formal description in the “yellow book”. Users began to consider a new cryptocurrency analog or the next step in the development of Bitcoin.
In the summer of 2014, fundraising for the creation of Ethereum cryptocurrency began using crowdfunding. The developers were assigned 31,591 BitCoin (BTC) to create the system. At the time of the placement of Ethereum, the total size of the crowd investment was $18,439,086 or $60,102,216 (ETH). The emergence of a new cryptocurrency interested bankers. The financial instrument served as a testing ground for studying intellectual contracts and bonds. The official launch of the BlockChain-platform Ethereum was July 30, 2015.
Ethereum’s alpha version was released on March 14, 2016. Protection against hacking and the security of personal data came with the advent of the new version of the protocol Homestead. The protocol refers to the early stable version of Ether.
An algorithm of Ether operation
Transfers within the Ethereum system are made through smart contracts. Smart contracts are mathematical algorithms used to verify obligations between the members of the Ethereum network. The person receives the translation of the Ether only after the fulfillment of the contract. Fulfillment of obligations occurs without regulators and central banks.
Smart contracts are used as a financial instrument in:
- Affiliate programs;
- Periodic payments;
Example of smart contract on the Ethereum platform is when: two users argue and put money on 2 outcomes of an event. Funds are kept on ethereal wallets based on Blockchain development. After winning, the money is transferred to the winner.
It is planned to increase requirements and tighten control over obligations. Suppose renting an apartment, the person forgot to pay the rent. The program will lock the door lock and will not let the tenant into the apartment. Prospects for the development of ethereum will start the development of smart technologies.
The advantage of Ethereum over classic money
Decentralized cryptocurrencies like Ether works on the Blockchain technology and has several advantages:
- Protection against the creation of fake coins. Users cannot edit transaction records.
- Protection against interference. Applications work within the ETH on the basis of crypto-agreements with obligations, censorship and the introduction of limits/prohibitions by the state are impossible.
- Security. It is impossible to refuse the transfer, the personal data of users are protected, the money is on electronic wallets with long ciphers. Advanced cryptographic technologies provide protection against hacking and fraudsters. If a hack occurred, the cause could be inattention or sending a key wallet to a third party. Victims of fraudsters often “burn” wallets in online broadcasts.
- Lack of regulation and control. Money is transferred anonymously, the state cannot access the system and tax payments.
Disadvantages of Ethereum
Ethereum developer VitalikButerin spoke on July 5 and gave information about the shortcomings of the payment system.
- Lack of scalability. Blockchain development relies on critical points. Separate nodes (miners) are used to process blocks of transactions.
- Protection against hackers is extremely expensive. Effective protection methods do not exist today. The system benefits from aggressive mining 25-33% of capacity.
- Problems with the protection of personal data. It is recommended to create accounts for invented full names. It is planned to increase security by creating mixers that combine transactions from different pools.
- Users are afraid to store large volumes of Ethereum due to the high risk of theft of an individual key wallet.
- The economy of the system does not allow to clean the repository with records of transactions. The size of the user-installed wallet is growing rapidly. It is planned to establish a fee and create a category of miners for cleaning the “garbage” in the system. It will be beneficial for users in the long term.
- Minor technical flaws such as the use of 256-bit algorithms, the extremely high complexity of the RLP puncture, two-level storage of records, and the lack of optimization of gas costs.
- Users do not understand basic terminology (gas, contracts, Blockchain, broadcast, fork, etc.). It is required to simplify the terms and explain to users the essence of the functioning “on the fingers”.
Using Ethereum as a cryptocurrency
Ether allows you to create decentralized applications. Decentralization allows you to transfer money to any system wallets and pay for purchases on the Internet. There is no control over the decentralized system, applications run inside the Blockchain network, which is not controlled by the authorities or central banks.
If Ether is decentralized, then services can be provided centrally, through Ethereum. This is intermediary services. Users will be able to issue loans and sell products. Opportunities for regulating legislation, registering titles, titles, etc. open up. Ethereum can be used even when voting.
The creation of DAO (decentralized autonomous companies) is carried out with the help of the innovative currency Ethereum. The program code ensures the functioning of companies, and “smart contracts” are recorded in the Blockchain system. The companies created through Ether are independent – there is no need for job creation and centralization, and the traditional management of the organization is not necessary.