Most people interested in cryptocurrencies enter this space by exploring Bitcoin. But there is a second big crypto and it has very unique features. With this article we like to introduce you to Ethereum.
A global Supercomputer
Ethereum relies on similar principles like Bitcoin, but it is still very different. The most remarkable invention is its ability to serve as a global virtual machine, the EVM. Ethereum runs smart contracts that allow decentralized applications and the execution of any agreement on the blockchain.
Unlike Bitcoins script language, Ethereum’s script language is Turing complete which is prerequisite for its smart contract ability. With these remarkable inventions Ethereum’s native currency, Ether, became the second biggest crypto on the market.
Ethereum makes use of mining very similar to Bitcoin, but uses a different algorithm and has a faster block time. However, this may change in the near future.
While proof of work is considered very safe, it is still consuming a lot of resources and it is also not scalable. Meaning that the more the Ethereum blockchain is used for DeFi, smart contracts and the like, the more the network gets clogged.
This results in higher fees to confirm transactions and interactions with smart contracts. The whole network gets more expensive, because it is under heavy use. This is an unwanted result of its current limitations. While Bitcoin is trying to tackle this major problem by opting for a second layer solution, the Ethereum developers have planned to migrate ETH to proof of stake or PoS.
This is considered to be a complete paradigm shift, since the whole infrastructure is built on proof of work. The benefit are reduced fees and a highly scalable network that can handle way more transactions than the current system.
Critics fear that the shift could damage the functionality of existing and well running smart contracts. While the change will start somewhere at the end of 2020, it is still open if those problems can be successfully mitigated. It will take approximately three years to implement all the changes and completely shift the Ethereum blockchain from proof of work to proof of stake.