Stock Ethereum
Among thousands of other cryptocurrencies that have been launched over the last few years, Ethereum is the second biggest digital currency behind Bitcoin. Image Credit: Shutterstock

Dubai: Among thousands of other cryptocurrencies that have been launched over the last few years, Ethereum is the second biggest digital currency behind Bitcoin – a coin that’s synonymous with crypto.

Ethereum, which made its debut in 2015, is a medium of exchange that exists exclusively online. While the cryptocurrency platform is called Ethereum, an individual unit within the exchange is called an ether.

The Bitcoin-rival currency was created by Russian-Canadian Vitalik Buterin, who came up with the idea when he was 19 years of age.

Meet Vitalik Buterin: The creator of Ethereum
Commonly referred to as the ‘connoisseur of the crypto space’ having dabbled in Bitcoin since the early days of the currency, Buterin net worth is currently estimated at more than $1 billion (Dh3.67 billion).

Computers had always been a part of Buterin’s life. Following his passion, Buterin went on to study computer science, but like other tech billionaire dropouts, he quit to focus on building Ethereum.

The idea of Ethereum began after discovering Bitcoin’s many limitations. He wanted to create a new and improved version of Bitcoin that allowed for more scalability and applications.

Buterin successfully did so and Ethereum is now the foundation of countless crypto projects including the booming NFT industry. But it’s not all fun and games, and the founder doesn’t necessarily paint a rosy picture.

Buterin has new concerns on use of crypto

Vitalik Buterin, widely considered one of the most influential voices in cryptocurrency, is sounding the alarm about the future of cryptocurrencies, which has currently caused a rift among crypto experts.

Buterin, who co-created Ethereum, said in an interview with Time Magazine published on Friday that he is worried about trends he has observed in the crypto space, telling the publication that “crypto itself has a lot of dystopian potential if implemented wrong.”

One example of these trends is the explosion in the value of NFTs, or non-fungible tokens. “The peril is it becomes a different kind of gambling,” Buterin added.

Buterin’s Ethereum is now the second-largest cryptocurrency, with its $360.7 billion (Dh1.3 trillion) market cap second only to Bitcoin’s $808.8 billion (Dh2.96 trillion).

Vitalik Buterin
Ethereum was invented by programmer Vitalik Buterin in 2015, on the heels of Bitcoin.

Explained: How Buterin’s creation works

Ethereum operates on a decentralised computer network known as a blockchain, which manages and tracks the currency. Computers in the network verify the transactions.

(Blockchain is simply an encrypted electronic ledger of transactions, or in other words a system of recording information in a way that makes it impossible to change, hack, or cheat the system.)


Why are cryptocurrencies decentralised?
This decentralised network is part of the appeal of cryptocurrencies. Users can exchange money without the need for a central intermediary such as a bank, and the lack of a central bank means the currency is nearly autonomous. It allows users to make transactions nearly anonymously, even if the transaction is publicly available on the blockchain.

Decentralised cryptocurrency networks need to make sure that nobody spends the same money twice without a central authority in the middle. To accomplish this, networks use something called a ‘consensus mechanism’, which is a system that allows all the computers in a crypto network to agree about which transactions are legitimate.

There are two major consensus mechanisms used by most cryptocurrencies today. ‘Proof-of-work’ is the older of the two, used by Bitcoin and many others. The newer consensus mechanism is called ‘proof-of-stake’, and it is expected to power the newest version of Ethereum, and other cryptocurrencies like Cardano, Tezos and other (generally newer) cryptocurrencies.

What does Ethereum do?

One of Ethereum’s primary uses is that you can send and receive ether or pay for goods and services with a cryptocurrency wallet, if the digital currency is accepted as payment. Some platforms even allow you to take custody of your coins in a digital wallet.

However, it’s not just a cryptocurrency that allows users to send money to each other. Crypto experts explain that it might be more accurate to think of Ethereum as a token that powers a number of applications.

Ethereum runs applications that offer a wide range of functions, one of them being smart contracts. Smart contracts are a kind of permission-less application that automatically executes when the contract’s conditions have been met.

Ethereum also powers digital applications that allow users to play games, invest, send money, track an investment portfolio, among others. Additionally, non-fungible tokens (NFTs) can be powered by Ethereum, allowing artists or others to sell art or other items directly to buyers using smart contracts.

What are NFTs?
Anything that can be converted into a digital form can be an NFT, such as drawings, music, etc. They are bought and sold online, frequently with cryptocurrency, and they are generally encoded with the same underlying software. The current hype is around the technology that is used to sell digital art.
Stock Ethereum
One of Ethereum’s primary uses is that you can send and receive ether or pay for goods and services with a cryptocurrency wallet, if the digital currency is accepted as payment.

Bitcoin and Ethereum are different: Here’s how

Ethereum and Bitcoin are sort of like a Venn diagram. They have key differences that make them unique from one another, but they also have qualities that overlap with each other.

For instance, both are blockchain-based digital currencies that can be used to buy and sell goods, and send to other users. However, they operate in different manners, let’s understand how differently.

Pertaining to what was touched upon earlier, i.e. ‘consensus mechanism’, Ethereum is shifting to a ‘proof-of-stake’ concept, which is a model where users can only validate transactions according to how many coins they hold, rather than the energy-intensive mining rigs used now with ‘proof-of-work’.

On the other hand, Bitcoin is based on a ‘proof-of-work concept’, which is an approach to verifying transactions and is the original framework for verifying cryptocurrency transactions.

What exactly is ‘proof-of-work’? How is it different from ‘proof-of-stake’?
Proof of work and cryptocurrency mining (the process that verifies and adds new transactions to the blockchain) are closely related ideas. The reason it’s called ‘proof-of-work’ is because the network requires a huge amount of processing power.

Proof-of-work blockchains are secured and verified by virtual miners around the world racing to be the first to solve a math puzzle. The winner gets to update the blockchain with the latest verified transactions and is rewarded by the network with a predetermined amount of crypto.

Proof-of-work is a proven way of maintaining a secure decentralised blockchain. As the value of a cryptocurrency grows, more miners are incentivised to join the network, increasing its power and security. Because of the amount of processing power involved, it becomes impractical for any individual or group to meddle with a valuable cryptocurrency’s blockchain.

On the flip side, it’s an energy-intensive process that can have trouble scaling to accommodate the vast number of transactions smart-contract compatible blockchains like Ethereum can generate. And so alternatives have been developed, the most popular of which is called ‘proof of stake’.

Another major difference between Ethereum and Bitcoin? It is the amount of available coins. Bitcoin is capped at 21 million coins and there are already almost 19 million mined. In other words, about 90 per cent of all available Bitcoin is already mined.

So how many Ethereum are there? There are currently more than 119 million Ethereum in existence. However, that’s where Ethereum’s shift to a proof-of-stake concept comes into play, as upgrades are being made that will eventually eliminate the need for miners altogether.

Aside from being sent to other users, Ethereum can also be used to buy and sell goods. In fact, Ethereum is actually a faster transaction than using Bitcoin.

While Ethereum may be a bit more functional in the real world, both cryptocurrencies act as a store of value. That is, both coins are purchased in investors’ respective currencies (dollars, yen, euros, etc.) and have appreciated against their prior prices over time.

Vitalik Buterin
Buterin, who co-created Ethereum, said in an interview with Time Magazine published on Friday that he is worried about trends he has observed in the crypto space.

Verdict: Is Ethereum the future?

Despite the challenge of predicting the price of a volatile cryptocurrency, most experts agree that the price of the Ethereum token Ether could be worth $4,000 (Dh14,692) in 2022. It is currently valued at about $3,000 (Dh11,019).

A recent Ethereum prediction by Bloomberg intelligence analyst Mike McGlone has it ending the year between $4,000 (Dh14,692) and $4,500 (Dh16,528).

But how high might it go from there? Some say between $6,500 (Dh23,874) and $8,000 (Dh29,384), others predicts an even higher price of $13,000 (D 47,749). Nevertheless, it is set to go higher.

What influences Ethereum’s price? Ethereum earned its reputation as the first blockchain to use smart contracts, which are basically coded instructions on the blockchain that execute financial transactions through algorithms.

Now new Ethereum alternatives with similar capabilities are hitting the market and changing the demand for Ethereum. Smart contracts made it possible for artists and creators to mint (make) and sell the digital artwork now known as non-fungible tokens (NFTs).

Despite Ethereum’s competition, and other factors contributing to its ongoing volatility, there’s a general sense of optimism that the original smart contract blockchain will make it through this era of trials.

Given that Ethereum has over 90 per cent of the booming NFT market, analysts evaluate how this is going to be a very important year for Ethereum.