DECENTRALIZATION: A BASIC UNDERSTANDING OF ETHEREUM.
Ethereum; The backbone of Dapps…
You’ll all agree with me that the cryptocurrency was created to replace this mordern day financial system and each passing day it’s getting closer to achieving this goal.
So in order to do this, it needs to be more than just a peer to peer electronic cash payments system but rather offers a wide range of financial services while maintaining the core values of cryptocurrency, which is to be fully decentralized. This means creating a financial system that’s permisionless and isn’t controlled by any central authority as in Banks, financial institutions or Government.
Using smart contracts, a whole lot of these financial services can be delivered in cryptocurrency while maintaining security.
Hence, a blockchain network that serves this purpose of allowing developers to deploy their decentralized financial(Defi) applications called Dapps using smart contracts is required and in 2014 Ethereum was birthed.
So today, concisely I’ll dive into the world of DEFI (decentralized finance) and smart contracts, how it works and why ethereum is so important. So continue reading all the way through if you don’t want to miss out.
Firstly you need to understand that the world is changing and technologies are evolving. When bitcoin started gaining popularity, the technology that is used to power, maintain and secure the bitcoin network also gains popularity and developers started understanding that they could actually solve the problem of centralizations with blockchain technology.
Money and financial market is not the only thing that is centralized. For instance, Voting is organized and controlled by a central authority, so the outcome of a vote can be tampered by this central authority. Today, social media giants like Facebook are centralized and are in control of all our data and information. Google is a company owned by Alphabet and all its products like Gmail, YouTube, chrome e.t.c. runs on a centralized server and all our data and information rest in the hands of this single entities. Hence, developers are rushing to create applications that will be decentralized (Dapps) which cannot be controlled or censored by a single entity, not even the developers once it has been launched. To do this, you need a fully decentralized network and ethereum is the answer to this but today there are dozens of ethereum alternatives like Binance smart chain, solana, polkadot, Polygon, Avalanche e.t.c.
HISTORY.
The Ethereum network was co-founded by a Russian-Canadian programmer named Vitalik Buterin and other notable developers who later left ethereum to create their own platform such as polkadot that was founded by Dr Gavin wood, & Founder of Cardano, Charles Hoskinson. In 2014, development work commenced and it was crowdfunded, Even the first line of ethereum code was written by Dr Gavin wood and on July 30 2015, the ethereum mainnet went live. Today the rest is history.
HOW IT WORKS?
If you want to create a decentralized applications or program that no single person controls, not even you, just like bitcoin or anything else based on your own idea, you need to understand how bitcoin decentralization works, write codes that mimic same behavior and get a huge network of computers all over the world to run it and that’s a lot to do.
But with ethereum all you need to understand is the ethereum coding language called solidity. The ethereum platform has thousands of independent computers otherwise called nodes that’s running the network. When a program is deployed on the ethereum network, these nodes makes sure it works as it is written, just the way the developers have written the code for the applications to function. Ethereum is the infrastructure for running Dapps world wide, so the goal of ethereum is to decentralize the internet.
SMART CONTRACTS.
A smart contract is a computer program or a transaction protocol which is intended to automatically execute, control or document legally relevant events and actions according to the terms of a contract or an agreement. The objectives of smart contracts are the reduction of need in trusted intermediators, arbitrations and enforcement costs, fraud losses, as well as the reduction of malicious and accidental exceptions.
In this context, Ethereum coding language called solidity are used to write smart contracts which are the logic that runs a Dapps.
So basically a smart contracts is a set of conditions and actions, the contracts are written by the developers. so if a particular condition is met, a corresponding action should be executed by the ethereum network. Hence they’re called self-executing smart contracts because they deal with all of the aspect of the contract like, enforcement, management, performance & payments.
For instance if there’s a smart contracts for paying house rent, the landlord doesn’t need to actually collect the money, the contracts knows if the money is paid or not, if the tenant sent the money then he’ll be able to open his apartment door and if not, he’ll be locked out.
THE CURRENCY.
Back in 2014, the ethereum network created it’s own native crypto currency called Ether which was sold in a public sale known as an initial coin offering (ICO) at $0.40 to crowdfund the development of the network.
The coin is used to incentivize the network such as rewarding the several different people running the thousands of computers otherwise called nodes that helps to decentralized and secure the network.
It’s used to pay transactions fee across the network and developers pays in ETH to get their Dapps deployed on the network and it’s used in Governance (voting on changes/proposals) on the network.
It can also serve as a store of value and transfer of assets.
TOKENIZATION.
Tokens are cryptocurrency that runs on another blockchain and not it’s own blockchain and that’s what differenciate coins and tokens.
The ethereum network not just only allows developers to deploy their programs/Dapps on the network but also let them create their own cryptocurrency native to their Dapps and this cryptocurrency can be used as the developers intended.
This types of cryptocurrency are called tokens and in case of ethereum they’re known as ERC-20 token standards.
DEFI.
Defi is the term used to describe decentralized finance and all its derivatives such as Automatic market maker (AMM) decentralized exchanges (Dexes) that lets you buy and sell crypto without use of a third party or centralized exchanges (Cexs), Dex aggregators, Yield farming protocols, crypto lending & borrowing protocols, custodial wallets e.t.c.
There are a whole lot of Defi protocols running on the ethereum network such as Uniswap, Aave, Compound, Dydx e.t.c. and ethereum is the largest Defi platforms with a TVL (total value locked) in smart contracts of over $190bn as at the time of writing.
CONCLUSION.
In summary Ethereum is a large network of several independent computers working together in running decentralized applications using smart contracts.
Ethereum is the second largest cryptocurrency by marketcap only behind bitcoin and it account for about 20% of the total cryptocurrency marketcap. The ethereum network continues to grow, although it has some serious competitions from other smart contracts blockchain but ETH still remains the largest, most secure and most decentralized smart Contracts platform and I believe its growth is imminent and will continue for many more years and so will the price of ETH.
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