Ethereum 101

Let’s try and get a good grasp on what proof of work means to help better understand how Ethereum is so versatile. Proof of work refers to a decentralized consensus mechanism that requires different miners to solve a complex mathematical puzzle before authenticating a particular transaction to be added to the blockchain. So, the miner or a group of miners with the most computing resources are the ones that usually solve this puzzle.

So, every block of data that is added to Ethereum’s blockchain has to go through the proof of work process in order to avoid double-spending. Unlike the centralized payment processing platforms controlled by a central body, cryptocurrencies use proof of work to authenticate transactions, making it incredibly hard for any fake transactions to go through.

However, the challenge with the proof of work methodology is the significant computing resources required by miners to solve the complex mathematical puzzle. More computing resources mean more energy consumption, which is not good for our environment. To solve this problem, developers on the Ethereum blockchain plan to adopt an alternative method for verifying transactions called Proof of Stake.

With proof of stake, priority is given to the miners who hold more coins on the platform instead of those with more computing resources. So, miners with more coins have more mining power on the platform. This method reduces the amount of energy used by the platform and the time required to verify every transaction before it is added to the blockchain.

Non-Fungible Tokens or NFTs refers to a unique and non-interchangeable unit of data stored on the blockchain. The idea behind NFTs is to prove ownership of a digital asset such as a video, photo, tweet, etc. Just like we have owners of physical assets in the real world, we can have owners of digital assets through the use of NFTs.

For example, if I am the only person who recorded a video of something funny happening on the streets of New York, I can decide to attach an NFT of this video in order to prove ownership. I will also have the option of selling it to anyone who needs it at a price determined by the market forces of demand and supply.

NFTs have made it possible for digital creators to monetize their Art by selling their work as NFTs on the different marketplaces, including OpenSea, NBA Top shorts marketplace, SuperRare, and many more. The beauty with NFTs is that you can attach terms in the smart contract that allows you to earn a specific percentage of the selling price every time your digital assets change ownership.

We have already seen Beeple – a popular digital artist, sell his collection of 5000 digital art pieces for $69 million. Many may not believe that a Jpeg file can be sold for millions of dollars, but this has been made possible with NFTs. People value authenticity; that is why someone is willing to pay hundreds of dollars for a Nike sneaker but won’t pay as much if a less popular brand makes the same sneaker even if it has the same quality as Nike’s.

One of the most promising use cases of Ethereum’s blockchain is the possibility of executing various financial activities in a trustless manner. With smart contracts, it is now possible to borrow and lend money on the Ethereum blockchain through decentralized apps such as Aave, MakerDao, Compound, and many more.

With these apps, the borrower and the lender agree on the terms of payment which are turned into a smart contract. All the possibilities are to be decided upon before processing the transaction because once the smart contract is written, it cannot be changed. Borrowers use their digital assets as collateral security. So, in case they default, these are assets will automatically be transferred to the lender.

Another DeFi use case is decentralized insurance. With decentralized insurance, people can provide cover for their digital assets on the Ethereum blockchain. The terms and conditions of the insurance policy, including the monthly premium to be paid, the conditions for compensation, and the duration of the policy, are all laid out in a smart contract.

With decentralized insurance, there is no need to have a central authority to oversee the processes. All the processes are self-executed using the terms agreed upon in the smart contract.

A prediction market on the blockchain refers to a platform that allows users to monetize their ability to forecast the outcome of an event, including sports, election outcomes, and many more. Prediction markets have been around for many years. Smart contracts have made it possible to have autonomous prediction market platforms that operate without the input of any centralized authority.

For instance, if you predict the outcome of a football match, the conditions made in the smart contract are executed as soon as the match ends. Some of the popular prediction market platforms on the Ethereum blockchain include; Augur, PlotX, Polymarket, and many more.

Over the years, the escrow system has made it possible for two parties to agree on a payment to be made when specific conditions have been met. In the centralized system, a third-party company holds the payment made until the recipients meet certain conditions. The main disadvantage of these centralized systems is the high charges involved.

With Ethereum’s blockchain, this problem is solved with smart contacts. So, no third party is involved in between, making it way cheaper for two parties to make a transaction in a trustless manner. With smart contracts, someone can offer a service and receive the payment when the person who needs the services approves their work.

One of the most popular decentralized escrow platforms is SmartLink. This platform enables different parties to make online payments to anyone worldwide in exchange for a product or service. With SmartLink, both parties involved in the transaction agree on terms that are converted into a smart contract. The transactions are completed only when the terms in the contract have been fulfilled.

While signing up on any platform on the internet, you are required to share information about yourself, including your date of birth, email address, phone number, and many more. Most of these platforms claim to use this information to enhance the experience of the users. However, we have seen several websites and web apps, including popular ones like Facebook, being involved in data breach scandals.

By using Ethereum’s blockchain, this problem is now solved through decentralized digital identification systems. With such systems, you can sign up on any platform without sharing your personal information using a Digital Identifier key that proves you are the rightful owner of the encrypted profile.

Most of the exchange platforms, including Coinbase and Binance, are centralized. However, we also have decentralized crypto exchange platforms that use Ethereum’s blockchain and do not need a centralized authority to control them. With decentralized exchange platforms, transactions are peer to peer, which significantly lowers the fees involved.

Decentralized exchanges also use smart contracts to execute the transfer of crypto between one user to another. Some of the most popular decentralized exchange platforms include dYdX, UniSwap, PancakeSwap, SushiSwap, and many more.

Over the years, the price of Ethereum as a cryptocurrency and the total value of all the assets on the Ethereum blockchain has been growing. With the integration of new use cases such as NFTs, prediction markets, and decentralized finance, we expect Ethereum to continue growing even further.

Some experts predict the price of each Ethereum coin to be over $100,000 by 2030. This prediction is mainly based on the possible use cases of this blockchain, which will further increase the number of people using the decentralized apps running on Ethereum’s blockchain. With new technological inventions like Metaverse, more use cases of the Ethereum blockchain will continue to emerge.

With the Metaverse, ownership of digital goods will likely become a mainstream thing, which presents an opportunity for Ethereum Blockchain-based inventions to thrive. So, digital artists and creators will have a bigger market for their creations due to the rise in the demand to own digital assets in the Metaverse.