You heard them many times before, but many of you still don’t know how Ethereum’s smart contract works and the role of Ether.
What is Ethereum? Table of Contents
What is Ethereum?
Ethereum as a virtual currency (cryptographic asset) has the second-largest market capitalization after Bitcoin.
Ethereum is known as a blockchain that can develop applications (DApps) using smart contracts.
However, the concept of smart contracts is difficult to understand, and many people wonder what it is, what it can make, and how Ethereum, a virtual currency (crypto asset), how can be used.
The blockchain that can execute smart contracts
It is often explained that smart contracts are a mechanism that can automatically execute programs.
In that case, the example of a vending machine is often used.
This is an example of a drink being automatically served when a dollar coin is inserted into a machine.
This is based on the 2004 analogy of cryptographer Nick Szabo, but this case is a bit confusing.
This is because vending machines have already been established without using Ethereum or smart contracts.
In other words, this vending machine example does not fully explain what Ethereum can do and what smart contracts can do.
In addition, Mr. Vitalik, the inventor of Ethereum, said that he regrets using the name smart contract.
Persistence and verifiability are the hallmarks of smart contracts.
For example, suppose you issue a bond on the blockchain and it is programmed that the bondholders will always be paid interest quarterly.
This interest payment program can be verified by any smart contract on Ethereum, and even developers cannot change it later.
In other words, no one can cheat as long as the program is properly organized.
The vending machine example did not include this element, but it is because smart contracts have this persistence and verifiability element that third parties can trust in their programming applications.
You can get involved and as a result, the program will be automatically executed (in the bond case mentioned here, the interest payment will be automatically executed).
This reduces a lot of manpower and enables a new user experience.
It is expected that applications using such smart contracts will be applicable in all industries.
Ethereum is a platform that can be developed using those programs.
What can the virtual currency Ethereum be used for?
So what is the virtual currency (crypto asset), Ethereum, used for?
The main uses are as follows.
Collateral assets in decentralized finance (DeFi) applications
Currently, there is a category of applications being developed called decentralized finance.
This refers to a group of financial applications developed on Ethereum.
Ethereum is often used as collateral in these applications, and it is common to make loans with Ethereum as collateral.
Staking (Ethereum 2.0 or later)
Finally, Ethereum will move from Proof of Work (PoW) to Proof of Stake (PoS).
In PoS, the computer that owns more Ethereum has the right to block generation, so Ethereum is required for that.
Also, smart contracts and their DApps can be better understood by using them as users, so if you are interested, you may want to try them.
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April 24, 2024
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