TOP 5 facts about Ethereum from EXMO experts

What is Ethereum?

Crypto-currency Ethereum (also ETH, or, in popular parlance, aether) was developed in 2014-2015 as another alternative to bitcoin. In its development, the Canadian of the Russian origin Vitalik Buterin played an important role, which, albeit with some stretch, is called the creator of this crypto currency.

The Ethereum Crypto currency is in many respects similar to other crypto-currencies, for example, the presence of blocking and cryptographic protection, as well as the fact that it is possible to buy or sell Ethereum on exchanges of crypto-currencies or exchange Ethereum for other crypto-currencies. However, ETH has a number of specific features, which we list below.

1. While bitcoin was developed as a means of transferring monetary value, Ethereum, according to the plan of the creators, is primarily a "fuel" for smart contracts (for more details on the principle idea of ​​the work of smart contracts, 8 of this article). It, as shown practice, can be used as a means of accumulation and a means of transferring value (by the way, with much faster transactions than in bitcoin).However, initially ETH is still intended not only for this, but also for ensuring the operation of smart contracts (contract initiators spend a certain amount of air as a "gas", which is approximately comparable to the usual commission fees when concluding a transaction through a bank).

No fuel should be too expensive, and the "gas" Ethereum is no exception. As the price of ETH increases, the work of smart contracts with its use becomes more and more difficult, because the price of code execution increases. Therefore, the use of ETH as a speculative asset and inflation of the price bubble that take place on the Crypto-currency exchanges are quite harmful for the basic functions of Ethereum and reduce its reliability as a long-term investment asset.

2. ETH served as the basis for the The DAO platform, designed for decentralized investment management. However, the negligent attitude of the DAO development team, as well as Vitalik himself, to the security and reliability of the code made possible the "legal theft" of 3.64 million ETH by an unknown hacker who discovered a vulnerability in the DAO code and, on June 17, 2016, used it to assign a significant portion of the project's funds , formally not violating its rules (because of the security systems, the hacker was unable to immediately sell the Ether, stolen from the platform, and they were "frozen" for a month).Vitalik Buterin set out to return the stolen funds, but for this it was necessary to activate ETH's hardtop to "roll back" the disputed transactions.

In the crypto community, this step was seriously condemned, as crypto-currencies, which clearly contradicted the whole philosophy, which resulted in the outflow of a part of the miners into the Ethereum Classic (ETC) network, which did not accept hardfork. However, judging by Ethereum's rate, his hashed and capitalization, ETH eventually stayed on the position of "big brother", and was able to dominate the ETC.

3. The characteristic feature of bitcoin (and, in general, the majority of crypto-currencies) is its deflationary nature: during the entire operation of the system, only 21 million bitcoins can be mined, and at some later stage the number of bitcoins produced by miners may be less than the number of coins lost forever owners for one reason or another, for example, due to the failure of a computer with a local purse. In Ethereum, the number of coins that can be mined is not limited, so ETH is an inflationary currency.In the long term, this should adversely affect the exchange rate, however, the Ethereum cost is affected by so many factors, beginning with the ever-increasing demand that it is not clear when the inflationary nature of the ETH will manifest itself sufficiently to "chase" the rate downward - it may take years.

4. Throughout its history, ETH has scaled the POW (Proof-of-Work) principle, like most crypto-currencies, including bitcoin. A characteristic feature of this method of mining is that the production of new coins requires computing power.In the case of most altcoins, these are video cards for GPU-mining (ASK devices for altcoyins are rarely developed). However, the ETH development team has been planning a step-by-step transition to the mining principle of POS (Proof-of-Stake) for quite a long time, with only new owners of full Ethereum owners acquiring new coins, and possessing no less than 1000 ETH (smaller "etherowners" can be pooled ). At first, the ether mining with video cards will remain (while the POW + POS hybrid principle will work), but later GPU-miners will have to switch to other currencies. The first stage of the transition to POS is planned for September 2017. It is expected that after the transition to POS, the price of "gas" in Ethereum will be much lower.

5. When creating bitcoin, emphasis was placed on maximum decentralization of the system. In Ethereum there is no full decentralization. Although global solutions, for example, about hard-core, still should be made on the basis of a miner's vote by a hasht, in practice it is clearly noticeable that a development team led by Buterin can "squash" even very unpopular decisions. Many miners, who disagree with Buterin and his policies, went back to the more decentralized Ethereum Classic last year.

Another side of less decentralization and greater manageability is, however, that many large investors have moved from BTC to ETH, which seems to them a more predictable and more controlled development team. This favorably affected the cost of Ethereum (the price of Ethereum has increased about 20 times over the past year), and, perhaps, will have an impact, but it is still questionable whether all investors understand the features of the functioning of the air, referred to in the first paragraph of this list.

Despite the presence of some uncertainty about the future of this crypto currency, many investors have already bought or are going to buy the Ether on stock exchanges, for example, on a reliable exchange