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How does Ethereum work and Pros of Ethereum?

The Ethereum blockchain is a blockchain like any other you find in this industry. Where we see that all transactions are validated by what is known as miners.

These people, using their computers, make sure that the transactions are correct (they have the funds and the private key to spend them). When the process is complete, a new transaction is added to a block to integrate the chain that we have already talked about. But in Ethereum there is a very important difference with other solutions, especially Bitcoin, which is the fact of being able to execute smart contracts. Bitcoin in a way also has contracts, but not with the capacity that we find in Ethereum.

The Bitcoin blockchain can process certain conditions when executing a contract (such as combinations of private keys or executions conditioned on a certain date), but in reality, its main function is to be a financial transaction system without further ado.

THE PROS OF ETHEREUM

One question that everyone is asking is whether they should put their money in Ethereum.

But it is not a bad idea to start your research about the analysis of this asset by seeing what its benefits and negative aspects are, thus also exploring its characteristics.

RELIABILITY

Leaving aside the conflict that resulted in the creation of Ethereum Classic in 2016 (product of the DAO hack) and the congestion of its network due to digital cats called Crypto Kitties, the Ethereum network has not suffered any major setbacks, causing be a good platform to build your app on. In addition, it has not been a victim of censorship (which we will talk about later), nor of the 51% attacks that do occur in other less popular cryptocurrencies.

VERSION 2.0

Ethereum version 2.0 has been a project that developers have been working on for years. It aims to vastly improve the Ethereum network, making it more scalable and user-friendly. The idea is to move from a Proof-of-Work consensus algorithm to a Proof-of-Stake (what are they?), which will end mining and high electricity consumption. Instead, miners just need a low-powered computer and at least 32 ETH in their account. Another feature of the second version of Ethereum is sharding. Which consists of dividing the chain of blocks into 64 shards, each one with a particular set of information?

Thus, the miner does not need to validate the entire block chain, but one of these shards. This is intend to make the platform scale better and transactions to be carry out much faster. This is a clear advantage for Ethereum, which is going to integrate great improvements for the ecosystem of users, developers and holders of this cryptocurrency.

THE SUPPORT OF LARGE COMPANIES

Within the investors of this project we find very important companies and people:

  • The Winklevos brothers: You may know them from Facebook, but also from having an investment fund called Winklevoss Capital, and the Gemini cryptocurrency exchange.
  • Ashton Kutcher: An actor recognize for his work in TV series and movies, who is also very interest in startups and technology.
  • Mark Cuban: A multi-millionaire entrepreneur, known for being the owner of the Dallas Mavericks and participating in the Shark Tank program.
  • Richard Sherman: Former NFL player and investor.

But these are just a few names, as the list is made up of Fortune 500 companies like IBM, Microsoft, J.P. Morgan Chase and Amazon. That they have commented on the fact of buying Ethereum as a form of protection against the economic changes that society is suffering.

DECENTRALIZATION

Being a chain of blocks that works from nodes, and in this particular case there are thousands. And scattered around the world, they make it a project with enormous decentralization.

The benefits of this are that it is protect against bugs, attacks and malicious actors. It is very important to eliminate the censorship of Ethereum and control. That a single entity or government could have over it.

LOW RISK OF INFLATION

Despite not having a limit on the number of coins that can be create. As is the case with Bitcoin, ETH does have a limit on the number that can be produce per year (18 million). In turn, each year, the reward miners receive drops by between 30% and 40%. With a recent proposal to reduce the reward to 75%. These factors, together with the evolution of DeFi platforms. Which allow holding cryptocurrencies, will reduce the amount of ETH in circulation, thus protecting Ethereum from inflation.

THERE IS NO LIMIT TO ETH

This is a controversial topic, since Ethereum is designe to increase the amount of ETH that exists year after year. I put it as an advantage, since in a certain way, as long as the demand increases above the offer, the price is going to behave in a deflationary way. For some people this is a major flaw, because it behaves similar to how the dollar or the euro does. But we have already seen that there are mechanisms to counteract the effects of inflation.

ATTRACT MORE BUSINESS

Both institutional and private investors know the real value of ETH. And it is that unlike Bitcoin, the ETH here are use to perform a very basic function. That is to send and receive money with low commissions (at least if we compare it with what happens with BTC).

For this reason, companies like J.P. Morgan Chase, Microsoft, Intel, Credit Suisse, and Accenture are affiliate with what is known as the Enterprise Ethereum Alliance. A group intend to use and publicize the technology of the Ethereum blockchain.

BE THE FIRST

Ethereum is the second largest cryptocurrency in the market, behind Bitcoin. While Bitcoin was the first cryptocurrency to lead the way for the rest. Ethereum took that initial idea and further understood it with its functionalities.

The example of this is smart contracts, and everything we can do with them. That there are still things to discover and very interesting use cases for the future. Even so, the developers are not resting on their laurels and are always looking for new ways to innovate and changes that allow the platform to be improve to new limits.

That is why, for many, Ethereum is synonymous with innovation, decentralization and trust.

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