TOP-5 facts about Ethereum

Ethereum has a range of specific features …smart contracts functioning can be complicated with the fact that the price of its execution is proportional to common ETH price…GPU ether mining will remain at first, but later this possibility will turn…

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TOP-5 facts about Ethereum


What does Ethereum mean?

Cryptocurrency Ethereum (also ETH, or in common speech ether) was developed in 2014-2015 as another bitcoin alternative. An important role in its development was played by the Canadian of Ukrainian origin - Vitalik Buterin, who is called, with some reserve, the founder of this cryptocurrency.

Cryptocurrency Ethereum very similar to other types of cryptocurrency, for example, it also has blockchain and cryptographic protection and it also could be bought or sold on cryptocurrency exchanges or exchanged to another cryptocurrencies. Though ETC has a range of specific features, that we’ll enumerate below.

1. At the same time, when Bitcoin was developed as the tool of monetary value transfer, Ethereum as its creators planned, represents first of all «gas» for smart contracts (you can read more detailed information about main idea of smart contracts functioning in p.8 of this article). As practice shows, it can be used as the tool of accumulation and the tool of transmitting the value (by the way, with much faster transactions than Bitcoin blockchain offers). But initially ETH is intended not only for this but for providing smart contracts functioning (contract initiators spend some amount of ether as the «gas» that could be compared to some extent with common commission charges while concluding a contract via bank).

None of the fuels should be too expensive and Ethereum “gas” is not an exception. With Ethereum price increasing, the functioning of smart contracts with its usage becomes more and more difficult, due to increasing expenses of code execution. That is why ETH usage as the artificial asset and exaggeration of price rates, that occur on cryptocurrency exchanges are quite harmful for Ethereum basic functions and decreases its reliability as long term investment asset.

2. ETH has been serving as the basis of The DAO platform, intended for decentralized investment management. But team of The DAO developers and Vitalik’s careless attitude towards code safety and reliability resulted in “legal theft” of 3.64 million ETH performed by unknown hacker, who has found DAO code vulnerability and on the 17th of June 2016 exploited it to assign the main part of project financial assets without breaking its rules (the hacker was not able to immediately sell Ethereum stolen from the platform, because the security system was triggered and they occurred to be “frozen” for a month). Vitalik Buterin intended to return stolen funds, but for this purpose it was necessary to activate the Hardfork ETH to roll arguing transactions back.

Crypto community has judged this action because it clearly contradicts all cryptocurrency philosophy, that has caused the outflow of part of the miners to Ethereum Classic (ETC) network that hasn’t accepted hard fork. But taking into consideration Ethereum rate, its hashrate and capitalization, ETH after all succeeded to remain on the position of “Big Brother” and was able to dominate over ETC.

3. Bitcoin’s characteristic feature (and the majority of cryptocurrencies in general) is its deflationary nature: during all time of system functioning only 21 million of bitcoins could be mined, and during some later stage the amount of bitcoins extracted by miners could be smaller than the amount of coins lost forever by its owners for some reasons, for example due to the failure of computer with local wallet. The amount of coins that could be mined in Ethereum is not limited so ETH is an inflationary currency. It should have negative influence on rate in long term functioning, but Ethereum value feels the influence of so many factors, beginning with constantly increasing demand, that it’s not clear when ETH inflation nature will show itself strongly enough to “drive” the rate down – it may take years.

4. During all its history, ETH has been mined according to POW (Proof-of-Work) principle as the majority of cryptocurrencies, including bitcoins. The characteristic feature of this mining method is the necessity of processing power for new coins mining. In case of the majority of altcoins, these are video cards for GPU–mining (ASIC devices for altcoins are being developed rarely). However, ETH developers team is planning the stepwise transition to POS (Proof-of-Stake) mining principle according to which only full node owners, who have no less than 1000 ETH can get new coins (smaller «ether» owners can join pools).

GPU ether mining will remain at the first stages (till the hybrid POW+POS principle will work), but later GPU-miners will have to switch to other currencies. The first stage of changeover to GPU is planned on September 2017. It's expected that after transition to POS Ethereum «gas» price will become significantly lower.

5. Maximum system decentralization was key priority during Bitcoin creation. There is no full decentralization in Ethereum. Though global decisions, for example, the one concerning the hardfork, should be taken on the basis of miners` hashrate voting, the ability of developers team, headed by Buterin to “push” highly unpopular decisions could be clearly seen on practice. A lot of miners who don’t support Buterin and his policy switched to more decentralized Ethereum Classic.

At the same time, another side of less degree of decentralization and higher manageability is the fact that a lot of big investors have moved from BTC to ETH, that seems to be more predictable and more controlled by development team. This has had the positive impact to Ethereum price (Ethereum price has grown 20 times during last year), and it may have further impact, but there is a question whether all investors understand those specific features of ether functioning, that was written about in the first abstract of this article.

Regardless of the fact that the future of this cryptocurrency is uncertain to some extent, a lot of investors have already bought or are going to buy Ethereum on cryptocurrency exchanges, for example, on EXMO reliable exchange.

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