- BBC News World
Maybe it happened to you that when someone tells you about how cryptocurrency works, their language suddenly turns into something completely understandable.
As soon as you use concepts like “blockchain” or “mining”, things get complicated. And when the topic of the moment is the Ethereum “meltdown,” considered the biggest cryptocurrency revolution in recent years, the challenge of understanding what’s going on becomes even more complex.
However, it is not as complicated as it seems
On Thursday, a high risk trade is made. Had it failed, many people could have lost their money in seconds. But it worked successfully, Ethereum co-founder Vitalik Buterin said in a post on Twitter.
What is it about? Ethereum, one of the largest digital trading platforms, has changed the way it operates, reducing its high energy consumption by 99.9%, according to those running the system.
Ethereum is basically a digital database shared across a network of computers. It runs on a technology called blockchain, which stores data.
It is a chain of data that grows as new blocks of data are added to it.
Transactions of individuals or companies are recorded in this database. Data is linked together (hence the word chain) and coded in such a way that it is difficult to modify.
No one owns the system, as the validation and registration of information (which may lead to a buy-sell transaction) is in the hands of a decentralized network of users involved in the process.
Understanding how the Ethereum network works is essential because it is where the most popular cryptocurrency is located: Ether.
Is Ethereum the same as Ether?
No, although informally many people use the two words as synonyms and we have become accustomed to using both words when talking about cryptocurrencies.
Simply put, Ethereum is the digital system and Ether is the cryptocurrency.
What happened this week is that the Ethereum network released a software update that drastically changes the way it operates. This change is called fusion.
It’s the crypto world’s most ambitious software upgrade to date, replacing the power-hungry computers used to generate and order transactions with a more energy-efficient system.
Ethereum is currently home to around 3,500 active decentralized applications, from exchanges to games that process billions of dollars in cryptocurrency.
This data network can be used by any business or individual to create any digital technology. This makes it possible to program so-called “smart” contracts or create crypto-currencies like Ether.
With the cryptocurrency Ether (Bitcoin’s biggest competitor), businesses or ordinary people can trade in a simple way: Person A pays Person B $100 in Ether.
And to buy Ether, you need to use any exchange around the world and pay for Ether with money in your bank.
It’s like buying dollars by making an online transfer.
As far as we know, there are no laws to protect consumers who trade cryptocurrencies, as there is no central bank or commercial bank intervention in any country.
In the absence of regulation, those who invest in these high-risk assets are prepared to bear the consequences.
With “melting”, the traditional creation of new ether, i.e. “mining” of ether, disappears.
Instead, Ether now operates under a system called “proof-of-stake”, where investors deposit or “stake” a certain amount of digital coins into a shared network, which allows them to be part of a lottery.
Then, every time a transaction is performed, a lottery participant is selected to verify the exchange and receive new coins.
This helps reduce energy consumption by eliminating powerful computers competing to solve puzzles.
Proponents of this system claim that it is more egalitarian than mining because it has lower barriers to entry; In other words, a “participant” does not need to own a fleet of expensive computers to contribute.
What wins the richest?
Critics, on the other hand, say that this new system perpetuates inequality, as only those with sufficient resources to participate in the process will be able to reap its benefits.
Participants must deposit 32 Ether (approximately USD 54,000) to participate in the lottery and win prizes.
Critics therefore argue that participants who own more ether will receive more money. This may eventually cause the system to crash.
How did it become the great rival of Bitcoin?
Vitalik Buterin, a 27-year-old Russian-Canadian programmer, created the Ethereum network with other young computer scientists in 2013, when he was 19 years old.
The Ether cryptocurrency was born in 2015 with a price below 1 US dollar and since then has risen to the second place in the cryptocurrency market.
Gradually, it began to grow as the Ethereum network, where it is traded, became more widely recognized.
Since Ether hit the market in 2015 with a price below US$1, its growth has been closely linked to the expansion of Ethereum, the system that hosts it.
People who work on the network are paid in Ether, which is why this cryptocurrency is said to be like the gasoline that keeps Ethereum running.
The platform not only accommodates digital currencies like Ether.
It has also enabled the proliferation of applications (called dapps) between companies that coded the terms of a given transaction, or entrepreneurs looking to fund themselves by carrying out “initial coin offerings” (ICOs) on Ethereum. .
The latest trend dominating user traffic and trading volume on Ethereum is decentralized finance (DeFi).
Ethereum’s vision since its inception has always been to become the “world computer” on which decentralized applications, any type of asset or crypto contract can be independently developed.
According to some experts, Ether’s rise can be attributed to the fact that it is the cryptocurrency of choice for purchasing many non-fungible assets, or NFTs (digital artifacts and other collectibles turned into unique, verifiable assets that are easy to trade on the blockchain).
For now, the future of Ether and its Ethereum network is uncertain.
While Ethereum developers claim that the new system after the “merger” has safeguards to protect against hackers, others claim that criminals can attack the blockchain with the new model.
In the current scenario, Bitcoin remains the “king” of cryptocurrencies, but maybe at some point Ether will overtake it.