All You Need to Know About Ethereum | Trade Finance Global

Ethereum

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What Is Ethereum?

People often mistakenly label Ethereum a cryptocurrency – but it’s much more than that. Ethereum is a distributed, public blockchain network with smart contract scripting functionality.

Whilst it isn’t a true cryptocurrency, it is powered by one. This cryptocurrency is known as ‘Ether’. Unlike Bitcoin, which was designed specifically to be a unit of currency, Ether was designed to power the Ethereum network by compensating miners for performing computations.

What separates Ethereum from other blockchain applications is the EVM – the Ethereum Virtual Machine – which makes the process of building decentralised applications simple and efficient.

By enabling developers to build decentralised applications, Ethereum is making previously unimaginable applications of blockchain technology possible. The use of blockchain technology is no longer confined to digital currencies; it’s now being used in everything from electronic voting, to trade finance.

It’s no wonder, then, that Ethereum has, at present, the second largest market capitalisation of any cryptocurrency. TFG has curated this page of content to help you learn all there is to know about this revolutionary computing platform.

History of Ethereum

Ethereum is a very young platform. Having been released in 2015, it’s only been operating for a few years. Nonetheless, it’s seen tremendous growth during that time. In 2017 alone, the Ether currency grew by over 15,000%.

The graph below shows how this growth occurred over time:

And this may not be the end of Ethereum’s phenomenal run. Many analysts are predicting further growth over the next few years as more companies begin to adopt to blockchain applications and use smart contracts. Some even estimate that Ether will overtake Bitcoin as the leading cryptocurrency, but where did it all begin? Let’s take a look at a brief timeline:

2013

A programmer named Vitalik Buterin first outlines the concept of Ethereum on paper. He goes on to publish a whitepaper which describes the technical design of and rationale behind it.

2014

The first Ethereum software project is developed by GmbH, a Swiss company. Later that year, a pre-sale of Ether is launched to create a network of miners and shareholders, which raises over $14 million. The Ethereum protocol is set to allow the creation of 5 Ether per block mined.

2015

The first beta version of Ethereum, named Frontier, is launched.

2016

Homestead, a protocol upgrade, is added to the network. The DAO raises $150 million in a crowd sale which earns Ethereum a lot of media coverage. The DAO is then hacked by an unidentified group which sparks a large cryptocurrency debate and causes the network to split into two factions: Ethereum and Ethereum Classic. Ethereum goes on to increase its DDoS and stop further attacks.

2017

Russia endorses Ethereum, and AVATrade and eToro add Ether trading. Many new companies begin to take advantage of Ethereum’s smart contracts to create derivative tokens. These factors all create momentum for Ether, which quickly increases its market capitalization and experiences huge growth.

Ethereum Uses

As we mentioned earlier, Ethereum and Ether are not one in the same. The uses of Ether are similar to Bitcoin and other cryptocurrencies. Ethereum is essentially a decentralised network with massive functionality. As such, it has almost unlimited applications.

Here are 5 practical uses of Ethereum:

  • It can be used in the healthcare system to securely store and share patient information.
  • Smart contracts can be used to make risk-free, direct transactions.
  • It can be used to improve the current election polling system by making it more transparent and secure.
  • It can be used as a decentralised data storage facility.
  • It can be used to build decentralised apps (DAPPS).

Uses Within Trade Finance

Ethereum can also be used to build custom blockchain networks for use in trade finance – an industry which has long stood to benefit from digitalization.

Trade Finance has always involved copious documentation and lengthy processes. Moving away from this towards digital processes, enabled by blockchain technology, could allow institutions to offer faster payments and more efficient and secure processes. Cryptocurrencies can also be used to bypass banks and reduce transaction fees.

For more information on this, as well as practical use examples of blockchain technology in trade finance, see this information page. [1] TFG has also talked in detail about the Digitization of Trade Finance on TradeUp’s blog.

Advantages and Disadvantages

Ethereum – or more accurately, Ether – shares many of the same benefits as other cryptocurrencies, namely freedom of payment, transparent information and the ability to bypass third parties. It also shares some of the same challenges, such as not being widely accepted and having high volatility.

The below table outlines the main advantages and disadvantages of Ethereum/Ether compared to other cryptocurrencies and blockchain platforms:

Advantages

 

Disadvantages

 

Lower transaction fees

Ether generally has lower transaction fees than Bitcoin. The average transaction fee in December 2017 was $0.33 for Ether and $23 for Bitcoin.

Not a true currency

Although Ether can be used as a cryptocurrency, Ethereum was primarily designed as a platform. It’s more flexible but less optimized for use specifically as a token.

Flexibility

Ethereum is a whole package which facilitates the creation of complex networks and contracts for many different products and services. This USP sets it apart from cryptocurrencies which are designed only as a digital currency.

Developer challenges

Developers are struggling to work with smart contracts since there aren’t a lot of tutorials and documentation currently available. This is expected to improve over time.

Roadmap

Ethereum has a robust roadmap with clear standards on expected improvements and developments over the coming year. This is something that many other cryptocurrencies lack.

Smart contract loopholes

As smart contracts rely on humans to write them, they’re vulnerable to human error. This was highlighted during the DAO hack where $50 million was nearly stolen.

Corporate Interest

Many companies are working with Ethereum to improve the ecosystem. Very few blockchains have a similar level of support.

Newcomer factor

Ethereum is relatively new to the blockchain/cryptocurrency scene. It’s had a lot less time than Bitcoin to iron out its kinks.

Ethereum Symbol

Interesting Facts

Here are 3 interesting facts about Ethereum:

  • Programmers of Ethereum created a custom programming language called ‘Solidity’.
  • Unlike other cryptocurrencies, Ethereum’s currency ‘Ether’ doesn’t have a maximum number of coins. This makes it an inflationary currency.
  • Ether mining was originally based on the Proof-of-Work mining principle, but developers have since planned to switch over to Proof-of-Stake in the future.

References:

https://www.coindesk.com/information/what-is-ethereum/

http://coinnoob.com/ethereum-real-world-use

https://www.synechron.com/finlabs/trade-finance

https://cryptonewsmagnet.com/5-fascinating-facts-ethereum-blockchain/

http://www.tradeupfund.com/blog/digitization-of-trade-finance

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