How Ethereum works and why it matters Comments Off on How Ethereum works and why it matters 228

The hows, what’s and why’s of Ethereum

Ethereum is in fact not the name of a digital currency but the name of the blockchain technology that supports a currency called Ether. Even though it’s the second biggest and most valuable cryptocurrency, it has flown under the radar with investors focusing more on Bitcoin. We’re going to help you understand what Ethereum is, why you should invest in it.

How does Ethereum work?

Ethereum, much like Bitcoin, works with decentralized blockchain technology. A blockchain is like the backbone of a digital currency in that you can track money and verify so it cannot be copied or altered. This keeps the currency stable and safe. Once the information is stored in the blockchain it is part of a decentralized ledger, stored on computers around the world that cannot be changed without alerting one of the other users. Unlike Bitcoin, the Ethereum blockchain could be viewed as more important than the currency itself.

The Ethereum platform does have a cryptocurrency called Ether but what investors find really exciting about Ethereum is that the blockchain is currently a lot more intelligent and intuitive than any other in the industry. Ether works very much like Bitcoin in that it is a semi-private digital currency that can be traded, invested in or used as a simple currency. The technology has more intrinsic value than Bitcoin.

Why is it important?

Ethereum is seen by many in the tech and investment industry as the future of cryptocurrency and blockchain technology. The blockchain they use has real-world applications outside of payment and investing. Ethereum does not track and verify transactions, it’s able to program them. It can theoretically invest, spend, and save money all on its own. This would make it perfect for use in banking, gambling and as a company-wide payment system for a large corporation.

The interest Ethereum technology holds for big businesses is one of the key reasons many investors feel that it could overtake Bitcoin. Even if the cryptocurrency Ether loses its intrinsic value, the technology behind Ethereum will still be valuable. Ethereum creates smart contracts which allow people to exchange virtually anything without the use of an outside broker, cutting down transaction costs and adding to the security and fairness of the contract.

What is a smart contract?

A smart contract is like a regular, real-world contract but it is entirely digital. It uses the distributed ledger technology of the blockchain to regulate and verify contracts. It acts as a digital middleman between the buyer and the project. A digital contract is far safer than a regular contract for two reasons. For starters, it’s immutable, meaning that it cannot be changed after the fact. Secondly, because it’s distributed, meaning that the veracity of the contract is verified by everyone on the system so it is virtually impossible to cheat.

The way it works in the simplest terms is this:  If you want to invest in a project using Ethereum as a middleman, you would send the money to the project manager through Ethereum and a smart contract would immediately be created. Ethereum would hold the money until the transaction has been verified. In the event of the project failing or being a scam, Ethereum would automatically refund the investor. Ethereum waits until the full amount that needs to be exchanged has been deposited before sending it to the project manager to make sure that no one is trying to shortchange or cheat anyone. It’s a virtually foolproof way to do business safely and to transfer exact payments.

Why is it a good investment?

Ethereum could very well be the future of cryptocurrencies and has shown how valuable blockchain technology could become. This means that no matter how the cryptocurrency markets are behaving, Ethereum will always have an industrial value, the depths of which most investors haven’t even begun to explore.

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