Ethereum is a decentralized platform powered by open-source blockchain technology with smart contract functionality. It is most popularly known for its cryptocurrency, ether (ETH) but it also hosts countless decentralised applications.
How Does Ethereum Work?
Ethereum, like other cryptocurrencies, uses blockchain technology. It can be simply explained as a long linked chain of blocks that contain information/data that is shared over a network. Every member of the network has access to this chain and it primarily functions as a distributed ledger to record transactions.
Like any other blockchain network, Ethereum network is secure thanks to its decentralized nature. A huge network of nodes worldwide maintains the blockchain and for any decision to be taken – a majority agreement amongst all the nodes is mandatory. Hence, making it impossible for any individual entity to take control of the network.
The Ethereum platform can support a multitude of applications other than cryptocurrencies. Any user on the network can create, monetize and use a range of applications on the platform. They can also leverage ETH or any other cryptocurrency for payment.
How are new ETH created?
New ETH coins are created using a process called mining. Cryptocurrency mining is a popular method for the generation of new coins however, it is lately being discouraged globally because of its high carbon footprint. Hence, Ethereum mining is planned to be changed in 2022 as the network chooses a new technology called proof of stake instead.
Proof of stake allows network security by maintaining a system of validators who run the Ethereum software while staking some amount of ETH tokens. Hence, once the network adapts the PoS protocol anyone with ETH stake and necessary hardware can become a validator.
Why does the price of Ethereum fluctuate?
As with Bitcoin(and any other commodity in the world), the price of Ethereum is governed by supply and demand on the global market. This can cause volatility in the short term as supply overwhelms demand. However, ETH has undoubtedly outperformed many traditional investments like stocks and bond indices.
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