What is Ethereum?

Ethereum is an open software platform for decentralized applications (Dapps), allowing developers to build smart contracts and distributed applications and execute them, mitigating fraud, downtime or control by a third party. It is akin to programming language run on the blockchain.

One of its aspects is its own virtual currency, Ether. Ether is used for two main purposes: it is a digital currency like other cryptocurrencies and is also used within the platform to run applications and to monetize work. Ether is used by the application developers to make any kind of payment in the Ethereum network.

Smart contract

A smart contract is more or less like a self-operating computer code facilitating the exchange of money, shares, property or any unit of value. It can store information about an application such as domain registration and other membership details, provide utility to other contracts, manage agreements between users and function as “multi-signature” account so that funds are spent only upon the agreement of a certain percentage of people.  It is theorized that smart contracts will replace all kinds of contractual agreements at some point, as their implementation provides a level of security superior to any traditional contract law, also reducing transactions costs associated with these contracts. Thus, they establish trust between parties and reduce the overall costs.

Benefits of a decentralized Ethereum platform

  • A third party is not involved, preventing changes to data by intervention.
  • Censorship is avoided with the strong network formed around the principle of consensus. Consensus means all nodes in a particular system must comply with any change made in a system.
  • With the help of cryptography, applications are secured from hacks and frauds.
  • Apps never go down as they are being run by thousands of volunteer computers across the globe.
  • Cuts out middlemen and expenses associated with them.

Disadvantages of Ethereum

  • The code for smart contracts may have errors, giving hackers an opportunity to exploit the code. In such a case, the underlying code has to be rewritten on reaching a consensus but this goes against the very idea of making the Ethereum blockchain an immutable ledger.
  • The transactions are stored on the nodes. The problem is that with the increase in transactions, the developers are trying to increase the size of the nodes, which will consequently kick people off the network. Running a full node allows users to take advantage of privacy and security. Thus, denationalization and scalability are currently at odds.

Scope of improvement

  • There should be more focus on technical issues and security improvement to prevent disruptions of code which has a direct impact on the value of Ether and the public belief in Ethereum.
  • Sharding is a recommended possible implementation. It means moving away from full nodes. Thus, each node stores only a part of the data and verifies the transactions and if it requires information of transactions which it does not store, it approaches the node which has the data for the respective transaction.
  • Transactions can be made off-chain via micro-payment channels, which means, either party can kick the transaction to the blockchain any time they want, giving both parties a chance to end the interaction.

A comparison between Ethereum and Bitcoin

While Ethereum and Bitcoin are two vast projects which seem very similar, they are truly similar only in the cryptocurrency aspect. Bitcoin is a project which focuses solely as a means of payment and store of value, and has successfully established stability by being the most-used cryptocurrency enjoying robust development to date. Ethereum, on the other hand, has a wider scope as it is a multipurpose platform, with Ether being just one aspect of its multiple smart contracts. Therefore, the Bitcoin blockchain is mainly used to track the ownership of bitcoins while the Ethereum blockchain is focused on running Dapps.


Some experts believe that in the coming years, Ethereum will have the potential to completely revolutionize services and industries which have been operating for hundreds of years. The abundance of projects attempting to tokenize services and industries via Ethereum-based tokens shows a strong demand for a platform that makes it relatively easy to crowdfund or tokenize ideas. Its long-term success will rely much on how it handles scaling solutions, with an ongoing Constantinople hard fork making a major switch in algorithm.

On the other hand, others believe that Ethereum’s limitations will mean that it will not outlast other competing platforms, whose development teams appear to be more flexible and agile in responding to market demands and learning from Ethereum’s flaws.

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