4 key things about Ethereum

Ethereum is much more than a cryptocurrency

It is an entire network and operating system that sits "on top" of the Internet.

This means that it can host things like websites, applications and all sorts of Internet-based services. Except that it does this in a highly secure way, much more secure than the traditional Internet.

Because of this security, people are able to create a new generation of applications and services that could not exist previously.

Let's take a closer look at how it works, as well as some of the cool new services that you can use today.

1. It's creating a new economy

Thanks to the enhanced security Ethereum provides compared to the regular Internet, businesses are now able to provide goods and services in a way that was previously impossible or unsafe to do so.

Some of the services that have been quick to capitalise on Ethereum include:

• Banks, lenders and digital wallets
• Exchanges for trading cryptocurrencies, shares or forex
• Marketplaces for digital art, video game items, and the "metaverse"
• Insurance providers and legal services

The big difference is that these services operate automatically, without the need for employees to keep everything working.

They do this by using a new type of technology called "smart contracts".

You can think of smart contracts as websites that, once they are launched, will operate completely independently without the need for human input.

The use of automation also reduces operating costs, meaning that services are cheaper, which is a win-win for everyone.

For instance, if you want to take out a loan, the smart contract handles the process for you and matches you with a lender. There is no need to pay a mortgage broker or bank employee to do it for you.

Not having to hire employees also makes it easier for developers and entrepreneurs to start new businesses, which has led to a massive new "crypto" economy.

And it's not just boring things like finance that are being reinvented – Ethereum is reshaping industries like:

• Gaming: Play-to-earn games allow players to earn cryptocurrency while gaming. This flips the old "pay-to-play" model on its head and instead rewards users for their engagement. Games like Axie Infinity have even allowed people in countries like the Philippines to earn a living through gaming.
• Social media: Instead of hoarding all your personal data and selling it off, social media sites built on Ethereum are completely transparent and give users greater control over their privacy, allowing you to choose what data is shared and even get paid for it.
• Art & collectibles: Ethereum has given birth to a new technology called NFTs which essentially provide proof-of-ownership for digital items. This has led to a new economy of digital art and collectibles, which saw $2.5 of value exchanged in the first half of 2021.

2. ETH is the fuel of Ethereum

At the centre of Ethereum lives its native cryptocurrency, ETH. This is what you get when you buy Ethereum.

Any time you want to make a transaction or use an application or website, you need to pay a fee using ETH.

This fee is nicknamed "gas" and is a bit like paying a toll to use a road.

The ETH you pay for gas goes to pay the community of validators who verify transactions and keep the network secure.

If you've ever heard of cryptocurrency mining, this is part of that process.

In addition to paying for fees, ETH is used to pay for goods and services on Ethereum, create new tokens and can be traded for other cryptocurrencies.

This creates a lot of demand for ETH, which has helped make it the second most valuable cryptocurrency in the world.

3. Smart contracts are a big deal

At the heart of Ethereum is a technology called "smart contracts".

These are automated pieces of computer code that make something happen. If x is done, then y happens.

Once deployed, smart contracts automate whatever they've been programmed to do.

Let's say you work in retail and get paid by the hour, but you get paid monthly in a lump sum. This can be a huge problem for people who live paycheque to paycheque.

With a smart contract, your pay could effectively be "streamed" to you each day, as long as certain requirements are met. This process could be as simple as signing in and out of your workplace using a QR code.

4. Tokens, tokens, tokens

Ethereum enables the creation of tokens, which are additional cryptocurrencies hosted on the Ethereum network.

Maybe you've heard of other cryptocurrencies like Shiba Inu, USDT or Uniswap. These are all cryptocurrencies "tokenized" on Ethereum.

An example is stablecoins, which are tokens pegged 1:1 with the value of a national currency, like the AU or US dollar.

Tokens like stablecoins can be sent to anyone in the world with an Ethereum address – kind of like sending money via email or through your phone.

Currently, stablecoins are issued by private companies, but that could change very soon, with governments in the EU and US exploring how to use stablecoins to create central bank digital currencies (CBDCs).

This is just the start

These are just a handful of the things that make Ethereum tick.

There are dozens of different things you can do with Ethereum, some we don't even know about yet.

One thing is for sure: Ethereum is quickly becoming its own enormous economy, and ETH is the currency at the heart of it all.

Written by

James Edwards

Cryptocurrency editor

James Edwards was the cryptocurrency editor at Finder. He led the editorial strategy and reported on the latest industry news to further Finder's mission of helping people make better financial decisions. A relatively early adopter, James has been using Bitcoin since 2013 and began working in the industry in 2017. He takes pride in his ability to boil down complex topics into language his parents can understand. His expertise has seen him called on to report at events such as TechCrunch Disrupt, CoinDesk Consensus and IBM Think, and he has coordinated a vast number of high-profile interviews with the industry's brightest minds. He is a regular contributor to Nasdaq and is frequently called upon for market commentary in Australia and abroad. See full bio