ETHEREUM for decentralized finance

In last article we talked about what DeFI is. Most DeFi applications are created on the Ethereum blockchain or its Layers- L2 blockchains.

But what is Ethereum? Ethereum is an open source cryptocurrency and blockchain platform for creating decentralized online services (decentralized applications) running on the basis of smart contracts. To give a rough but simple comparison, this is a world computer that cannot be turned off and works from anywhere in the world.

In this article we will try to briefly explain in simple language about the Ethereum platform, what it can be used for, the native ETH token, what gas is (no, not natural) and about applications built on this platform.

We talk about Ethereum in more detail in one of the lessons of our Academy.
Smart contracts
A smart contract is a programmable agreement that allows two parties to set the terms of a transaction without requiring trust in any intermediary party.

For example, you could create a smart contract that automatically pays $10 to our company at the beginning of each month for 10 years, checking the current date and continuing until the fund in the contract is depleted. Of course, it is unlikely that you will do this, but there is an opportunity, remember this!

Well, or such a condition. It won't work, but we'd like it that way

By using a smart contract, you eliminate the need for intermediaries such as lawyers or escrow agents to send trust fund funds to us. This process also becomes transparent to all participants.

Smart contracts operate on the “if this, then that” principle. Every time a certain condition is met, the smart contract automatically performs the intended operation.

Multiple smart contracts can interact to perform complex processes and calculations, thus creating decentralized applications.
Ether or ETH
Ether (ETH) is the native token of the Ethereum blockchain, that is, the currency of this network. ETH, similar to Bitcoin, can serve as a medium for everyday transactions. You can exchange Ether for goods and services at the current market value, and the Ethereum blockchain records these transactions, providing the seller with security and no cancellations after your purchase.

Ether is also used to pay fees necessary for the functioning of smart contracts and decentralized applications on the Ethereum network. You can compare the execution of smart contracts on the Ethereum network with a huge cruise ship: if everything is relatively simple in the car - fill it up and go (analogy with Bitcoin), then with Ethereum everything is much more complicated. A cruise ship has many engines and compartments responsible for various mechanisms. Don't forget that cruise ships also have kitchens, dining rooms, gaming and entertainment areas, etc. - all this, like Ethereum, is combined in one place.

Ether is constantly evolving, becoming a unique reserve currency and method of storing funds. Currently, in the DeFi world, Ether is the most common asset used as collateral for many DeFi applications. This in turn ensures security and transparency in this financial system.

A relevant comparison is when comparing the functioning of the network.

On the Ethereum network, every transaction and execution of smart contracts requires the payment of a fee called "gas". Gas is a unit of measurement of the computing resources required to complete an operation or smart contract. The more complex the operation, the more gas is required to complete it, and payment is made exclusively in the network’s native token (ETH) if we are talking about Ethereum.

The cost of gas may vary depending on the congestion in the network. During periods of increased activity, when many users interact with the Ethereum blockchain (sending transactions in ETH or using smart contracts), the price of gas may increase due to limited computing resources. Conversely, when the network is less congested, the market price of gas decreases.
You can also manually set the price you are willing to pay for gas. This is important because during periods of network congestion, transactions with higher gas prices take priority and are processed first. Transactions with low gas fees may wait in line and take longer to complete. Simply put, sending transactions with low gas prices can take a significant amount of time.

Usually the price of gas is calculated in units of gwei. 1 gwei = 0.000000001 ETH If a smart contract needs, say, 10,000 units of gas, and the average price is 4 gwei, then the calculation will be as follows: 10,000 gas * 4 gwei = 40,000 gwei = 0.000040 ETH
Decentralized Applications (DApps) on Ethereum
Decentralized applications (DApps) are interfaces that interact with the blockchain through smart contracts. They are similar in appearance and functionality to regular web and mobile applications, except that they use different methods for working with the blockchain. Some of these methods include requiring ETH to use the application, as well as storing user data on the blockchain to ensure immutability and other characteristics.

The DApps ecosystem on Ethereum a few years ago. Now it is much more extensive.

Advantages of DApps:
Immutability. There is no way for anyone to change the terms or information within the application after it is recorded in the blockchain.
Protection against unauthorized access. They cannot be faked without anyone on the blockchain noticing.
Transparency. Complete openness to audit by anyone due to working on smart contracts.
Availability. As long as the blockchain network is active, applications deployed on it will work.
Disadvantages of DApps:
Immutability. This point can also be a disadvantage - smart contracts are created by people, and they can make mistakes accidentally or intentionally.
Transparency. And this point has 2 sides. Hackers see the code and can look for vulnerabilities in it for their own selfish purposes.
Scalability. The bandwidth of DApps is often limited by the capacity of the network where it runs. Sometimes this can cause problems.
Ethereum Use Cases
In addition to the development of decentralized applications, we also note the main purpose of using Ethereum: the creation of decentralized autonomous organizations (DAO) and other cryptocurrencies.

DAO is a completely autonomous organization, governed by code rather than by humans. It operates on the basis of smart contracts and is different from traditional organizations. Its control is completely encoded, which ensures transparency and protection from tampering. The DAO is not subject to external influence, and decisions about its governance are usually made through voting by the holders of the relevant tokens.
Regarding Tokens Ethereum can be used to create other cryptocurrencies. Currently on the Ethereum platform. Currently, there are various protocols for creating tokens, the two most popular are ERC-20 and ERC-721. ERC-20 is a standard that defines the rules for issuing tokens on the Ethereum blockchain.

ERC-20 tokens are fungible. That is, they have the same value and denomination. In contrast, ERC-721 tokens are unique, each one representing a unique entity. You can simply compare ERC-20 to regular money, and ERC-721 to collectibles, such as toy soldiers or baseball cards. Even simpler: ERC-20 = cryptocurrency, ERC-721 = NFT.

By the way, regarding NFTs, we wrote an interesting article on how this technology is used to launder funds, as well as how it interacts with the world of sports.
The Ethereum ecosystem is large and important to the blockchain world and will certainly continue to develop. As everywhere where there is money and excitement, there are also scammers.

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