¿What is Ethereum?

Cryptocurrencies Feb 08, 2021

The use of Ethereum and the innovation of decentralized finance DeFi.

When talking about cryptocurrencies, there are many doubts that come to mind, regarding its functionality, security and trust. There are currently a great variety of these on the market, but in this space we are going to talk about Ethereum.

To begin with, Ethereum is a digital platform that works through a chain of blocks, known as Blockchain, which is nothing more than a type of database that collects electronic information in a computer system.

Ether works within Ethereum, the native cryptocurrency and currently the second largest on the market. Its use is made through a digital book that records transactions. This book records the information and the data mining process is built through the blockchain.

For its part, the miner is in charge of verifying Ether transactions, and conforms the blocks using algorithms, these blocks are intertwined with each other and the miner receives a reward.

The Ethereum Blockchain is similar to that of Bitcoin, however, its programming language allows software developers to manage transactions by automating some results through smart contracts.

Smart contracts are a relationship of terms that is fulfilled automatically once an agreement is reached, this happens because it works through computer codes that are executed safely when certain conditions are met. For example, an Ethereum user creates a smart contract to send money to certain people on a certain date; the codes are created and when these are fulfilled, the money is sent automatically.

This wonderful digital process through the use of Ethereum gave way to the implementation of other decentralized services, such as DeFi.

What is DeFi?

DeFi, Decentralized Finance, evolved from Fintech (an industry made up of companies that compete with traditional financial markets). Hence, they intend to offer a service on a platform that works directly, without intermediaries.

The birth of DeFi began thanks to the Ethereum Blockchain, and the platform's ability to offer flexible Smart contracts makes it perfect for liquidity market projects, loan systems and decentralized exchanges, thanks to its independence, without the intervention of intermediaries or paperwork, ensuring speed and security, essential elements to think about the new era of finance.

The operation of DeFi is thanks to Blockchain technology, and is that the use of smart contracts, allows the execution of clauses once the instructions programmed through computer codes are fulfilled, hence the security of being autonomous and without cheating, commonly found in legal contracts.

It was in this way that Dapps or decentralized applications were born, what are these? They are programs that work directly on the Ethereum Blockchain, being their immediate execution and with which you can interact through tokens (digital currency) and a browser.

Then, the operation of the DeFi platform is the union of the Smart Contracts and the Dapps, the first allows the autonomous management of money and the second the interaction with the smart contract, which when executed with the Blockchain, all the information is recorded in a way permanent.

Ethereum wears 2.0

Ethereum as a way to improve its effectiveness, is reborn through Ethereum 2.0 “Serenity”, a new interaction of the platform where the token is Ether, its innovation brings with it a renewed blockchain, more efficient and with more transactions per second (for payments ).

This new version of Ethereum comes with the use of Proof of Stake (PoS) mechanisms, to replace Proof of Work (PoW). In the PoW the miners used hardware like GPU to verify new transactions, however, this consumes a lot of power. In PoS, there are no miners, but transaction validators who must participate in the system to validate them.

A minimum of 16,384 validators is required for each transaction, which makes it more secure than other platforms with this system.

Among the advantages that Ethereum 2.0 brings us, is more scalability: division of more manageable fragments and off chain (side chains, channels) and speed and usability through Ethereum WASM, where more efficient instructions will be made to improve the security, performance and speed of the platform.

From this, DeFi will have a more secure Ethereum for its handling of the financial markets.

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