Understanding Ethereum Price and Its Impact on Cryptocurrencies

Ethereum was launched by Vitalik Buterin in 2013. While Bitcoin functions primarily as digital money, Ethereum is designed to function primarily as a decentralized global computer, not just an intermediary. Blockchain technology not only enables transactions, but also allows developers to build their own cryptocurrencies and decentralized applications (Dapps). At the core of the system is Ethereum’s native coin, Ether (ETH).

Ether is the currency used for payments in smart contract-based systems like Ethereum, and is expected to have multiple other global applications. Contract terms are written directly into lines of code that are executed as smart contracts running on the blockchain. This removes the middleman and automates the execution of agreements between two or more parties, theoretically reducing the chance of disputes. Wei is the smallest unit of Ether and plays a key role in being an element of the Ethereum ecosystem. The symbol 10^-18 ETH represents one hundred trillionth of a wei, or dai, in honor of the famous computer engineer and cryptographer Wei Dai. This single unit drives efficient interactions and microtransactions on the Ethereum network. Ether allows consumers around the world to gain accessibility and liquidity by exchanging it for fiat currencies such as USD and other cryptocurrencies.

Ethereum provides a way for programmers to develop and deploy Dapps that leverage the Ethereum Virtual Machine (EVM) and Ether as a means to cover computational costs. Layer 2 tokens can be developed on the Ethereum network along with the EVM.

Although both are popular cryptocurrencies, there are some differences between Ethereum and Bitcoin. For example, Bitcoin has a fixed number of coins issued. This is because the number of Bitcoins in circulation is limited to 21 million, which creates scarcity and strengthens its store of value aspect. Ethereum, on the other hand, has a provisionally fixed supply that grows at a fixed rate every year. The total amount of ETH issued each year is 18 million. This model describes Ethereum as a disinflationary digital asset. Since new Ethereum is issued every year at a fixed price, the inflation rate converges to 0%. To understand the value of Ethereum, we need to look at the current Ethereum price.

In 2022, Ethereum moved from Proof of Work (PoW) to Proof of Stake (PoS) consensus mechanism with a “merge”. Ethereum’s PoW protocol required miners to perform complex calculations to secure the network and validate transactions before merging. This was a time-consuming process, but it proved to be productive. Ethereum recently moved from PoW to PoS, reducing energy usage by 99% and providing a much cleaner alternative. Instead, PoS randomly selects a set of validator nodes to validate transactions and receive rewards, under an agreement to incentivize users who stake Ether in the network. The technology is designed to improve scalability, security, and energy efficiency. Despite some drawbacks, Ethereum is considered versatile by many. However, it is always wise to do your research before investing in Ethereum. Ethereum continues to grow and remains the second most popular cryptocurrency after Bitcoin.