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Advantages and Disadvantages of Ethereum

  • Bhumika Dutta
  • Mar 24, 2022
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Ethereum, like bitcoin, has garnered a lot of traction in the cryptocurrency industry. But, unlike Bitcoin, which is seen as the currency of the future, Ethereum is much more than a currency. It is a decentralized blockchain network powered by the Ether token that allows users to conduct trades, earn interest on their investments through staking, utilize and store non fungible tokens (NFTs), trade cryptocurrencies, play games, and engage in social media. It is considered the next level of the internet. 

 

It is understood by now that ethereum is a lot more than just a cryptocurrency, it is the second-largest blockchain project in the world. In this article, we will learn how ethereum has shifted from Ethereum 1.0 to Ethereum 2.0, and how it will benefit different enterprises. 


 

The rise of Ethereum:

 

Ethereum was not always the world's second-largest blockchain project. Vitalik Buterin co-founded the project in order to address Bitcoin's flaws. In 2013, Buterin presented the Ethereum white paper, which described smart contracts, which are automated unchangeable "if-then" statements that allow decentralized applications (DApps) to be built.

 

While there was previously DApp development in the blockchain arena, the platforms were not compatible. Ethereum, according to Buterin, was created to bring them together. To him, the only way to retain adoption was to unify the way DApps function and interact. As a result, Ethereum 1.0 was created.

 

Developers began to flock to Ethereum with their own decentralized ideas over time. The DAO, a democratic group that voted on network modifications and suggestions, was created by these users in 2016. 

 

The company was supported by a smart contract, which eliminated the need for a CEO to wield influence over Ethereum. Changes could only be made if a majority of people voted for them. However, everything went wrong when an unknown hacker used a security flaw to steal $40 million from The DAO's holdings. 

 

The DAO voted to "hard fork" Ethereum, separating from the old network and upgrading to a new protocol, effectively performing a large software upgrade, in order to reverse the theft. While the new split kept the name Ethereum, the previous network is still known as Ethereum Classic.

 

Difference between Ethereum and Ether:

 

Ether is a digital currency that may be used for financial transactions, investments, and as a store of value. Ether is kept and exchanged on the Ethereum blockchain network. 

 

Data may be stored and decentralized apps can be performed over the Ethereum network. People can host software on the Ethereum blockchain rather than on a server owned and controlled by Google or Amazon, where just one business controls the data. 

 

Because there is no single authority regulating anything, consumers have complete control over their data and full access to the app.

 

Self-executing contracts, or so-called smart contracts, are perhaps one of the most exciting use cases for Ether and Ethereum. Two parties agree to supply products or services in the future, just as in any other contract. Lawyers aren't required, unlike in traditional contracts: The contract is coded on the Ethereum blockchain, and it self-executes and delivers Ether to the right person whenever the contract's conditions are satisfied.

 

Ethereum for Enterprises:

 

Individual users in a peer-to-peer network have quite different demands than Enterprises. Whether providing IDs, performing transactions, tracking freight containers, or labeling pharmaceutical items, businesses must manage sensitive data in large volumes, track quality, and hold themselves responsible for the safety and regulatory requirements in their industry. A high-performance company must prioritize security, assurance, and responsibility at scale. 

 

The Ethereum blockchain's strength is its programmability: agreements are built in the code, allowing transactions to be executed automatically. Ethereum is excellent for arbitrating transactional events in trade finance, supply networks, government registries, energy grids, real estate, law, and many other industries because these digital agreements, or "smart contracts," may have endless forms, conditions, and even call on other contracts.

 

Advantages of Ethereum for Enterprises:

 

Here are the advantages of ethereum enjoyed by the enterprises:

 

  1. Decentralization:

 

The decentralized design of Ethereum effectively distributes knowledge and trust among network members, removing the need for a central body to run the system and mediate transactions.

 

 

  1. Rapid deployment:

 

Instead of building a blockchain implementation from scratch, organizations can quickly create and administer private blockchain networks using an all-in-one SaaS platform like Hyperledger Besu.

 

 

  1. Permissioned network:

 

There are many open-source protocol layers that allow enterprises to build on public or private Ethereum networks, guaranteeing that their solution meets all regulatory and security standards.

 

 

  1. Network size:

 

The Ethereum mainnet demonstrates that a network with hundreds of nodes and millions of users can function. Most business blockchain competitors run networks with less than ten nodes and have no precedent for a large and successful network. For corporate collaborations that are bound to outgrow a few nodes, network scale is important.

 

 

  1. Private transactions:

 

In Ethereum, businesses may obtain privacy granularity by joining private partnerships with private transaction layers. Private information is encrypted and only shared with those who need to know.

 

 

  1. Scalability and performance:

 

Consortium networks created on Ethereum may outperform the public mainnet and grow up to hundreds of transactions per second or more depending on network setup, thanks to Proof of Authority consensus and bespoke block time and gas limits. 

 

Ethereum will be able to boost its throughput in the near future thanks to protocol-level solutions like sharding and off-chain, as well as layer 2 scaling solutions like Plasma and state channels.

 

 

  1. Finality:

 

The consensus method of a blockchain ensures that the transaction record is tamper-proof and canonical. For different enterprise network instances, Ethereum offers customizable consensus mechanisms such as RAFT and IBFT, ensuring immediate transaction finality and reducing the required infrastructure that the Proof of Work algorithm requires.

 

 

  1. Tokenization:

 

Any item that has been registered in a digital format can be tokenized on Ethereum. Organizations may fractionalize formerly monolithic assets (real estate), broaden their product line (provably rare art), and open new incentive models by tokenizing assets (crowdsourced data management). 

 

  1. Interoperability and open source:

 

On Ethereum, consortiums are not bound by a single vendor's IT environment. Customers of Amazon Web Services, for example, can use Kaleido's Blockchain Business Cloud to run private networks. The Ethereum ecosystem, like the Java community, encourages contributions to the codebase through Ethereum Improvement Proposals (EIPs).

 

 

  1. Standards:

 

Ethereum is the place to be if you want to set the bar high. The ecosystem is kept from being fragmented through protocols for token design (ERC20), human-readable names (ENS), decentralized storage (Swarm), and decentralized communications (Whisper). The Client Specification 1.0 of the Corporate Ethereum Alliance outlines the architectural components for compatible enterprise blockchain implementations. The EEA intends to issue version 2.0 of the specification in the near future.


 

Some disadvantages of Ethereum:

 

Like advantages, ethereum has some disadvantages as well, that one must know of:

 

  1. Uses a Complicated Programming Language:

 

While Ethereum is Turing complete and uses a programming language similar to C++, Python, and Java, learning Solidity, the native language of Ethereum, may be challenging. One of the most significant concerns is the scarcity of beginner-friendly classes.

 

 

  1. Issues with Scaling:

 

Unlike Bitcoin, which has a singular purpose, Ethereum has a ledger, a platform for smart contracts, and so on, all of which may lead to errors, malfunctions, and hacks.

 

 

  1. Ethereum Investing Can Be Risky: 

 

Ethereum investing, like any other cryptocurrency, can be risky. Cryptocurrencies are very volatile, resulting in significant gains as well as significant losses. The price of Ether has changed significantly in the past, which might be a significant disadvantage for certain investors, particularly newbies. In addition, Ethereum's fees change, which is inconvenient.


 

BottomLine

 

Ethereum, as mentioned before in this essay, is a blockchain-based all-in-one platform. The most popular question now is whether ethereum is superior to other cryptocurrencies. Ethereum offers a significant benefit in that, in addition to investing in ether, one can also invest in firms that are developing apps that use the Ethereum network.

 

However, before making any large investment in Ether or other cryptocurrencies, talk to a financial counselor about the dangers involved. Even if you believe in Ethereum's promise, be sure it's money you can afford to lose, given the extreme risk and volatility in this market.

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