Ethereum Basics

Ethereum is a decentralized, open-source blockchain platform featuring smart contract functionality. Ether (ETH) is the native cryptocurrency of the platform and the second-largest by market capitalization after Bitcoin. Founded in 2015, Ethereum is the brainchild of Vitalik Buterin and a number of other high-profile developers, many of whom have since created other successful projects in the crypto space.

What is ETH used for?

As Bitcoin and Bitcoin Cash, ETH can be used as a peer-to-peer "permissionless" digital currency. This means you don't rely on an intermediary like a bank or payment provider. Instead, you're free to send and receive ETH to whoever you want - whenever you want - without asking for permission. And just like Bitcoin, this is done pseudonymously, meaning your identity isn't directly tied to your ETH wallet.

What’s a smart contract?

Think of smart contracts as the code that allows for “programmable money.” They are executed transparently and automatically along the “if this, then that” model.

For use cases that exist entirely in the digital world, smart contracts allow people to bypass intermediaries altogether. A simple example would be a smart contract that governs a trust fund. Here, the contract could be set up to automatically to make payments on the first of each month, thereby eliminating the need for lawyers and managed escrow accounts.

Another, slightly more complex example would be a smart contract that governs the issuance of digitized securities. Here, the smart contract can be set up to, for instance, automatically pay dividends to holders of digitized securities. This eliminates the need for rent-seeking central clearing houses in status quo securities markets. In a 'permission environment (where, for example, whitelisted digital wallet addresses are tied to verified identities) a smart contract for digitized securities can also 'bake in' compliance to regulations such as that no single person holds more than 10% of the issued securities. By automating processes using code, smart contracts can reduce regulatory overhead, leading to more efficient capital markets.

What’s a DApp?

A growing number of applications are being created using smart contracts deployed on the Ethereum network. These are known as decentralized applications or DApps. Importantly, DApps are permissionless, meaning anyone is free to use them.

A simple example is dice2.win, which is a "provably fair" dice game where players can participate without revealing their identity. To play, you just send ETH to a smart contract that keeps your bet if you lose, or pays out if you win. Since the contracts that define the game are open source, the house's 1% edge is verifiable, as is the random number generator. This makes the game 'provably fair,' unlike traditional casinos with opaque management.

What's Decentralized Finance?

Currently, the most widely adopted DApps are in the realm of finance. Since, again, the protocols are open source and run on a public distributed blockchains (primarily Ethereum), these use cases have come to be known broadly as Decentralized Finance, of DeFi.

Using DeFi apps, you can, for instance, deposit your cryptocurrency in a smart contract that lets you earn passive interest, similar to a high-yield savings account. Behind the scenes, professional traders may be deploying a variety of yield-generating techniques, all of which are transparent and verifiable, with payments and fees automated by smart contracts.

Another example is a decentralized exchange. Here you can trade one digital asset for another without handing over either asset to a centralized exchange. Instead, the smart contracts that define the protocol move assets around transparently and incentivize the creation of liquidity. For this reason, this class of protocol has come to be known as an "automated market maker" (AMM).

Why is ETH in the Bitcoin.com Wallet?

In line with our vision of creating more economic freedom in the world, Bitcoin.com is committed to providing safe and user-friendly access to the growing array of use cases and applications in the crypto world, and many of those are built and deployed on the Ethereum network. Having ETH in your digital wallet provides a gateway to the decentralized applications built on Ethereum, which is currently the most actively used blockchain, with the highest number of developers working on it.

As the #2 cryptocurrency by market cap, Ethereum has proven to the world that it provides utility to a wide range of users. Further, the community of users and developers behind Ethereum has many of the same goals as Bitcoin.com. By supporting Ethereum, we hope to build more bridges across the growing cryptocurrency landscape.

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