What is Ethereum?

Ethereum is a platform for building decentralized applications (dApps) that run on a blockchain network. It provides a secure censorship-resistant environment for the creation and deployment of smart contracts and financial applications. Ethereum was founded in 2014 by Vitalik Buterin, and has become one of the largest decentralized platforms for financial technology.  A decentralized network of computer systems called nodes validate transactions and store the blockchain ledger on Ethereum. This ledger keeps track of all the transactions that take place on the network, allowing anyone to verify the history and current state of the system.

Smart contracts are self-executing code snippets that enforce the terms of a contract without the need for intermediaries. For instance, a smart contract could automate the lending and borrowing of money or execute trades on a decentralized exchange like Uniswap. The execution of these code snippets require a fee called gas, which varies based on the complexity of the operations being performed. These fees are paid in Ethereum, and go to node validators who are responsible for encoding new transactions into the Ethereum blockchain. If they are lucky enough to find a block, they are also rewarded with new coins.

Smart contracts like Lego blocks can be combined in various ways to build a diverse range of financial applications. This allows for the deployment of trustless and censorship-resistant financial apps, as the smart contract code ensures that the terms of the contract are automatically enforced. Decentralized finance (DeFi) applications, such as Compound for lending, are examples of financial applications that can be built on Ethereum.

Ethereum also supports prediction markets, platforms that allow users to bet on the outcome of events like a sports game or the price of a stock. Because prediction markets are built on Ethereum, they can operate in a trustless and censorship-resistant manner with bets automatically executed and results publicly verifiable.

Stablecoins, digital currencies pegged to the value of real-world assets such as the US dollar, can also be deployed on Ethereum. Stablecoins provide a stable store of value for transactions and investments, making them useful for trustless and decentralized financial applications.

The TLDR: Ethereum is a platform for building financial applications that are secure, trustworthy, and free from censorship. By using smart contracts as building blocks, Ethereum allows for the creation of a wide range of financial apps, such as DeFi apps like Compound, Uniswap, prediction markets, and stablecoins. Using the Lego pieces analogy, it’s easy to see how Ethereum enables the deployment of trustless and decentralized financial applications. This makes Ethereum a valuable tool for the future of finance.