Ethereum is the second-largest cryptocurrency behind Bitcoin. While interest in the latter is soaring, Ethereum is growing in popularity as well.
Ethereum is an open-source, blockchain-based distributed computing platform that can support smart contract functionality. That’s a complicated way of saying that Ethereum not only makes a cryptocurrency called ether possible, but it can also support the launch of new cryptocurrencies and make it possible to crowdsource funding for new projects.
“According to data presented by Aksje Bloggen, Ethereum’s daily trading volume hit $48.2bn this week (second week of February), a 220% increase year-over-year,” writes the research firm. “In February 2019, the 24-hour trading volume of the world’s second-largest cryptocurrency amounted to $2.6bn, revealed the CoinMarketCap data. Over the next twelve months, this figure jumped by more than 470% and hit $14.9bn in February last year.”
Why Ethereum Over Bitcoin?
The simplest way to think about Ethereum is to compare it to something you probably use every day: your mobile phone. If you have an Android or iOS phone, you have apps that can perform a wide variety of functions from ordering an Uber to mapping a route across town.
What gives Ethereum an edge against Bitcoin is its implementation of smart contracts, which allows developers to run decentralized applications, or dapps, directly on the Ethereum blockchain. Although the possibilities for smart contracts are nearly endless, a few dominant use cases have emerged.
With traditional cryptocurrency exchanges, a user has to deposit their funds in order to make trades. This requires the exchange to act as a trusted custodian of those funds. Yet with several major exchanges having suffering hacks, many investors are wary of depositing large sums of cryptocurrency onto exchanges that may not be trustworthy custodians.
Decentralized exchanges mitigate the custodian problem entirely. Rather than trusting an exchange as the custodian, a user can simply send their funds into a smart contract address, which gives the user and only the user control over their funds. All trades are executed directly on the Ethereum blockchain, which ensures that the user always has full control over their exchange balances.
“Besides a significant increase in daily trading volume, Ethereum also witnessed a surge in daily transactions,” adds Aksje Bloggen. “In February 2019, the average number of Ethereum daily transactions amounted to almost 541,500, revealed the CoinMetrics data. In the next twelve months, this figure rose to 620,400. However, the number of transactions significantly increased in the second quarter of 2020, reaching 1.1 million in June, almost a 90% jump in six months. The increasing trend continued in the following months with the figure rising to over 1.2 million in December last year.”
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