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Ethereum basics

Lesson in Course: Crypto (beginner, 15min )

Are all cryptos like Bitcoin? How are they different?

Bitcoin sparked the imagination of early adopters to revolutionize how finance works. Starting with the question, "can we manage a global currency collectively, removing banks and institutions from the equation altogether?". As blockchain technology develops, the possibilities continue to grow even bigger.

The DeFi movement

Decentralized Finance (DeFi) is a movement to create an open-source, permissionless, and transparent financial service ecosystem available to everyone and operates without any central authority. This system, built on top of blockchain networks through decentralized peer-to-peer applications (DApps), would create a fairer future for low-income communities and those isolated from current financial systems. 

Examples include:

  1. Borrowing and lending
  2. Monetary banking services
  3. Decentralized marketplaces

The blockchain would need to be more than a simple ledger like Bitcoin to make this happen. Instead, it would need to become a platform that can process complex jobs and applications.

 

Ethereum

Ethereum is the first to address that problem. It's a decentralized computing platform built on blockchain that allows developers to create and launch code. The code runs across a distributed network instead of existing on a centralized server. So, in theory, these applications can't be shut down or censored.

Let's look at some basic features of Ethereum:

Ether (ETH)

Ether is the asset on the Ethereum blockchain. A significant difference between BTC and ETH is that ETH acts as a store of value, and it has utility in powering all of the DApps built on the Ethereum blockchain. We can compare ETH to tokens at a carnival—the tokens can get us on rides, or we can cash them out.

Smart contracts

smart contract is code on the Ethereum Blockchain that outputs a result if we or another contract inputs ETH. We call it smart because it executes itself under certain conditions, and it can be regarded as a contract since it enforces agreements between parties. Because the output is programmable, DApps can effectively control how money or value can be transferred.

Gas Fees

Gas fees are additional costs that it takes to run the smart contracts and can be thought of as a measure of computational power. The idea is to prevent a contract from looping through the same code and holding everyone's computer hostage, as every node on the Ethereum blockchain would need to run it indefinitely. We have to pay gas fees which are paid in ETH.

Supply

The governing protocols for Ethereum never set a maximum circulation amount like Bitcoin, making ETH inflationary. Like BTC, new ETH is mined; however, developers for Ethereum plan to move to a proof-of-stake protocol instead of a proof-of-work, changing how the future supply is created.

 
 
 
 

A strong case for utility

A large part of Ethereum's appeal is the ability for individual users to create their own assets on-chain, which can be stored and transferred like ETH. The rules governing them are set out in smart contracts, allowing developers to set specific parameters regarding their tokens: how many to issue, how to issue them, whether they're divisible, whether each is fungible, and many others.

Below are common examples:

Individual tokens

Following ERC-20 guidelines set forth by Ethereum developers, we can create a "Medes" token and our own DApp with our smart contract.

Let's say we've created a supply of our own Medes tokens. We can sell them to users and create a store of value. Like all other DApps built on the Ethereum blockchain, we can also exchange them for native ETH at any time. 

Non-fungible tokens (nFTs)

NFTs represent digital assets, often in the form of art or collectibles, created on the Ethereum blockchain that certifies the asset to be unique and not interchangeable.

NFTs have made multiple headlines in the news, with some going for millions of dollars. These assets are non-fungible, meaning they cannot be broken down into smaller units and are not reproducible. NFTs are built on the Ethereum blockchain and are often traded in ETH. The heightened demand for NFTs has increased the demand for ETH.

ETH price
 

This video dives deeper into Ethereum and applications built on it:

 

Ethereum is a growing technology giving folks more access to financial systems that they may not have been able to have access to before. Now that you've been exposed to the different tradable options, see if you can find how this is starting to impact the world around you.

Glossary

What is Decentralized finance (deFi)?

A movement to create an open-source, permissionless, and transparent financial service ecosystem available to everyone and operates without any central authority

What is Ether (ETH)?

Ether is the asset on the Ethereum blockchain. A significant difference between BTC and ETH is that ETH acts as a store of value, and it also has utility in powering all of the Dapps built on the Ethereum blockchain. We can compare ETH to tokens at a carnival—the tokens can get us on rides, or we can cash them out. In fact, ETH is a token, and we'll cover utility tokens and security tokens in a later lesson.

What is Smart contract?

smart contract is just code on the Ethereum blockchain that outputs a result if we or another contract inputs ETH. We call it smart because it executes itself under certain conditions, and it could be regarded as a contract in that it enforces agreements between parties. Because the output is programmable, DApps can effectively control how money or value can be transferred.

What is Gas Fee?

Gas fees are additional costs to run the smart contracts and can be thought of as a measure of computational power. The idea of gas fees is to prevent a contract from looping through the same code and holding everyone's computer hostage as every node on the Ethereum blockchain would need to run it indefinitely. Gas fees are charged in ETH.

What is Non-fungible token (NFT)?

Non-fungible tokens represent digital assets, often in the form of art or collectibles, created on the Ethereum blockchain that certifies the asset to be unique and not interchangeable.

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