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What Is Ethereum and How Can It Be Used in Business Processes?
In the era of total computerization of all business processes, participants of financial operations seek techniques that ensure efficiency of monetary transactions. Traditional payment systems engage centralized banking authorities that impose strict regulations and charge fees for their service. The emergence of digital cash systems has revolutionized the way businesses establish their relations. Digital platforms operate without a centralized authority and make the exchange of different assets possible when a physical location does not matter. Cryptographic systems translate information into a digital code that represents a course of operations. They are suited for commercial purchases and transfers, and their users assume total control over their transactions. The platform of Ethereum appeared when the benefits of cryptocurrency had already been proved due to successful utilization of Bitcoins. However, it managed to introduce advancements of cryptographic techniques that market participants could gain from. Ethereum enables users to program own applications, store encrypted information, and enforce agreements while lowering transaction expenditures and securing the automatic execution of agreements.
Ethereum as a Virtual Platform for Complex Financial Transactions
Ethereum is a virtual platform that serves as an avenue for complicated financial transactions. It makes transferring of funds efficient and allows for greater operationality of business. The technology was launched in 2015, and the value of its digital currency, or Ether, has experienced a dramatic increase by more than 6,800% since the beginning of 2017, which is an indicator of its market viability (Mavadiya). Ethereum enables its users to accumulate assets and move them effectively in the course of performing a treaty, to store registries of debts, transmit costs that have to be managed according to instructions given in the past. Developers can create a digital token and utilize it as a currency, a representation of an item of property, a proof of membership. The automatic compatibility of these tokens with any wallet is possible due to the fact that this software uses a standard coin API (“Ethereum Project”). Ethereum aims to address the problem of limited functionality by creating a blockchain protocol with its own programming language, which makes it suitable for any application (Patel). It means that all world economies employ the same platform for the exchange of assets and have no obstacles in completing international financial deals. Records of transactions exist in the form of “blocks.” Apart from storing money, Ethereum provides a reservoir for other forms of data, which makes it a useful tool for performing complicated cross-border activities (Mavadiya). Ethereum attracts business holders due to its decentralized functioning, which means that it runs on blockchain technology without the use of a central server. This platform has proved effective in the task of advancing business deals in the way that it eliminates intermediaries, which, in turn, decreases transactional fees and enhances the speed of financial operations (Patel). The decentralization that Ethereum suggests means that businesses are more successful in reducing expenditures, which they constantly stand to pursue.
Comparison of Ethereum with Other Cryptocurrencies
Ethereum suggests more options for the needs of global businesses than other cryptocurrencies may offer due to additional features it possesses. For example, Singireddy points to the fact that although both Bitcoin and Ethereum operate on “blockchain” technology, Ethereum has earned greater credibility. In comparison to Bitcoin, which is a cash-like token, the Ethereum software allows various financial instruments, such as loans and bonds, to be represented (“Why SA Businesses are More Likely to Use Ethereum and Not Bitcoin”). Ethereum does not confine its platform to the flow of currency and enables third-party applications to run on the network. What is more, the network serves as an avenue for fundraising with initial coin offerings and is appealing to investors due to a well-developed system of enforcing agreements (McGoogan and Field). In addition to this, Bitcoin’s block time exceeds 10 minutes while Ethereum’s is equivalent to 12 seconds, which means that confirmations are quicker in the second case (Rosic). The speed of processing transactions speaks for a greater commercial potential of Ethereum and its attractiveness to retail dealers. Bitcoin seems to be less appealing for the reason that it has a fixed limit on the maximum size of a block. On the other hand, Ethereum does not impose limits on blocks. Each block has a “gas limit,” which is the cost necessary to run a transaction and can be increased with every block that is created (“Ethereum vs Bitcoin”). This facility is another one advantage that is more convenient for online operations. Bitcoin does not present opportunities that Ethereum offers, which means that the latter could take over all functions. Ethereum is even also suitable for creating completely new cryptocurrencies (“Ethereum vs Bitcoin”). Ethereum is a universal platform that can accommodate anything that can be represented in the language of the code. However, the price of Ethereum currency still depends on the Bitcoin price. When the value of Bitcoin increases, that of Ethereum will often decrease. When Bitcoin experiences a decline in value, Ethereum may either go down or go up (Buntinx). It follows that the currency of Ethereum will be vulnerable to fluctuations as long as Bitcoin dominates the virtual financial market. However, this platform is still suitable for financial transactions and other virtual projects that have to be described through a programming language. Meanwhile, it is not resistant to some destabilizing factors.
The Role of Smart Contracts in Ethereum Transactions
The Ethereum platform allows users to conduct business transactions by means of smart contracts, which reduce the time taken to process information as well as the possibility of fraudulent behavior. The smart contract is a piece of code that contains relevant data and protects it from unauthorized access. The amount needed to be paid for the execution of the code, which is measured in units of “gas,” has to be declared in advance (“This is How Smart Contracts and Ethereum Work”). The principle that belies the system is that contracts are converted to computer code, stored and managed by computers that run the blockchain. The Ethereum smart contract technology owes its credibility to the fact that, apart from defining rules and penalties of an agreement, it enforces obligations automatically (“What Are Smart Contracts?”).
This system makes manipulations by a third party impossible for the reason that the network automates the execution, which cannot be intruded by possibly biased individuals. In addition to this, smart contracts facilitate business processes by eliminating a time-consuming task of processing paper documents (“What Are Smart Contracts?”). Financial transactions have to pass a series of steps aimed at a successful accomplishment of the terms of contracts. The system safeguards the congruence of operations in the way that it validates requests only when certain conditions are met. What makes Ethereum appealing to business holders, is that developers are able to program their own smart contracts. Furthermore, Ethereum offers the option of “multi-signature” accounts, which means that funds can be released only if a required percentage of people consent to it (Hertig). Smart contracts provide commerce with a reliable and effective platform that ensures their safe execution. The blockchain system encrypts information and represents the records thereof that can be stored and reproduced in the course of complicated business transactions.
The Ethereum technology enables users to store information in the form of encoded data, and it is able to process contracts along with other programs. This platform can be utilized for the purposes of financial services industry and is able to store other information that can be converted to codes at the same time. It stores digital versions of various assets and records of monetary transactions. Ethereum simplifies conducting business for financial institutions and has gained popularity owing to the reduction of expenditures needed to conclude agreements. The transfer of funds is fast and free from external interference. Due to the system of smart contracts, business agreements become enforced according to instructions that the platform receives from developers. Ethereum is especially appealing to developers for the reason that it allows them to program their applications due to the autonomous language that the technology suggests. In addition to this, users of the platform can benefit from the much higher speed of processing data and the absence of blocksize limitations that operations with Bitcoins involve. However, the value of Ethereum currency still depends on supply and demand of Bitcoin, which makes it subject to significant fluctuations. Cryptographic techniques offered by Ethereum ensure the exchange of information as well as the transfer of funds.
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Hertig, Alyssa. “How Do Ethereum Smart Contracts Work?” Coindesk, 2017, https://www.coindesk.com/information/ethereum-smart-contracts-work.
Mavadiya, Madhvi. “Ethereum and the Rise of The Price of an Ether.” Forbes.Com, 2017, https://www.forbes.com/sites/madhvimavadiya/2017/12/12/what-is-ethereum-why-is-ether-price-going-up/#4a97108e63a2.
McGoogan, Cara, and Matthew Field. “What Is Ethereum and How Does It Differ from Bitcoin?” The Telegraph, 2017, http://www.telegraph.co.uk/technology/0/ethereum.
Patel, Deep. “Business in the Age of Ethereum.” Techcrunch, 2017, https://techcrunch.com/2017/06/04/business-in-the-age-of-ethereum.
Rosic, Ameer. “Ethereum vs Bitcoin: What’s the Main Difference?” Huffpost, 2016, https://www.huffingtonpost.com/ameer-rosic-/ethereum-vs-bitcoin-whats_b_13735404.html.
“This is How Smart Contracts and Ethereum Work.” Medium, 2017, https://medium.com/startup-grind/gentle-intro-to-blockchain-and-smart-contracts-part-2-30a6c9a40946.
“What Are Smart Contracts?” Blockgeeks, https://blockgeeks.com/guides/smart-contracts.
“Why SA Businesses Are More Likely to Use Ethereum and not Bitcoin.” Businesstech.Co.Za, 2017, https://businesstech.co.za/news/finance/205970/why-sa-businesses-are-more-likely-to-use-ethereum-and-not-bitcoin.