Ethereum is often compared to Bitcoin and thought of as an alternative to it. But while Ethereum uses blockchain technology and has its own cryptocurrency — Ether — that’s where the similarities with Bitcoin end.
Bitcoin’s ultimate aim is to provide a medium of exchange that’s better than traditional money. By contrast, Ether is only one small part of the Ethereum project. First and foremost, Ethereum is a multipurpose, public, and open source software platform: a decentralized internet, if you will.
Ethereum’s blockchain is a transaction-based state machine. Put simply, this means that when a transaction — or block — is verified, Ethereum’s blockchain transitions from one state to another. Verification happens through mining, a process in which computers either solve complex mathematical problems or confirm that those problems have been solved correctly.
Ethereum’s biggest upside is that it can store not just information about financial transactions, but also computer code. This means that the Ethereum blockchain has practical applications that go well beyond currency or financial services.
Developers can use the Ethereum blockchain to build and deploy Dapps — decentralized, autonomous apps — with a wide range of possible applications. They can also create decentralized autonomous organisations (DAOs) for any industry imaginable.
Dapps and DAOs built on the Ethereum blockchain are powered by smart contracts. These are agreements written using computer code that is designed to enforce what’s been agreed automatically when a set of predetermined criteria are met. As a result, Dapps and DAOs can operate continuously and autonomously, without the need for human monitoring or intervention.
- Ethereum’s inventor, Vitalik Buterin, first put forward his ideas in a 2013 white paper he sent to a few close friends for feedback. The white paper was so well-received that his friends forwarded it to several other people until, eventually, around 30 interested parties got in touch to discuss how they could make the project happen. Buterin was just 19 years old at the time.
- Ether is a cryptocurrency, but it’s also the ‘fuel’ of the Ethereum blockchain. You need to pay a fee in Ether to change an app, execute a smart contract, or do some other action on the Ethereum blockchain. The fee is worked out based on how long the action will take and how much computing power is needed to perform it.
- Ethereum has four times more developers than any other blockchain. The Ethereum Alliance, or EEA, is an association of developers and block startups and includes the likes of Deloitte, Intel, JP Morgan, Microsoft, and Samsung SDS.
Want to know more?
The Ethereum white paper — A Next Generation Smart Contract & Decentralised Application Platform — is a fascinating insight into Buterin’s thought process. Buterin’s initial intention was to improve on Bitcoin by introducing features such as blockchain-based escrow and withdrawal limits. But he quickly realised that blockchain technology could be applied to any type of transaction imaginable.
If you’d prefer a lighter read, this article on CoinTelegraph is a good overview of what Ethereum is, how it works, and its pros and cons.
And if you want to go deeper and find out more about Ethereum 2.0, also known as Eth2 or “Serenity”, which is the planned upgrade to the Ethereum network that aims to make the blockchain more scalable, secure, and sustainable, read our dedicated article.
The Metaco view
“Ethereum has been pivotal in opening up mainstream consciousness to the blockchain’s potential. With Ethereum, the conversation is no longer about theoretical potential. There’s an infinite number of real world use cases that can materially improve our everyday lives and revolutionise industries that are ripe for change.”