What is Ethereum? | TradeOr’s Beginners Guide

Learn all about the second-largest Cryptocurrency in the world. Ethereum, everything you need to know in 2021 | TradeOr

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Introduction

Bitcoin has long dominated the cryptocurrency headlines, but another altcoin has been silently surging in value. The world’s second-largest crypto token “Ether” has quadrupled in value this year alone. Financial behemoth Goldman Sachs has gone so far as to say it could one day “eclipse Bitcoin.”

Ether is the cryptocurrency of Ethereum. Founded in 2015 by Russian-Canadian programmer Vitalik Buterin, the software platform has been on a meteoric rise ever since. Today, with a market cap of an estimated $350 billion, ETH could pack a punch to rival PayPal or the Bank of America. What is Ethereum, and how is it different from Bitcoin?

What is Ethereum?

Ethereum is just another altcoin. Wrong. Bitcoin was created purely as a digital monetary system. This financial alternative offered a transparent and secure way to get around the management (and manipulation) of a third party such as a central bank. ETH is more than just a cryptocurrency. It is a community-built technology that enables not just digital money but countless other potential apps.

How is Ethereum Different from Bitcoin?

Both Ethereum and Bitcoin are built on blockchain technology, a peer-to-peer network of computer nodes that solve complex mathematical problems to add to the chain and grow. Like Bitcoin, Ether is “mined” by computers decrypting transactions to create new coins. The idea behind both platforms is to use a decentralized electronic ledger to record transactions instead of banks. Ethereum goes one step further, however, because, unlike Bitcoin, you can build other apps on top of Ethereum.

To quote one anonymous proponent of ETH:

Ethereum’s groundbreaking innovation is to combine the general-purpose computing architecture of a stored-program computer with a decentralized blockchain, thereby creating a distributed single-state world computer. Ethereum’s programs run “everywhere” yet produce a common state that is secured by the rules of consensus. 

Many of the earliest creators of ETH, Buterin included, were strong advocates of Bitcoin but decided to build an alternative platform that enabled more than just electronic payments. While Bitcoin continues to dwarf its crypto competitors, Ethereum has faster transaction speeds and offers more flexibility: its blockchain is programmable.

Is Ethereum a "World Computer?"

In sum, Ethereum is a type of community computer on which you can build your apps in a custom programming language. Stoic disciples of Ethereum believe in it as a “world computer.” ETH calls itself “the internet of assets.” The platform was designed to offer an open internet that does not require you to give up your personal data at the door. The inbuilt crypto token Ether provides an alternative way to spend money online to those unable or unwilling to open up traditional bank accounts. Ethereum’s “non-fungible tokens” (NFTs) allow you to add a “token” of value to anything you own to gain royalties online.

The utopian future of ETH is one in which the consumers take back control. Today, digital giants such as Amazon, Google, and Facebook control society’s puppet strings. Using a platform like Ethereum, ownership, and control could be decentralized. Alternatives apps for e-commerce, social media, banking could be built on the Ethereum blockchain without demanding access to personal or financial data. Transparency is integral to the open-source technology behind Ethereum – anyone can view and add to the underlying algorithms. In short, the goal of the Ethereum apps is to return control of data to the owners.

Scalability vs Decentralization

The future of Ethereum may look rosy – but is it realistic? Critics of the idea of the “world computer” point to the flaws in Ethereum’s history. In 2020, Ethereum was forced to hand over $5.2 million in an alleged cyber-attack. Another spanner in the Ether works is its scalability issues. A major drawback of having no central authority is that networks like ETH rely entirely on volunteers running “nodes” and controlling the data, limiting growth. What is Ethereum going to do if it wants to continue to expand? Companies like Raiden and Plasma offer technology to counter this issue, and many hope Ethereum 2.0 will rise to the scalability challenge.

Ethereum's Geek Glossary

Ether uses blockchain technology and runs a proof-of-work mechanism across its nodes to ensure the integrity of its ledger. Of course, the new code entered into the EVM isn’t written by users; smart contracts are stored on the EVM, which can then be triggered to initiate changes. Users can store Ether in many ways, online and offline. The blockchain can be used for more than ETH, however. Dapps, running on Ethereum’s blockchain, are popping up across all sectors.

But what does any of this mean? Let’s break down some of the key vocabulary associated with ETH.

Ether:

Ether is the name of Ethereum’s currency. These are the coins you will hold if you choose to invest in Ethereum. You may well be dealing in fractions of the coin, as they have gained a vast amount of value over the recent years.

Ethereum Blockchain:

The blockchain is the beating heart of technology. It works in a similar way to Bitcoin’s blockchain. Every block represents financial data, and each block connects to “parent blocks,” so for new blocks (or transactions) to be added, they must be verified by the entire network. This makes it nearly impossible to hack.

Mining/Proof-of-Work:

Ether uses a proof-of-work consensus mechanism to verify changes to the blockchain. This is where miners come in. Miners pass financial information between themselves to check new transactions fit into the overall puzzle. Miners receive payment for their work. Unfortunately, mining requires a lot of energy which is bad for the environment.

Nodes:

Nodes are the name given to the network of computers verifying blocks and data on the Ethereum network (aka miners).

Ledger:

Accounting information distributed among the blockchain is called the “ledger.” In conventional banking, the ledger is stored on a single server, and individual users can modify it. The Ethereum ledger is shared among all the users on the network, thus making it fully decentralized. This is one of the biggest appeals of cryptocurrencies.

Smart Contracts:

Smart contracts are snippets of code that are saved on the Ethereum network. When users wish to interact with the blockchain, they do not need to write the code each time; they can use one of the smart contracts instead.

Dapps:

Dapps are “decentralized apps.” They operate similarly to regular apps across all sectors (gaming, finance, fitness, etc.), but they use peer-to-peer networks, such as Ethereum’s blockchain.

EVM:

EVM stands for “Ethereum Virtual Machine.” It is essentially a processor which executes operations on the blockchain.

ETH:

ETH is the shorthand, referring to either Ether or Ethereum. You will often see it on exchanges and trading platforms, in the same way, USD is used to represent United States dollars.

Ethereum Storage:

Ether can be stored in a paper, desktop, or mobile wallet. It can also be kept online (e.g., at an exchange) and in software or hardware wallets. These options vary in security and practicality.

Final Thoughts

Ethereum is similar in nature to Bitcoin, but which is better remains hotly contested. They both use blockchain technology and provide a decentralized currency alternative and a platform for new technology, such as Dapps. Ethereum is one of the most popular and successful coins on the cryptocurrency market. There is a huge amount of technical information related to the workings of Ethereum (and it is recommended to at least get to grips with the basics). At TradeOr, however, we make trading ETH/USD a quick, easy, and cheap process. If you require any help, we have support teams waiting on standby.

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