Ethereum explained

December 22, 2023
3 min read
Ethereum logo

Bitcoin is the very first and the number one largest crypto. Ethereum is the second, and today it enjoys probably just as much name recognition. This platform, founded by then-19-year-old Vitalik Buterin, opened the doors to a new era of decentralized applications and smart contracts. In this article, we will take a closer look at Ethereum and how it differs from Bitcoin.

Ethereum in a nutshell

Ethereum is a complete platform for decentralized blockchain applications. Within the Ethereum ecosystem, there is the cryptocurrency Ether (ETH), which acts as the "fuel" for the applications on the Ethereum blockchain. To make transactions on the Ethereum blockchain, one needs Ether.

Ether has the second-largest market cap of all cryptocurrencies. Most people regularly refer to the cryptocurrency Ether as "Ethereum" even though technically there is a difference. However, Ethereum has become a much more common name for the crypto.

Proof-of-stake (PoS) underlies Ethereum's consensus mechanism. Ethereum switched from its old Proof-of-Work (PoW) to the PoS mechanism in 2022. They chose this because PoS consumes less energy and is better for implementing new scalability solutions.

How Ethereum started

Vitalik Buterin began his crypto career as a writer for Bitcoin Magazine. In 2013, the magazine's owner offered him five Bitcoin to write articles. Later, in 2015, at just 19 years old, Vitalik founded the platform Ethereum, for decentralized applications and smart contracts. These smart contracts were introduced by Vitalik in his white paper and are used today for numerous purposes.

Bitcoin and Ethereum: the differences

Bitcoin is best known for its global network with a common ledger called the blockchain. Ethereum is best known for its platform for decentralized applications and smart contracts, which developers worldwide build on.

A key difference between Ethereum and Bitcoin is that Ethereum has a foundation called The Ethereum Foundation, with Vitalik Buterin leading it, while Bitcoin's creator has remained anonymous. Of course, there are many more differences.

Smart contracts and dApps

A key feature of Ethereum is its smart contracts. These digital agreements automatically perform actions based on data. A simple way to understand them is to think of them as "if/then functions": if certain conditions are met, then a specific action is performed.

Applications running on Ethereum are also called dApps, short for decentralized applications. The technology of both smart contracts and dApps has been adopted by other cryptocurrencies and platforms and is used worldwide.

Ethereum tokens

Another important aspect of Ethereum is tokens. While cryptocurrencies like Bitcoin have their own blockchains, applications on the Ethereum blockchain can create their own cryptocurrency. These are called "tokens," and they do not have their own blockchain but rely on Ethereum. Users often have to purchase these tokens to use dApps, similar to the way one has to buy a cinema ticket to see a movie.

A major player

In conclusion, Ethereum has opened the door to a new world of decentralized applications, smart contracts, and digital value exchange. With its founder Vitalik Buterin at the helm and an ever-growing ecosystem, Ethereum will undoubtedly continue to be a major player in the world of blockchain and crypto.

The information provided in our articles is intended solely for general informational purposes and does not constitute (financial) advice.

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