Ethereum is a cryptocurrency that is growing in popularity.
It has been steadily climbing the charts and making waves on the internet, but what exactly makes Ethereum so unique?
In this blog post, we will explore Ethereum’s history and how it fits into the cryptocurrency ecosystem to better understand why it’s gaining such traction.
Table of Contents
Ethereum vs. Bitcoin
You may not know it, but there is an intense race going in in the cryptocurrency market, and Bitcoin and Ether are leading this battle. Known as the second biggest and most successful cryptocurrency, Ethereum lets people do multiple things. To fully understand Ethereum, you first have to know how it is different from Bitcoin.
Bitcoin was created in 2009 by Satoshi Nakamoto. However, nobody knows who Nakamoto truly is. Is it just a pseudonym for the person or group of people who created it? Additionally, many people are drawn to Bitcoin because nobody controls this cryptocurrency since it is a decentralized technology. Instead of regular companies which have a CEO, CFO, and other executives, Bitcoin boasts a team of developers across the globe who work on the Bitcoin protocol together. Bitcoin is also impeccable at storing value. Additionally, it functions through proof of work.
On the other hand, Ethereum was founded by Vitalik Buterin- someone who was also an expert in Bitcoin. Butalik saw the opportunity to expand the blockchain technology used in Bitcoin into what is now Ethereum. Ethereum is the second largest cryptocurrency in the world, just behind Bitcoin. Ethereum was founded in July of 2015 by Vitalik Buterin along with several other developers. Buterin had been working on Ethereum since 2013 and wrote a paper about it in November of that year.
The goal was to create something similar to Bitcoin but with extra features like the ability for more complex contracts and decentralized applications (DApps).
Bitcoin vs. Ethereum: The Key Ethereum vs. Bitcoin: The Key Differences
There are a few important differences between Ethereum and Bitcoin. At high level you can think of Bitcoin as a digital currency akin to digital gold. On the other hand Ethereum is more like a platform. There is a currency called Ether but that is just one of the applications built on Ethereum!
Additionally, Bitcoin has a fixed supply of 21 million tokens which will all be mined by approximately the year 2040.
Ethereum, on the other hand, has no fixed supply meaning that more and more Ethereum are created with every block.Ethereum is a whole new blockchain protocol. It is also expected to work through proof of stake to replace its current proof of work method in the future.
Additionally, it also has its own currency called Ether, which is responsible for running the blockchain. Furthermore, Bitcoin can be divided into 100,000,000 units. Bitcoin’s smallest unit is referred to as “Satoshi.” Ether, on the other hand, can be divided into 1,000,000,000,000,000,000 or 1 quintillion units. The smallest unit is called Wei, named after cryptography artist Wei Dai.
The main difference between Bitcoin and Ethereum is that the latter will soon be proof of stake. Also, Ethereum has a different cryptocurrency, and there are key people and leaders who run it. When it comes to value, Bitcoin tripled its value in 2017. However, Ethereum’s value went up to a staggering 4,000 percent! However, these two rivals still have a lot in common. They are both an open-sourced digital currency which can be used to make anonymous transactions.
The goal of Ethereum is to fully decentralize the internet. Almost all transactions people conduct on the internet are controlled by big companies which act as a middleman. After Bitcoin was released, more people realized that they could connect internet users directly without the need for any intermediary or centralized party. Ethereum gives people the power to do exactly this – to connect with one another without a central authority who oversees them.
One great thing about Ethereum is people can build on top of its software. The Ethereum blockchain contain the base featuring the Ethereum protocol, and it has stacks of decentralized applications, therefore making it more flexible.
Ethereum is dubbed as the ultimate platform for Do It Yourself decentralized programs (Dapps). If users want to create a decentralized program that is not controlled by any other person, not even the maker, all they have to do is learn Solidity – Ethereum’s native coding language. The Ethereum platform is fully decentralized since it has thousands of computers running it. After an application is deployed in the network, the computers, also referred to as nodes, execute it the same way it is written, therefore making it the top platform to run Dapps globally.
What Is A Smart Contract?
A smart contract is software that is encrypted with rules for negotiating the terms of a contract. It executes the agreed actions right after it verifies the contract. It also functions like a digital code which users can implement online to execute tasks.
Smart contracts can be utilized to exchange shares, money, property, and basically anything that has value in a more effective way. This method also enables parties to cut out expensive intermediaries. In Ethereum, developers code the smart contract through Solidity. After it is written, it is then uploaded to the Ethereum virtual machine in order to be executed. An Ethereum contract involves two parties who have a digital asset or Ether. After the contract is executed, the Ether will be distributed based on the code.
Smart contracts function like a vending machine. Traditionally, people would go to a notary or lawyer and pay them money in order to get their documents. However, a smart contract enables them to save time and money by bypassing a middleman.
Ethereum As A Currency
When people are discussing the price of Ethereum, they are referring to Ether, which is the currency that incentivizes the people that run the protocol on their computer. If it sounds familiar, it’s because it is similar to how the miners of Bitcoin get paid for doing their work to maintain the Bitcoin blockchain. To execute a smart contract on Ethereum’s platform, the author must pay first, and that payment is made in the form of Ether. This is done to drive people to write optimized code which would not waste the Ethereum network’s computing power on tasks that are unnecessary. Ether was initially distributed in Ethereum’s original Initial Coin Offering in 2014 where it cost only around 40 cents each. Since the use of Ethereum has grown dramatically, the value has now risen significantly to over $100.
An Ethereum wallet is responsible for holding its users’ password. This private key is needed in order to access and control coins. Additionally, the Ethereum wallet also holds a public Ethereum address, which is used to send and receive Ether.
More Energy Efficient
Ethereum also uses much less energy than Bitcoin. One of the main criticisms of Bitcoin is how much energy it uses, with one study estimating that Bitcoin mining consumed more electricity in a year than the entire country of Denmark.
Another study from TRG Datacenters – a company based in Houston, Texas ranked various cryptocurrencies by how much energy (Kilowatt Hours) is necessary to process a transaction. Bitcoin was the least energy efficient.
Bitcoin (BTC) 707 kWh – Least Energy Efficient
Ethereum (ETH) kWh 62.56
Dogecoin 0.12 kWh
Ripple (XRP) 0.0079 kWh
Now, you have developed a better understanding of Ethereum – a network of computers which are working hand in hand to replace centralized programs and companies which control the internet.
It may be more complicated than Bitcoin, but whether you are a tech buff or not, knowing about Ethereum is a must! Soon, it might change the way people interact, just like how the internet revolutionized the way people live their lives.
To recap, Ethereum has grown in popularity as the world’s second most popular cryptocurrency behind Bitcoin because:
1. Ethereum transactions are faster than Bitcoin transactions
2. Ethereum enables the Decentralized Finance and companies to build financial applications on it without the need for banks and other traditions institutions
3. Ethereum is much more energy efficient than Bitcoin
If you want to buy Ethereum, we wrote a whole blog post on the topic which covers all the best options for buying Ethereum in Canada.
PLEASE READ: With that said, please remember that any investment you make into crypto is highly speculative and the price could go up or down at any time. You should only invest money that you’re willing to lose so that you don’t end up feeling regretful later.