What is Ethereum?

What is Ethereum?

Team Bitvavo
Team Bitvavo Ethereum

Every day we hear about more and more cryptocurrencies appearing on the market. However, for most people, it’s still not clear what they are exactly and how they work. It can be difficult to make sense of all the commotion and understand their features and functions. This is why we decided to focus on each cryptocurrency separately and help people understand the differences between them.

So, what is Ethereum? Ethereum was first launched during 2015 by a Canadian programmer of Russian origin named Vitalik Buterin.


The official introduction video of Ethereum

Ethereum is the second-most well-known cryptocurrency after Bitcoin and, similarly, it allows people to make online payments and this is what it’s mostly known for. Some of the most general features of Ethereum are relatively low transaction fees, complete decentralization, and a public Blockchain.

However, even though they are similar in certain things, the design of Ethereum and Bitcoin varies quite a bit, as they are meant to do different things. This is why they have many differences and we will talk about those as well.

What is Ethereum?

Ethereum explained

Ethereum is a public Blockchain, open-source, computing platform that can be distributed and used to code decentralized applications. The significance of Ethereum is that it was the first blockchain application that wasn’t limited to a certain number of possible operations. For example, the Bitcoin cryptocurrency was designed exclusively as a peer-to-peer currency and nothing more.

Ethereum was designed to be a platform where developers can write programs directly on the blockchain. To achieve this, Ethereum relies on similar Blockchain protocols and designs as Bitcoin but it is improvised to provide support to applications that aren’t just used for currency insurance.

Simply put, any person around the world can go to the Ethereum blockchain and use it to create a program while maintaining the stability of the network. This is why it has been referred to as the “World Computer”.

Ethereum is like a more versatile Bitcoin.

Ethereum and Bitcoin

 

Ethereum and smart contracts

One of the main aspects of Ethereum is its capability of creating smart contracts, which are basically programs designed to automatically execute actions in a way that the creator intended them to. Smart contracts provide greater security for transactions as they remove the need for having a middleman.

For example, if a person wanted to hire someone to make a delivery on their behalf, they would be worried about whether the contractor would, in fact, make the delivery.

On the other hand, the person hired to make the delivery would be worried about whether they would be paid as promised. For this kind of service, it would be required for both parties to sign some sort of agreement to ensure their safety.

This can cost additional money and take time. Smart contracts make this process simpler. The person hiring services will have to make their payment when their package has been picked up, and the money will be transferred to the person providing the service as soon as they confirm that they did their part. In Ethereum, these transactions are paid for with Ether, which is the “fuel” required for them to be successful.

Ethereum boosts the security of transactions.

What is Ether and how does it work?

Determining what Ethereum is, has a lot to do with understanding its tokens. Ethereum relies on its native token called Ether to run properly. This token is used for two important purposes:

  1. Valid Ether payments are necessary for any sort of application to perform its operations, making sure that any malicious or broken programs don’t get out of hand.
  2. Similarly to Bitcoin, Ether can be mined by contributing to the Ethereum network with hardware resources.

Each time a contract gets executed through smart contracts on the Ethereum network, a certain amount of tokens is consumed and this is why they are referred to as the “gas” required to make transactions and operations run.

Ethereum gas

Why is gas important

For any operation that is performed through the Ethereum blockchain, users are required to pay a certain amount of gas. The gas price is represented through Ether and the price is determined by miners. Ethers are also created through mining. For someone to perform mining, they would need specialized and expensive computers that have the power to do complex calculations.

The people who mine are rewarded with fresh Ethers which they can use as gas for transactions. The number of miners and Ether also affects its value and this is why it’s ever-changing. Apart from mining, it is possible to earn Ethers by providing services or goods with them or simply find a digital currency marketplace such as Bitvavo and purchase Ethers.

Unlike other cryptocurrencies, Ethereum runs on gas.

EVM (Ethereum virtual machine)

The Ethereum virtual machine is important for several reasons:

  • The EVM represents the engine that needs gas to execute transaction codes.
  • EVM is the vital component of Ethereum that allows thousands of applications to be developed throughout the platform.
  • All the smart contract contracts that are written are compiled to bytecode and the EVM is the component that has the power to read them and execute them as needed.

Simply put, the EVM is a big, decentralized computer that contains millions of accounts that maintain the internal database, communicate with each other, and execute code. The EVM is the technology that allows Ethereum to develop thousands of different applications.

The Ethereum virtual machine is the engine that needs gas to keep it operating.

Don’t invest recklessly

All cryptocurrency investments are risky and Ethereum is no different. Chances are that you’ve seen how some cryptocurrencies, including Ethereum, have grown significantly in value. However, it can go both ways. Make sure to remember that all cryptocurrencies are volatile and their prices can skyrocket or drop in one day.

Invest in Ethereum

When it comes to Ethers and other cryptocurrencies, it’s all about supply and demand and these are the only two things that determine their value. Besides that dynamic, there is no guarantee.

No cryptocurrency is a safe investment, and markets may change quickly.

What is Ethereum? Hopefully, this post has provided you a clear answer to this question. Bear in mind that your learning process is far from over, as cryptocurrencies are incredibly complex subjects. Which is good news, as you can always learn more and build up your knowledge!