What is Ethereum?

13 Sep, 2018
by David Robb
Educational
What is Ethereum?

To the uninitiated, crypto is basically synonymous with Bitcoin, but more informed observers know that the second biggest cryptocurrency has its own unique features and some big advantages over BTC. Here's a quick introduction to the Ethereum blockchain and Ether (ETH), its native crypto token.

The Ethereum project first started to take shape back in 2013, when programming genius and Bitcoin Magazine co-founder Vitalik Buterin proposed a new, more general scripting language for Bitcoin, for the development of decentralized applications.

He decided to develop it independently, and he and co-founder Joe Lubin eventually launched the blockchain in 2015. Their Ethereum network went live with around 11.9 million ETH coins pre-mined for the crowdsale, which accounts for around 13 percent of the total supply. Most of these went to the Ethereum Foundation.

ETH rapidly became one of the top crypto tokens, and has been firmly in second place behind BTC since 2017. At the time of writing, its total market cap is $48.2 billion. The Ethereum network has some key advantages over Bitcoin. Its transaction fees are signifcantly lower, and the block time for Ethereum can be as low as 14 seconds, compared to around 10 minutes for BTC. 

Read more: 3 reasons why Ethereum is better than Bitcoin, according to Brian Kelly

Ethereum's technical fundamentals are quite similar to Bitcoin. It's a decentralized, distributed ledger whose native tokens are created and rewarded for the completion of blocks, through a proof-of-work mining system. However, the underlying motivations behind the two blockchains are quite different. Whereas Bitcoin was invented as a new currency that would make online transactions easier and digitally store value, Ethereum is primarily geared towards software development and the creation of 'smart contracts'.

The Ethereum protocol is driving innovation, by opening up blockchain technology for a huge range of pioneering use cases. These include social media networks, betting sites, crowdfunding platforms and more. A lot of 'altcoins' are also built on the Ethereum blockchain, as it encourages organizations to create and issue their own cryptocurrencies.

Read more: What are smart contracts?

The growing field of Initial Coin Offerings (ICOs) is one that is currently dominated by Ethereum. ICOs allow new blockchain startups to tokenize investment in their projects, and more often than not they will make use of the Ethereum blockchain to create their token and generate financial support. The difference has been summed up as "where Bitcoin is disrupting currency, Ethereum is disrupting equity." 

Although Ether is one of the most valuable cryptos and Ethereum is one of the most powerful, secure, and reliable blockchains, the project has not been without its difficulties.

Back in 2016, an investment body using Ethereum known as DAO (decentralized autonomous organization) was hacked by users. They managed to siphon off around a third of its total funds, amounting to around $50 million. In order to recover these funds, the Ethereum blockchain was hardforked, but this was a controversial decision. Many users rejected it and continued to use the original blockchain, which operates independently and is now known as Ethereum Classic.

Scalability is the main issue that currently faces Ethereum. As its network is growing in popularity, congestion is increasing. The rising transaction times are making it harder for new developers to get started, and will make it even more difficult for casual users to someday buy a coffee with their ETH.

A key concept on the Ethereum blockchain is 'gas'. This is a system that lets users pay fees in order to prioritize transactions and 'move around' more efficiently on the network. Along with transaction times, there has also been growing concern in recent months over the rise in the gas price, which is the minimum amount needed in order for a miner to confirm a transaction.

An active presence on crypto Twitter as well as at major blockchain events, Vitalik has discussed a number of solutions to scale up or streamline the blockchain, but no definite decision has been made so far.

Read more: Vitalik says Ethereum will eventually support millions of transactions per secondEthereum blockchain moving into "phase two", says co-founder Joe Lubin

Follow Chepicap now on Twitter, Telegram and Facebook!

Add a comment

Check out the latest news

You will be logged out and redirected to the homepage