19 January 2021

What is Ethereum?

In a previous article, we discussed the interest of Bitcoin and the reasons that could lead a person to turn to this cryptocurrency. But when you start to take an interest in the world of cryptocurrencies you quickly realize that it’s not all about Bitcoin. In particular, there is Ether (ETH), which comes to us from the Ethereum network. While there are a number of similarities between Bitcoin and Ethereum, there are also several differences.

In this article, we will explain a little better what Ethereum is and the differences it can have with Bitcoin but also how to buy Ethereum. Overall, this article should help you determine a potential value for Ethereum and therefore whether you prefer to invest in Ethereum or Bitcoin or even both.

What is Ethereum all about?

This is a project whose idea was originally described by Vitalik Buterin at the end of 2013 and whose project was finally launched in January 2014. Originally, this project was supposed to complement Bitcoin, using Blockchain technology to explore the possibilities even further.

The founding principles of Ethereum are:

Trust
Transparency
Security
Efficiency

These can therefore be transcribed in any service or industry.

Decentralized system

The faults of the centralized system

Like Bitcoin, it is a decentralized system. By this we mean that this system is not governed by a single entity (unlike the majority of current systems). Although this centralization is the most common way of operating today, there are still some weaknesses, it is not without flaws.

First, in a centralized system, a single entity with full power and can impose its own conditions which is not the most optimal. More importantly, if the central system were to encounter a problem, the whole system would fail. Just think about what would happen if Google’s servers went down. The whole system would get stuck.

In addition, this decentralization also has benefits in terms of personal data protection. In the case of a centralized system, all the personal data of customers, employees, etc. is saved on the central entity’s servers. This leaves a greater risk in the event of a computer attack or data breach.

From the point of view of a decentralized system

One of the advantages of Ethereum is that it is decentralized. It is therefore entirely autonomous and is therefore not controlled by anyone. In addition to allowing better autonomy from a control point of view, it also prevents the risk of errors or unavailability of services. Due to its decentralization, the Ethereum network is maintained by several thousand computers around the world which ensure the sustainability of the system if one of them should experience an error.

Applications that do not require a third party

This decentralization has many other advantages. Indeed, the Ethereum network makes it possible to create applications or other content that would be managed on this system. Thus, these applications would not have to comply with requirements that third parties may impose. As examples, we could cite the conditions imposed by platforms such as the App Store or Youtube.

Being able to avoid going through a third party to make your application or other content available also avoids the costs associated with such intermediaries. For example, when you watch an advertisement on Youtube, the platform takes a commission and only gives a portion of the advertising revenue to the creator of the video. In an Ethereum world, all advertising revenue could go to the author of the video. This lack of need for an intermediary implies that there is no supervisory authority and therefore that transactions are carried out directly between the parties concerned.

In addition, since you can create applications on this system, there is no real limit of possibilities because everything can be governed by smart contracts. This opens up the world to a lot of possibilities in the future.

Use of “nodes”

The entire Ethereum network is based on a “node” system. These are people who allow the system to function by allocating the computing power of their computers who will therefore validate the system’s transactions and receive rewards in return (mining system). This aspect of nodes and for that matter one of the big advantages of Ethereum. Before any change, all nodes in the system must agree to each change. This mechanism therefore eliminates the possibility of fraud, etc.

Since December 1, 2020, Ethereum has moved to the 2.0 format. where the way of generating ETH is changed. Indeed, now, it is necessary to block 32 ETH in order to become a node and to be able to become a validator of the network and to receive some kind of interest on these blocked ETH. The interest generated can also be relatively interesting (see below a screenshot of a simulator)

https://www.stakingrewards.com/earn/ethereum-2-0

It is clear that this kind of interest can have an impact on the value of Ethereum and therefore on its price!

Smart contracts

Most of the system and how it works is dictated through what are known as “smart contracts“. By smart contract, we mean a contract that is executed according to a schedule directly in it at the origin of the contract. These serve to automate certain actions / transactions between the parties according to what is scheduled. Once the conditions of the contract have been met, all the transactions / actions contracted are executed.

We quickly realize that this kind of “new generation” contract represents the future. Even if you don’t trust the other person, once the terms of the contract are met, the contract will be executed and does not require the goodwill of the other party.

Plus, it’s all automated in one system. Thus, these smart contracts have much lower transaction and execution costs.

The risk associated with these contracts is a bad coding of them but it is the same for the current contracts as we know them today.

It is really on the basis of these smart contracts and the resulting possibilities that we can estimate the value of Ethereum and its future.

Ether as fuel

Ethereum is more like a decentralized internet. But for such a system to work, it needs resources to run an application, for example. This is why Ether (ETH) was created as the currency / resource to run the system for changes to take effect.

The amount of Ether needed for an operation depends on the computing power and the time required. The problem that we have seen in the past is that this transaction cost can very quickly become significant when there is an overload of the system. But the Ethereum network is constantly improving and this kind of problem has been regulated since.

Bitcoin or Ethereum: what are the differences?

So, I don’t think it makes sense to just start comparing them. Indeed, these two projects have fundamentally different objectives. Bitcoin is used as a system for the exchange of money in a decentralized manner. Ethereum, meanwhile, has used Bitcoin’s blockchain technology by expanding it to create a network. On this network, users have the possibility to create their decentralized applications on the Ethereum Blockchain.

In other words, with the revolution sparked by Bitcoin, people realized that blockchain technology could be used in a multitude of other areas (and therefore not just for transferring money). . The primary purpose of Ethereum was therefore to complement Bitcoin.

Another notable difference is the limit of Bitcoin available. No matter what, there will never be more than 21 million Bitcoin. This limit echoes the principle that Bitcoin is digital gold. Conversely, the amount of Ether available is not limited.

Finally, regarding mining, although it has changed a lot since the introduction of Ethereum 2.0. the contents of the transaction blocks of the two systems are also different. Bitcoin transactions only keep track of transactions that have taken place. An Ethereum transaction can also contain actions to be executed (see smart contracts). In addition, the validation time of a block in the Ethereum network is much faster than that of Bitcoin.

How to Buy Ethereum

The easiest way to buy Ethereum (and therefore Ether) is to use Coinbase. I recommend that you read our article on buying Bitcoin. The method is basically the same and therefore we can use it.

I invite you to use my referral link which will allow you to receive 10 dollars of Bitcoin more if you acquire 100 dollars of cryptocurrency. It’s still interesting.

If you use this link I will also receive a commission as 10 dollars of Bitcoin.

Conclusion

In this article, you have been able to learn more about Ethereum and what makes it such a special cryptocurrency. We were able to understand the difference of this system compared to that of Bitcoin but also of these advantages compared to it. We even discussed how to buy Ethereum.

Hope this may have helped you the best. And you? What do you think? What is your take on the future of Ethereum? Do you have any other questions? Please let us know in a comment!