What is Ethereum?

Jump to page contents

What is Ethereum?

So, what exactly is Ethereum?

Ethereum is a decentralized, programmable blockchain infrastructure, the second largest in the world by market cap behind Bitcoin. Like Bitcoin, Ethereum has a native cryptocurrency, Ether that is rewarded to miners in exchange for securing the transactions on the blockchain. What makes Ethereum so different and special is its smart contract functionality. Using the Ethereum blockchain, users can create smart contracts, or a decentralized, pre-determined, computer-generated transaction protocol which automatically executes the actions of the contract when the stated actions of the contract are satisfied. Smart contracts can be applied on a personal level or for business and financial transactions and can be used in a variety of different fields such as e-commerce, finance, real estate, gaming, gambling, supply chain and logistics, social media, and many more. Just as we discovered new uses for the internet as we grew to understand it more, the same will continue to happen with smart contract use cases as we get a better grasp of the technology.

Who invented Ethereum?

Unlike Bitcoin, the creator of Ethereum is not an anonymous entity, but a living legend in the distributed ledger technology space, Vitalik Buterin. Vitalik is a Russian-Canadian computer program that invented Ethereum when he was just 21 years old. As the co-founder of Bitcoin Magazine, Vitalik fell in love with Bitcoin and the potentials of blockchain, paving the way for the creation of a blockchain based ledger that made decentralized software development much easier for programmers. With smart contracts, programmers and users can take part in a multitude of different applications and actions previously not possible on the Bitcoin blockchain.

Why was it invented?

Although Bitcoin was a successful first iteration of blockchain technology, it was still limited in its capacity to perform outside of financial transactions. Vitalik invented Ethereum because he saw a necessity for decentralized, immutable, self-fulfilling contractual obligations, but there was no way to safely complete one without the use of a third party.

How does Ether differ from traditional currencies?

Ether versus fiat currency

Unlike fiat currencies, which are controlled by a governmental central banking system where the users do not have a say in the inflation rate of the currency, Ether has a predetermined inflation rate and is entirely controlled by each participant who takes part in validating the transactions through mining. There is no singular body that decides the outcome of the Ethereum network, and this factor means that if the community does not agree, it can split off, or “fork” into two different communities with different sets of rules. This has happened previously with the creation of “Ethereum Classic” after the two communities could not agree on how to handle a problem of $50 million missing from a DAO (decentralized autonomous organization).

Ether as programmable money

What makes the Ethereum blockchain so special is the ability to use and implement money in a programmable manner that was previously impossible to perform. Using Ether and the Ethereum blockchain, users can create smart contracts that tells your ‘money’ how to react in different sets of circumstances. For example, let us say you would like to buy a product from an overseas factory that does not have good reviews. You want the product but are wary of the service, so you create a smart contract that only releases the funds of your purchase once the product tracking has verified that the item has reached your national postal service.

By utilizing this method, the predetermined contract is enforced as goals are met, meaning the only way the overseas factory will receive their compensation is if they satisfy the contract. If the item never makes it to your national post service then the contract would automatically enforce itself and return your initial purchasing value without the needs of a middleman.

Ethereum and blockchain

Ethereum is a programmable network built using a blockchain infrastructure. This means that Ethereum is a blockchain protocol, but all of blockchain is not encompassed by Ethereum. Ethereum is able to provide its services and function correctly because it is a platform that utilizes blockchain technology; allowing users to interact without each other financially and complete contracts with one another without having to rely on a middleman to oversee the legitimacy of the deal. As an open-source platform, anyone can build or contribute to Ethereum without permission from a centralized authority.

Ethereum and Bitcoin

Vitalik was obviously extremely inspired by the creation of Bitcoin, which led to him trying to improve on the infrastructure by creating Ethereum. Both Bitcoin and Ethereum are blockchain protocols, both have native currencies that allow users to transact across the network without a middle man, but they are totally different and unrelated currencies. They can both be used to buy and sell items, but Ether can also be used to implement smart contracts, a feature that the Bitcoin blockchain does not possess. They are different networks and do not affect each other on an infrastructural level.

Ethereum Guide

Is Ethereum legal?

Yes, Ethereum and its Blockchain based nature is 100% legal in all jurisdictions worldwide. In many countries, cryptocurrencies like Ethereum are treated as assets instead of currency, so make sure you follow all of your relevant local laws. As a means of transaction, Ether can be used anywhere as a store of value or to trade; it can also be used to implement smart contracts that are self-fulfilling and legally enforceable worldwide.

Where can you buy Ether?

There are many different options to buy Ether, some offer more anonymity and some are faster or more secure depending on your needs and wants. The easiest and most straightforward way to buy cryptocurrency is through a cryptocurrency exchange.

Since Ether is the second largest cryptocurrency by market capitalization in the world, almost every cryptocurrency exchange should offer users the opportunity to buy and sell Ether. Some of the most popular exchanges that let users buy Ether is Coinbase, Binance, BitMEX, and Kraken, and you can generally use your local fiat currency, credit or debit card, or other cryptocurrencies to purchase Ether.

5/5

Another option for purchasing Ether is through a physical peer to peer transaction. This can be facilitated with websites such as Local Ethereum, which pairs users who want to buy and sell Ethereum locally. Using this method, you can buy Ethereum using cash or a credit/debit card, but be careful as sometimes there are people that try to take advantage of new and inexperienced users.

The final option to purchase cryptocurrency is through a cryptocurrency ATM. Although they are not accessible everywhere, an Ether ATM would allow users to directly buy Ethereum and transfer it to their wallet without having to use an additional third party or exchange. If paying in cash, this or the local meetup option gives users the highest level of anonymity but can sometimes have higher fees and higher risks. Make sure you do your own research to determine the best method for you.

How much is Ethereum worth?

As of writing this article, the Ethereum blockchain has a market cap of $25.8 billion, making each Ether worth $231.71. You can also buy fractions of an Ether, so there are many options when it comes to how much you want to buy or sell. Since the Ethereum network is still challenging for many to use, the decentralized applications currently available represent its perceived value and not the actual value the network is currently providing.

As more projects on the Ethereum network become useable in a mainstream way, the value proposition of Ether will continue to grow and solidify.

What can you buy with Ether?

Since Ether is a decentralized currency, there is nothing and no one that can physically stop a user from making a transaction. This means that Ether can be used to purchase anything that two parties agreed upon. Unlike traditional currencies, which also allow the same sort of transactions, Ether also offers users the option to spend the native cryptocurrency throughout their network and their network of decentralized applications that are built on top of it. This means Ethereum can also be used to create and implement smart contracts, as well as a transactional currency for decentralized applications, more commonly known as DApps.

As a programmable smart contract platform, the Ethereum network allows developers the opportunity to create decentralized applications, or applications without a single point of control or failure. This has led to the creation of a plethora of applications across all industries, such as decentralized finance, colloquially known as DeFi, or decentralized gaming, which gives users full control over their in-game assets. This means that Ethereum can also be used to purchase verifiably scarce digital assets or collectibles, such as a rare in game item, or to contribute to the decentralized financial space.

With Ethereum it is possible to take out or issue a loan, purchase a one of a kind piece of digital art, or pay for a variety of contractual services that couldn’t before be easily legally bound by a contract. As a programmable currency, Ether offers many purchasing options that cannot necessarily be accessed with traditional fiat currency.

Selling your ETH

Just like buying Ether, it is very easy to sell Ether and you have many different options depending on your needs. Once again, the easiest method for selling your ETH would be by using a cryptocurrency exchange. When you use an exchange that allows you to sell your ETH for fiat, it will also usually allow you to directly deposit the fiat back to your bank account or card, making it an easy and accessible way to sell. 

You can also utilize the other platforms mentioned above for buying Ethereum, such as a local peer to peer transaction or through a cryptocurrency ATM. Generally, cryptocurrency ATM’s will charge much higher service fees than a traditional exchange or peer to peer transaction, so you should try to avoid them if possible. For peer to peer transactions, make sure you do them in person and that the fiat currency has been received in your account before you send the ETH to their wallet, once the ETH is out of your control and in the wallet of the other user, you will have no recourse to get it back (so make sure you transact safely!).

Is Ethereum available worldwide?

Yes, Ethereum is available all across the world. Since there is no central point of control of failure, it would be almost impossible for a government to physically stop a transaction from taking place, but they could create legislature to highly disincentive the use of these networks. As a global transactional and smart contract platform, Ethereum was specifically designed so it can be accessed anywhere around the globe without the need of a third party. It was created to empower users who do not want to have to trust a third party of government with their transactions.

Is Ethereum safe?

Yes, Ethereum is very safe as a platform that stores value. With over $25 billion in value stored within the network, hackers are constantly trying to ‘break in’ and steal from the network to no avail. The distributed and decentralized nature of blockchain technology makes it almost impossible to take advantage of the network without staking a massive amount of value which would then be lost once the network is corrupted. Ethereum can be stolen from an exchange, just like a bank can be robbed, but it’s almost impossible to manipulate the physical network.

Ethereum Guide Visual

The advantages and disadvantages of Ethereum

When comparing Ethereum to other cryptocurrencies and even fiat currency, it is hard to see many disadvantages. It is a decentralized and distributed currency with no central authority that can be accessed by anyone and programmed to do what you want. It offers the same capabilities as most other cryptocurrencies, including Bitcoin, with additional added features like smart contract technology.

One possible disadvantage is that since Ethereum has a central figure who created it and is mostly in charge of its development; if anything happened to Vitalik it could drastically affect the outlook of the network. Although, since it is a decentralized system, it would probably be less affected than a centralized organization that lost its creating leader (think about the outlook of Facebook if something happened to Mark Zuckerberg).

Concluding Thoughts

In conclusion, the Ethereum network and Ether as a cryptocurrency is possibly the most promising project in the cryptocurrency space. Vitalik Buterin took what he thought was missing from Bitcoin’s functionality and created a new ecosystem to be able to provide those services that were needed but did not presently exist. The decentralized applications being built on Ethereum are revolutionary and will continue to grow and be accessed by more users as it becomes easier to interact with the network. All in all, Ethereum has a very bright future ahead.

Are there any restrictions on who is allowed to own Ether and who you can transfer it too?

No, there are absolutely no restrictions.

Are there decentralized applications built on Ethereum that are live for users to try?

Yes, there are a plethora of DApps that are already live and running with users actively using the platform There are decentralized applications in all different types of categories, so feel free to find the type you are interested in and try them out!

Will Ethereum gain value over time?

The true answer is nobody knows, but if the network continues to add more functionally, more users, and continue to grow, there is no reason that it wouldn’t grow proportionally in value.

Ready to join our tribe?

We respect your email privacy

Subscribe now to recieve exclusive updates and offers!

Recently Similar Guides

Latest Guides

Banking,Bitcoin,Cryptocurrency

How to Buy Bitcoin with Bank Account

The mainstream explosion of cryptocurrencies has led to an increase in the number of ways you can buy cryptos. It wasn’t long ago when Bitcoin was considered a risky fringe asset, with banks and most financial service providers refusing to handle any transactions related to Bitcoin. There are some countries where you cannot buy Bitcoin […]

10 April, 2021
Cryptocurrency,Exchange Platforms,Investment

Coinbase Vs Coinbase Pro: Which one to choose?

With cryptocurrencies making waves globally, many people now look for ways to convert their fiat currencies into popular cryptos like Bitcoin, XRP, Ethereum, etc., on different crypto exchanges. Today, more than 300 crypto exchanges are available, and it can be daunting to know which to choose. One of the most popular exchanges with over a […]

9 April, 2021
Bitcoin,Crypto Wallets,Deposit Bitcoin

How Can I Get A Bitcoin Address?

If you’re planning to buy Bitcoin or any other cryptocurrency you will need to have a wallet where to store your funds. Some exchanges offer a free, in-built wallet and deposit your cryptocurrencies directly there. Other platforms do not offer their own wallets and require you to know and provide your wallet address. In this […]

5 April, 2021
Trading

How to Trade on Binance? (A Comprehensive Guide)

In this guide, we go through how to trade on Binance – everything from adding funds to crypto trading strategies. Let’s dive in! What is Binance? Binance is a well-known cryptocurrency exchange in the crypto market. In 2017, Changpeng Zhao founded this exchange which turned out to be one of the largest crypto exchanges and […]

31 March, 2021
Crypto Wallets,Ledger,Security

Cold Wallet vs Hot Wallet: Which One Should You Choose?

Wallets are a vital part of cryptocurrencies since they provide a safe and functional way to store and transfer funds from one user to another. There are several different types of wallets and numerous solutions per type. The cold wallet vs hot wallet debate is almost as old as cryptocurrencies themselves, and as is often […]

31 March, 2021
Bitcoin,Blockchain,Crypto Mining

How To Mine Komodo in 2021 (Step-by-Step)

Komodo (KMD) is an upgraded version of, what are now, traditional cryptocurrencies. Developed by the SuperNET team and forked from ZCash, KMD sets a higher standard for security and smart chains. Surrounding Komodo is an ecosystem in development. Once finished, it will provide advanced tools, including decentralised trading. This cryptocurrency is growing in popularity for […]

27 March, 2021
Bitcoin,Crypto Mining,Mining

Tron Mining – Can Tron Be Mined In 2021?

2021 has been the year crypto investors and traders have been looking for over a decade. Bitcoin and many other Altcoins are having the bull run of their lifetime. The market capitalization of all the cryptos combined has crossed 1.7 trillion, with Bitcoin dominating the market with ~60% share. The mainstream adoption of cryptocurrencies by […]

26 March, 2021
Binance,Exchange Platforms,Kraken

Binance vs Kraken: Comparing Exchanges

There are several top-ranking cryptocurrency exchanges and in this guide, we will be presenting two of the biggest and oldest ones. In this Binance vs Kraken, you will learn the main features and drawbacks of both exchanges. This should help you understand which one is best suited for your needs.  At this point, it is […]

12 March, 2021