Develop in 2014, 5 years after Bitcoin, by Vitalik Buterin, Ethereum (ETH) was the first heavy-weight alternative and advancement to Bitcoin (BTC).
Alongside Vitalik Buterin, the key figures in the development of the Ethereum platform were Anthony Di-lorio, Charles Hoskinson, and Mihai Alisie.
Although Ethereum can be used as a cryptocurrency just as well as Bitcoin, the primary purpose of this open software platform was to build decentralized applications, now commonly called DApps.
DApps can be focused on gambling, exchange, gaming…just like you would find regular apps on Google Play or iStore. Of course, the development of DApps is in its infancy but some have achieved remarkable success and popularity:
Decentralized exchanges: IDEX, ForkDelta, Kyber, Local Ethereum, Bancor…
Games: Crypto Space Commander, Contract Servant, Crypto Wars, FairPlay, Cryptodozer, HyperDragons…
As you can see, while Bitcoin is a mere cryptocurrency – a single aspect of blockchain technology – Ethereum should be viewed as a platform that strives to exploit blockchain technology to its fullest capability.
Case in point, you can even use the Ethereum platform as a peer-to-peer cash system for Bitcoin payments online.
Bitcoin’s blockchain is “only” used to keep track of cryptocurrency ownership, while Ethereum’s blockchain is used to run all the programming code that powers any kind of DApp. The most important thing to remember about Ethereum is that it is a truly open platform, which means that developers can use its blockchain for a multitude of applications.
Alongside DApps, another key invention of the Ethereum platform is the smart contract.
In simple terms, smart contract is a code on the Ethereum’s blockchain network that handles the terms and conditions in order to facilitate the exchange of:
- anything that can be quantified and put into contractual terms.
When an event specified in the contract occurs, smart contract is triggered and executed.
In short, smart contracts are potentially hugely disruptive because they eliminate the need for third-party mediators: lawyers, real estate agents, arbitrators, etc.
Needless to say, because smart contracts employ blockchain technology, it is virtually impossible to fudge them in any way.
DAO – Decentralized Autonomous Organization
If you want anything decentralized, Ethereum has your back!
DAOs combine the decentralization of dApps with smart contracts, thus you can create an organization with no leaders!
In the absence of a group leader, smart contracts take care of all the rules and structure that a traditional organization might possess organically. Therefore, DAOs eliminate the requirement for central control and enforcement. The implications of this technology in the political sector are mind-boggling. However, having political parties actually use DAOs is another problem altogether.
EVM – Ethereum Virtual Machine
Ethereum is the pioneer in expanding the potential of blockchain technology.
Bitcoin showed the way for decentralized cryptocurrencies, but Ethereum platform greatly expanded the functions one could use for future applications.
The key invention to make that possible is the Ethereum Virtual Machine (EVM).
EVM, the so-called “Turing complete software” runs on the Ethereum network and facilitates developers to run applications irrelevant of the programming language used. Otherwise, developers would still have to create a new blockchain for each new application. This is an incredible time and money saver!
Ethereum’s cryptocurrency is called Ether and it slightly differs from Bitcoin and most other altcoins in terms of acquiring them.
In the case of Bitcoin, you would have to employ computing power to solve math problems for you, which upon completion would add a new block to the chain, and money in your pocket.
Mining for Ether is similar, with a couple of key exceptions:
- You get rewarded with Ether based on proof-of-work Ethash algorithm, which encourages individual, decentralized mining.
- It doesn’t support ASIC (Application Specific Integrated Circuits) as Bitcoin does.
Once you obtain Ether, you can use it for transactions fees among many DApps on the Ethereum network.
Lastly, you have a secondary token called gas to be used by Ether miners to pay for their fees for including transactions into their blocks. If you are accustomed to using smart contracts, you will require a lot of gas, which is a great incentive for miners. A well-thought-out ecosystem!