Ethereum 101

After Bitcoin started to gain notoriety, the cryptocurrency space evolved drastically. Once the public learned about the technology behind Bitcoin and its application specifically in the financial world, the decentralized community continued to develop. New coins emerged with with new technologies with the claim of improving upon the shortcomings of Bitcoin. Of these new currencies, Ethereum (ETH) has emerged as Bitcoins largest alternative.

Quick side note: If you have not read Blockchain 101, Bitcoin 101, or Smart Contracts 101 yet, we recommend doing so as much of the information in this article refers to information found in those posts.

What is Ethereum?

Ethereum (ETH) is a decentralized platform with the goal of acting as a decentralized internet and app store. Operating on its own blockchain, ETH is a public and open-source platform for developers to develop and distribute decentralized applications. In summary, Ethereum took Bitcoin technology and applied to not strictly to its currency’s transactions but expanded blockchain into many other use cases.

Is Ethereum a Currency?

While Ethereum is the software platform, Ether is the token used on the Ethereum network. Ether is a digital asset. Much like Bitcoin, Ether is traded in a peer to peer transaction. Transactions are validated by miners currently in a Proof of Work system (although the switch to Proof of Stake is anticipated).

How Does Ethereum Work?

Much like Bitcoin, ETH uses a blockchain design. The major difference between BTC and ETH is that while BTC is used strictly for financial transactions, ETH is a platform to host peer to peer financial transactions AND decentralized applications (Dapps) unrelated to currency transactions. The ETH platform is a state machine (machine capable of reading input data and transitioning accordingly). Each state of ETH consists of millions of transactions among its blockchain. Transactions are validated by Nodes (miners). If you’re unfamiliar with blockchain, navigate to our Blockchain 101 article.

Ethereum also incorporates smart contracts into its platform (see Smart Contracts 101 for more information). Simply put, smart contracts are agreements on the blockchain that work on an “If-Then” principle. If user “A” gives user “B” an application in exchange for ether, once user “A” has delivered the application, then user “B” will automatically send the Ether amount in the smart contract to User “B.”

Ethereum Summary

While Ethereum is vastly complex, this page of text provides a basic summary of the platform. ETH is a decentralized platform that took the digital ledger concepts (blockchain) of Bitcoin and transformed the ledger into a means where other non-financial transactions could take place. ETH also provided the basis for the ICO (Initial Coin Offering) boom.

For more information on ETH, check out their whitepaper, written by founder Vitalek Buterin.

-Patrick Newill


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