By Matt Hussey and Stephen Graves
6 min read
Ethereum, the second-biggest cryptocurrency after Bitcoin, is a blockchain-powered platform for creating decentralized applications (dapps).
Where Bitcoin was designed as a currency and a store of value, Ethereum is a decentralized network for running smart contracts—code that runs on a peer-to-peer network and is verified by Ethereum's blockchain.
The idea is to create applications that are secure, transparent and censorship-resistant, since they don't rely on centralized platforms.
Ethereum has been used as the underlying software layer for everything from decentralized finance (DeFi) applications, to "play-to-earn" games using non-fungible tokens (NFTs).
Ultimately, many believe that Ethereum could underpin a re-imagining of how the internet works, dubbed "Web3," in which control of the internet is disintermediated away from big companies such as Amazon and Facebook.
Our super simple guide will help you understand Ethereum’s big idea and the role Ether plays in that vision.
If Bitcoin is the floppy disk of blockchain, Ethereum is the CD: it’s an evolution of the technology. What Bitcoin proved was that a currency could be created by a community, and sent and received by anyone with a cryptocurrency wallet. It also solved the rather tricky double spending issue.
What Ethereum has proven, however, is that blockchain can provide so much more than just a store of value. It can be used to organize people, ideas, companies, money, services, you name it. If anything can be written into code and used by a smart contact, it can be built on Ethereum.
This simple idea has prompted people to use Ethereum to manage property and shares, create social networks and financial applications, develop games, and even build a new nation.
A Russian/Canadian computer programmer called Vitalik Buterin wrote the white paper Ethereum is based on. However, the building of the network and community was helped along by a number of co-founders: Anthony Di Loria, Charles Hoskinson, Miha Alisie, Amir Chetrit, Joseph Lubin and Gavin Wood.
Ethereum is taking the technology Bitcoin is built on and making it into more than a currency. It allows developers to build apps — they’re called dapps or ‘decentralized applications’ in the Ethereum world — out of smart contracts. We've written an article exploring dapps and smart contracts in more detail.
You can even build your own currency on top of Ethereum. We've written an article exploring Ethereum's currencies within currencies.
If Bitcoin is the gold of the cryptocurrency world, Ethereum is the oil that machines are powered on.
Ether is the cryptocurrency Ethereum uses to build and maintain its network. In a similar way to how Bitcoin works, miners create Ether by creating blocks and solving puzzles, a technique known as mining.
Roughly every 15 seconds, a new block is added to the Ethereum blockchain, with the computer or miner that solves the puzzle at the heart of the block being rewarded with Ether. These fees are called gas fees.
Ethereum previously used the same proof of work mining technique as Bitcoin. However, in September 2022 it moved to a different technique known as proof of stake in an upgrade widely referred to as Ethereum 2.0 or the Merge.
Everything ever invented came about because of necessity. Why did we need Ethereum when we already had Bitcoin? In the next lesson, we find out what issues Ethereum was meant to address.
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