What is Ethereum?

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The concept of Ethereum is largely attributed to Vitalik Buterin, a young computer programmer with Russian roots. Buterin was originally fascinated by Bitcoin which in 2014 sparked his own ideas for developing a new network that also uses an open blockchain protocol. This network is called Ethereum. But what is it exactly, and what is ether? Below we cover ether and the Ethereum network in more detail.

Everything about ether:

  • What is Ethereum?
  • What’s the difference between Ethereum and ether?
  • How does Ethereum work?
  • What can you do with ether?
  • How do you get ether?
  • Summary

What is Ethereum?

Ethereum is a decentralised platform that uses the blockchain technology as developed by Bitcoin creator Satoshi Nakamoto. Despite the similarities between Ethereum and Bitcoin, there are some fundamental differences.

Whilst Bitcoin has found a way to transfer value digitally- without the need of a third party- Ethereum takes on a different approach. The Ethereum network is meant as the basis for a new kind of internet. It functions as a platform on which decentralised applications (DAPPs) and smart contracts can be launched. Compared to current centralised internet applications, these DAPPs offer higher levels of safety and privacy, and due to their nature are censorship resistant.

However, to create a DAPP or a smart contract, you need some programming knowledge. Ethereum has therefore developed its own programming language: Solidity. With Solidity, it should become easier to program DAPPs and smart contracts on the network.

What’s the difference between Ethereum and ether?

Ethereum and ether are two terms that are often confused. This isn’t that big of a problem, however, there’s definitely a difference between the two.

When we refer to Ethereum, we mean the entire network. In order to transfer value and to pay each other on the network, there needs to be a network token that represents a certain value. In addition, miners should be rewarded in some way for the work they do. The tokens that are used on the Ethereum network are called ethers.

Ether is the currency on the Ethereum network and is therefore an essential part of the network as a whole. Thus, when people mention they’ve purchased Ethereum, they’re actually referring to ether.

How does Ethereum work?

Just like Bitcoin, Ethereum is an open-source blockchain protocol. The source code of both projects are available for everyone to see and verify. The workings of Ethereum’s protocol are largely identical to those of Bitcoin.

Another resemblance with Bitcoin is that the Ethereum network consists of nodes that all have a copy of the entire ether transaction history. Both blockchains are entirely open, meaning that anyone can continue to build on the protocol and launch applications on it.

Both Bitcoin and Ethereum utilise a proof of work consensus algorithm. However, in the long term, Ethereum plans to switch to a proof of stake algorithm, which should cost a lot less energy.

What can you do with ether?

Payment method
Ether represents a certain value, so it makes sense that it’s used to pay one another with. There already are a number of webshops that accept ether as payment, and many organisations accept ether as a donation.

Fast transactions
You can use ether to transfer value with great speed, directly to another person. There is no need for a third party like a bank. All you need is your wallet and the receiving address of the recipient.

Investment
An investment in cryptocurrencies is an investment in the future. So it’s not that strange that many people take a chance at investing in ether. However it remains a risk- the price of Ethereum is still very volatile. Would you like to invest in ether? Only do so with an amount that you can afford to lose.

Participating in an ICO
Firstly, what’s an ICO? The abbreviation stands for Initial Coin Offering. An ICO could be seen as a new way of collecting funds in order to finance a new project. ICOs had a big breakthrough in 2017 where they cumulatively raised approximately 5 billion euros of financing. It’s very important to realise that most projects that get started with an ICO will never actually deliver a successful product, which means you’ll lose your investment. Would you like to invest in an ICO? Make sure to be very critical and don’t let your emotions control your decisions.

Investing in an ICO is often only possible with one of the big cryptocurrencies like bitcoin or ether. In exchange for your bitcoins or ethers you’ll receive a token of the project you invested in. The first tokens are often released during the ICO, before they can even be traded on an exchange.

How do you get ether?

We’ve established that ether is a cryptocurrency. More specifically, the currency of the Ethereum network. But how do you acquire ethers? These are four ways we are familiar with for acquiring ethers:

  • Purchase through a broker or exchange
  • Accept bitcoin as a payment for your goods or services
  • You could receive (part of) your salary in ether
  • Participate in bitcoin mining

Buying ether
The easiest way of acquiring ether is buying it. You can buy it directly from another owner, however you can also make use of the services of a cryptocurrency broker like BTC Direct. You can pay by bank transfer or a payment card, after which the ether are sent to your wallet.

Accepting ether
The Ethereum protocol offers so many possibilities that it can be seen as an ecosystem in which services are traded for ether. One of those possibilities is smart contracts. If you would like to buy something through a smart contract, then you pay with ether. The recipient could trade their ether for euros, or they could also use it to buy other goods or services.

Ether salary
Since June 2018, BTC Direct employees receive part of their salary in bitcoin. The employees choose how much of their salary they want to receive in bitcoin. At the end of the month, BTC Direct purchases the coins at the current rate and sends them to the employees’ digital wallets. Of course, this service would also be possible for ether.

Mining ether
The Ethereum blockchain is maintained by miners. If you mine ether, your computer verifies new transactions and collects them in a transaction block. Approximately every 15 seconds a new block with the latest processed transactions is added to the blockchain. The winning miner that adds the block to the already existing chain receives a reward of three new ethers.

Ethereum currently uses a proof of work consensus algorithm, which means that miners have to make complicated calculations in order to reach the solution and add a new block to the blockchain. Just like with bitcoin, you needn’t bother to try this at home with a regular computer, since you’re competing with specially designed mining computers.

Summary

Now you know the difference between ether and Ethereum: ether is the cryptocurrency with which you can pay on the Ethereum network. The Ethereum network enables the development and execution of decentral applications which could lead into a new type of internet.

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