Ethereum explained: what's the Ethereum cryptocurrency & how does it differ from Bitcoin? Today I'll tell you all about the Ether altcoin, Ethereum mining, Vitalik Buterin, & more!
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What exactly is Ethereum?
Simply put, Ethereum (or more formally known as the Ethereum Project) is a software platform that allows developers to create & launch decentralized applications aka “DApps.” It currently holds the world’s second-largest market cap behind Bitcoin. Ethereum’s poster child is Vitalik Buterin. With an IQ of 257, the boy genius’s favorite thing to play with as a child was Microsoft Excel. He’s of Russian-Canadian descent who was responsible for founding the Ethereum Project in 2013 at just 19 years old! Someone once commented on a video of him speaking, saying that it’s as if his mouth was struggling to keep up with his brain when for most of us, it’s the other way around. It’s because of his intellect & inception of Ethereum that it’s grown a bit of a cult-like following among programmers, with Vitalik paving the way for the blockchain revolution.
What’s the difference between Ethereum & Bitcoin?
Like Bitcoin, Ethereum is based on blockchain technology. I mentioned in the previous video that blockchains can have a huge variety of practical uses. Bitcoin uses blockchain technology as simply a store of value & a means of exchanging these stores of value. Let’s think of blockchain technology as the internet, and Bitcoin as online banking. While online banking is just one way the internet can be used, we all know there’s still a TON of other uses for it. Ethereum is one of those other uses in the world of blockchain. While Bitcoin’s primary purpose is as a store of value, Ethereum’s purpose on the other hand is to run the programming code of any decentralized application.
Smart contracts
Before I delve deeper into the features of Ethereum, let me give you the lowdown on smart contracts. A smart contract is simply a fancy term for computer code that executes specific actions once certain conditions are met. Say you wanna purchase a digital book from me for an amount we both agree upon ($10 for example). Certain conditions are also placed, like it has to be delivered via the blockchain two days from now & it has to be in its original form; so all pages are there & none of the text has been altered. We can carry out this transaction over the blockchain by you paying in the form of a cryptocurrency, which is held in limbo in a virtual contract. If I send the book over the blockchain within those two days and in its original form, the book will be delivered to you on the specified date & the virtual contract releases your funds to me. But failure to either deliver the book within those two days OR not delivering it in its original form (or both) would mean you would be automatically issued a refund by the contract, no questions asked. So in cases like these, think of smart contracts as a sort of automated form of escrow conducted over the blockchain that’s witnessed & verified by the many nodes within the network. This ensures a smooth, seamless transaction due to blockchain’s public & self-governing properties.
What do smart contracts have to do with Ethereum?
The reason why I covered smart contracts is because at the heart of Ethereum lies its most innovative feature: the Ethereum Virtual Machine (or EVM for short). Using the Ethereum blockchain, programmers can create their own blockchain-based DApps, whose actions are self-governed AND self-executed thanks to smart contracts, which are ultimately carried out by the EVM.
Why is this important?
Because it’s revolutionary! Before Ethereum was conceived, most cryptocurrencies more or less served the same functions as Bitcoin, which is to act as a store of value that can be transferred peer-to-peer. Diversifying these functions had to be done by either expanding the Bitcoin blockchain’s capabilities (which would’ve been extremely difficult & taken a lot of time) or by building a completely new blockchain that covers all that & more...and that’s exactly what Vitalik Buterin did with the Ethereum Project. Thanks to the Ethereum Virtual machine, DApps (or blockchain-based decentralized apps) are easier to create than ever before. In fact, these days, most of the newer cryptocurrencies out there are being created on the Ethereum blockchain in the form of what’s called an ERC-20 token. One important characteristic behind the EVM that programmers find extremely valuable is that it’s a Turing-complete software, meaning it can operate by using a wide variety of programming languages like C++, JavaScript, and Python to name a few. This provides an entire world of simplicity to programmers looking to create new cryptocurrencies & DApps. And because each & every one of these Ethereum-based DApps is built on blockchain technology, they inherently carry all of the innovative benefits of a blockchain, which I mentioned in the previous video: like being decentralized, operating with an open ledger, being invulnerable to hacks, & functioning in an autonomous nature.
What are Ether & Gas?
Those of you watching this that already have an idea of what Ethereum is may have come across the terms Ether & Gas; and if you’re not part of this crowd but plan to dive into Ethereum soon, then you’ll definitely hear them being thrown around! Ether is simply Ethereum’s native token, while Gas is how much you pay for a transaction to take place. While there’s no actual token for it, Gas is a measurement unit paid in the form of Ether that’s used to reward Ethereum miners for verifying your transaction & adding it to the Ethereum blockchain; so essentially Gas is just a transaction fee. Here’s where things MAY get a little confusing, but I’m gonna do my best to simplify it for you. The total transaction fee you end up paying is determined by two things: Gas cost & Gas price. Think of Gas price as the hourly wage you’re willing to pay a miner, while gas cost can be thought of as the total number of hours the miner worked to process your transaction. While the gas cost is determined by how much computing power is required to process your transaction, the gas price is chosen by you & how much you’re willing to pay. Those willing to pay a higher price will have their transactions processed faster. You may be wondering why the Ethereum Project created such a complex method of determining your transaction fee, but once you know why, it’ll all make sense & seem more efficient in the long run. It’s because, like Bitcoin, Ether’s price is very volatile based on the market’s supply & demand. The genius minds behind Ethereum believed it would be more beneficial to everyone to make this transaction price completely separate (from the price of the Ether token) so that costs don’t have to change every time Ether’s market price moves up or down.
Where can I get my hands on some Ether?
Ether holds a very dominant position in the overall cryptocurrency market cap, and thus, it’s readily available on almost every exchange that Bitcoin is also available on. Like Bitcoin, the easiest place to purchase Ether for traditional fiat currency is Coinbase, which I’ve provided a link for in the description below. Bitcoin & Ether trade against both fiat currency & altcoins, but Bitcoin trades against the majority of alts while Ether is limited to a select few. BUT...all ERC-20 tokens that have yet to hit major exchanges are available to trade against Ether (and only Ether) on a decentralized exchanged called EtherDelta. If none of this makes sense to you just yet & it sounds like I’m speaking another language, hang tight, because I’ll be making more videos shortly on altcoins and where & how to trade them so that you too can start trading in no time!
Get ETH and BTC here: https://www.coinbase.com/join/5926bddfea359f083d018d81
