Ether (ETH)
Ether is the second largest coin
by market cap (at the time of writing). The first thing I will
describe is the difference between Ether and Ethereum, as
this is something that people often seem to get confused
about.
Ethereum is a platform that was created for smart contracts
and decentralized apps. To explain smart contracts, think of
a simple contract like a trust as an example. Imagine you are
15 years old, and your wealthy grandparents pass away,
leaving you a large inheritance. Because you are so young,
your grandparents do not think you can be trusted with the
full amount right away, so they give it to a trustee to slowly
transfer you the funds over time. A contract might look like
this: $1,000,000 is held by a trustee, and every year on
January 1st, $100,000 is transferred to your account, until
you turn 18, when the remainder of the funds are given to
you at once. With a smart contract, the funds can essentially
be uploaded into the contract using digital currency, and be
programmed to transfer a set amount to your digital wallet
every year on January 1st.
Ethereum is the platform that smart contracts are built on,
and Ether is the digital currency that moves around on the
platform. In my example above, the $100,000 that is
transferred to the 15 year old is not transferred in USD or
CAD, it is transferred in Ether (ETH).
As mentioned, the Ethereum platform is also built for
decentralized apps (dapps). Forget the decentralized aspect
for a second, and just think of building applications for
something like the Apple app store. Using apps requires
computing power, which on the Ethereum platform is called
‘gas’. Gas can be purchased using Ether, which gives app
developers an incentive to make their applications very
efficient, thus requiring less gas and being cheaper to run. I
won’t go into more detail on that now, because
understanding the difference between Ether and the
Ethereum platform is really the key point here.
Whenever you see an Initial Coin Offering, the majority of the
time these are built on the Ethereum platform. So when I
referenced previously that there are thousands of
Cryptocurrencies, most of these are actually powered by
Ethereum, even if the coins have their own name and
symbol. So the best way to think of Ethereum is as
somewhat of an operating system like iOS, where you can
build apps on top of the platform.
Ether also has the benefit of being what I like to think of as a
Crypto reserve currency. The vast majority of coins cannot
actually be purchased with traditional Fiat currencies like
USD or CAD, you instead have to first buy BTC or ETH, and
then exchange it for the coin of your choosing. ETH is
currently my preference for buying altcoins, as the
transaction speeds are faster than BTC, and the fees
involved are far less.
