There’s no doubt that in Bitcoin’s (BTC) lifespan, it has stood as the king of cryptocurrencies because of its high marketability—it was the first-ever cryptocurrency with its creator shrouded in mystery. Unfortunately, this casts quite a large shadow on other cryptocurrencies in the market. The fact that BTC keeps breaking its all-time high doesn’t help either.
However, one cryptocurrency in particular seems to be growing quickly out of the shadows. Let’s take a deep dive into Ethereum (ETH), the number two crypto with a market cap of over 138 billion USD at the time of writing.
Where it came from
Before we go into how ETH works, let’s first talk about how it was created. The idea spawned inside a 19-year old Russian-Canadian computer science geek’s mind, Vitalik Buterin. He was first intrigued by blockchain technology when he got involved in Bitcoin as a programmer—he even co-founded Bitcoin Magazine. Buterin then started to imagine a platform that went beyond the financial use cases allowed by Bitcoin. He then released a whitepaper in 2013 describing what would eventually become ETH and the Ethereum blockchain.
In 2014, Buterin and the other co-founders of ETH launched a fundraiser where they sold Ether—Ethereum tokens—to get their vision off the ground. They ended up raising more than 18 million USD and the first live release came the following year. Since then, hundreds of developers have come on board and the platform has snowballed, growing into the number two coin on the market.
What is Ethereum?
It’s an open-source, decentralized, blockchain-based software platform. It’s essentially a platform that enables the use of Smart Contracts and Distributed Applications (DApps), eliminating the hassle of downtime, fraud, or third-party interference.
Smart contracts are self-executing contracts, which means that the buyer and seller’s agreement is directly written into lines of code. This is one of the most popular features of ETH, leading many people to believe in this platform’s longevity. Essentially, smart contracts allow people to exchange money, stock, property, or practically anything without the need to make use of a lawyer, notary, or third-party intermediary.
This could dramatically cut third-party costs. Let’s say you want to buy a stock using the platform. What makes ETH so great is that it fully automates the process. If you don’t hold your end of the bargain, the transaction won’t follow through to completion—and the same goes for the seller. Basically, if one party tries to cheat the other, Ethereum will cancel the transaction. This is the primary Ethereum use case and is what makes it stand out against other cryptocurrencies.
Decentralized applications (DApps), on the other hand, are digital applications that run on a blockchain or P2P network instead of a single, self-serving computer. Additionally, with them being decentralized, there’s no single authority that controls the network. Ethereum even provides developers with a comprehensive set of tools to build these DApps.
For example, a developer can make a Twitter-like app using the ETH platform and publish it so that any user can post messages. As a result of its decentralized nature, people will be able to post whatever they want and no one, including the app creators, can delete those posts.
Ethereum vs. Bitcoin
With all that said, we bet you’re wondering how ETH differs from BTC. If they’re both cryptocurrencies that pave the way for more cost-effective transactions, what are the key differences between them?
- Bitcoin primarily trades in cryptocurrency.
- Bitcoin uses the Proof of Work (PoW) security protocol, which is a system that requires all its
- miners to verify a block by using high-end computers.
- The average block time for Bitcoin is around 10 minutes.
- When BTC miners verify blocks, only then will they receive their rewards.
- The majority of BTC’s limited supply cap (21 million) has already been mined.
- Bitcoin only allows public—censor-proof or permissionless—transactions.
- Ethereum offers many methods of exchange, including cryptocurrency and smart contracts.
- Ethereum uses the Proof of Stake (PoS) security protocol, which makes the consensus system completely virtual. Instead of miners, PoS uses validators that lock up their Ether in the system as a stake. From there, validators bet on the blocks that they feel should be added to the blockchain.
- The average block time for Ethereum is 12 seconds, making transactions much faster.
- Ethereum’s platform doesn’t offer block rewards. Instead, miners are rewarded with transaction fees.
- There is no limit to Ethereum’s supply. Instead of having a hard cap, the supply of ETH increases every year.
- Ethereum allows both permissioned and permissionless transactions.
The future of ETH
Over the past few years, Ethereum has upped its security, making it an even safer means of transaction. One of the best things about ETH is that it’s not as monopolistic as BTC. This means that when the platform is challenged with security or scalability issues, the community can be more open to reform.
It’s evident in the way the platform is built that the developers are not in it just to make a quick buck. Instead, many people seem to be in it for the long haul, only allowing more leeway for growth opportunities in the future.
At this point, no one really knows where it’s going to go, but one thing’s for sure: we’re here for the ride. Right now, the ethereum price is sitting steady just under the 1,100 USD mark. But who knows, maybe ETH will be the one casting the shadow in the future?