What is Ethereum (ETH)?
ETH Coin Price
We're excited to see this article help you as an Ethereum Beginner's Guide to learning the ins and outs, and why it matters.
Let's talk value. Ethereum, or ETH for short is still considered to be in its early stages of development.
Although, since ETH was created in 2015 the value of Ether (the currency that powers the Platform) has increased more that 2,300% according to coinmarket cap:
Ethereum quickly became the second most valuable cryptocurrency and has been hovering around $300 to $330 per Ether as of writing this.
So why all the hype? Let's dive right in and discuss everything you need to know about ETH.
UNDERSTANDING ETHEREUM (ETH)
Most people enter the Cryptocurrency world through Bitcoin. One of the biggest questions asked is; if Ethereum is similar to Bitcoin?
Well, as most experts in the space reply, "Yes, Ethereum is kind of similar to Bitcoin, but not really."
Our favorite way of viewing the two are as follows:
You can think of Bitcoin being like emails. And Ethereum being the entire Internet.
ETH in its simplest form can be described as an open software platform based on Blockchain Technology...
That enables developers to create decentralized applications.
Whereas Bitcoin is pretty much limited to just being a form of currency.
This is the beauty and revolution of Ethereum. Going back to the Internet analogy, developers can use the ETH Platform to create applications such as Google, Facebook, Paypal, etc.
KEEP IN MIND! Google, Facebook, Paypal, Amazon, and so on and so forth are centralized companies. Meaning, they hold all the power, not you.
(We just wanted to use that example to gain a better understanding of how ETH functions.)
These third parties hold all your valuable information, think passwords, financial info, and other personal data.
Of course, there is a benefit to this, but this also opens up the door to vulnerability. A hacker or government at anytime can get a hold of your personal information without you even knowing.
Which is why we believe the power of ETH will completely change the way the world operates through smart contracts & Dapps (Decentralized Applications), for the better.
More on this in a moment!
THE HISTORY OF ETHEREUM
Ethereum was invented by Vitalik Buterin. In 2013, Buterin published the white paper which explains how the Ethereum network would function.
(As a side note, Vitalik was only 19 at the time of creating Ethereum. So damn, he's the man.)
Vitalik was also heavily involved in the development of Bitcoin.
Although, a problem came about. In the initial stages, most of blockchain technologies were limited in function. There were mainly designed to just be digital currencies.
“I thought [those in the Bitcoin community] weren’t approaching the problem in the right way. I thought they were going after individual applications; they were trying to kind of explicitly support each [use case] in a sort of Swiss Army knife protocol.”
Basically, this led him to see the opportunity to create the ETH platform. Where it's not just limited to being a currency.
In 2014 it made headway, as the core team was publicly announced and the "Ethereum Foundation" was established in Switzerland.
ETHEREUM CLASSIC VS. ETHEREUM
This most likely is not going to change how you use Ethereum now, but we still would like to give you a full briefing of its history.
So, before Ethereum, there was Ethereum Classic. ETC still exists but it's not that popular anymore.
Why? Ethereum Classic no longer receives new updates that go on in the current Ethereum (ETH) platform because of the hard fork.
(Don't worry, we are about to connect the dots in a moment.)
Also, most of the big players in the Cryptospace are mainly involved in ETH, because ETC is known to be full of scammers now.
Lastly, after the hard fork, Ethereum Classic is now known to be sort of an insult and attack on the Ethereum Community.
Now, why all this drama?
The Decentralized Autonomous Organization Attack
The DAO for short is basically a means to fuel the creation of new decentralized applications on the ETH Platform.
Think of it like venture capital.
If you wanted to have a say in what is being created, you can purchase DAO tokens and have a "vote."
Ethereum operates on what is known as smart contracts (more info on these below).
The DAO is a very complex smart contract to execute on what we just mentioned above.
The big problem...
As it turns out, a hacker found a glitch in the DAO smart contract and managed to run off with about $50 million dollars worth of Ether.
If you decided you no longer wanted to be apart of the DAO and wanted to sell back your tokens, you could do so.
What the hacker did was glitch the DAO smart contract with certain code that triggered more Ether to come out than was initially put in.
Is This Something You Should Be Worried About?
Not really, the co-founder of Ethereum explains this perfectly:
"Blaming Ethereum for the DAO hack is like saying “The Internet is broken” every time a website goes down."
The DAO smart contract is what had the problem. Ethereum was still running perfectly fine in the background.
Soft And Hard Forks
Finally, this is what created the split from Ethereum Classic (ETC) to what you now know today as Ethereum (ETH): The Hard Fork.
There are two types of forks:
The main difference to keep in mind is that a soft fork can still go backwards. Meaning, older versions will still work on the newer ones. Minus a few bells and whistles.
With a hard fork - it is NOT backwards compatible and creates an entirely different set of rules.
Ethereum implemented a hard fork and made all the hacker's stolen money worth nothing.
Although, this was a very controversial decision because the great attribute of a blockchain is that it's not able to be changed.
This is what led to people who didn't approve of this change to brand the old version, as Ethereum Classic.
Where We Are At Now
This was a huge disaster for ETH, yes, but now it's back better than ever and growing at an exponential pace!
It's continually being updated with the latest changes and is much faster than the old version.
As we mentioned earlier, the big players in the crypto space have ETH's back.
The DAO hack has been solved and the stolen money was even returned back to the victims.
And lastly, there's a group called the Enterprise Ethereum Alliance (EEA) which aims to use the blockchain technology to run smart contracts at Fortune 500 companies. A few companies you may recognize that will be participating are: Microsoft, BP, JP Morgan, Toyota, ING, etc.
Unfortunately, the same cannot be said about Ethereum Classic.
THE PURPOSE OF ETHEREUM
Now that we got the main bits of history of Ethereum laid out, let's take a closer look at how Ethereum actually functions and the core components that make it up.
We touched on Dapps earlier in the article. Ethereum is the platform in which anyone can create applications on.
One way of looking at this is, any services that are centralized can be decentralized using ETH.
It'll take services such as Google, Facebook, Paypal, Banks, Voting Systems, etc. and eliminate the need for centralized control...
Giving the power in the hands of everyone, because no single person will truly own it or able to call all the shots.
Your personal information will be much safer, and you could even have a say in what gets created through the DAO (mentioned above).
The true benefit of Decentralized networks is that there is no one point of failure. They are also highly secure through cryptography, and unchangeable (preventing fraud).
Here's the perfect example that ties back to our Bitcoin = Email and Ethereum = The Internet analogy.
Bitcoin is actually considered to be a decentralized application. It's an digital cash system that enables peer to peer transactions. And it's not controlled by anyone or a central entity.
Do you now see the power of Ethereum? You could build your own "Bitcoin" using the platform of Ethereum.
Decentralized applications have the power to disrupt hundreds of industries such as finance, insurance, real estate and more...
Let's say you want to start a decentralized Uber on Ethereum. The first thing you would need is to get enough Ether to run your Dapp, and then you would be able to create transactions and the whole development on the Ethereum blockchain network.
This leads to an Uber that actually pays out the people doing the work, more than the company and entity that holds the name. Ultimately, it’s all peer-to-peer, allowing people to connect with people and not companies.
What Is A Smart Contract?
The possibility of creating truly decentralized applications and services is created through the basis of Ethereum - smart contracts.
The phase "smart contract" is simply referring to the computer code that aids in the exchange of money, content, property, shares, or anything of value.
Now, the magic happens when you combine the power of smart contracts with blockchain technology.
When a smart contract is programmed into the blockchain, they run exactly as programmed without any possibility of censorship, fraud, downtime, or third party interference.
If the conditions are met from BOTH parties, only then will the value be exchanged.
And when a party cannot execute on their side of the exchange, the contract is voided and nothing happens.
The Ethereum Platform is powered by the currency called Ether.
As their website puts it: "It's the crypto-fuel for the Ethereum Network."
So a way of looking at Ether is, it's an incentive for developers to create awesome applications. If something is low quality and wasteful, it'll most likely cost more.
If you're not looking to develop anything, you'll most commonly be trading Bitcoin into Ether to use it as a currency and/or interacting with smart contracts on the Ethereum blockchain.
Now, taking things a level deeper, we have what is called gas.
Computation power, smart contracts, Dapps, trading, etc. all cost something to be executed.
Gas is priced by a small fraction of Ether. This makes sure that nobody does work for nothing, and discourages wasteful code.
The price of gas will not fluctuate when the price of Ether changes. It will always be based on the actual price of computer power.
Our guide for buying and safely storing your Ethereum is coming soon!
In the meantime, we understand the way of storing Cryptocurrencies can feel a little confusing as it's still very new in nature.
With mass adoption, it most likely will become easier and easier.
Now, let's see how this new system of doing things relates to what we already know...
So, let's use your bank account and compare it to an Ethereum Wallet.
With your bank account, you have an account number and a routing number. Both are used to identify that it's indeed your account and allows to send or receive money to and from different services.
Whether you are trying to wire money to a friend, setup direct deposit from your job, etc...
Cryptocurrencies generate a similar string of letters and numbers (secured with cryptography) that creates:
- A Public Key
- A Private Key
...For your ETH Wallet that determines where to send or deposit funds.
Your public key can be sent to anyone so they can send you money.
To spend Ether, this is where your private key comes in.
You can think of this similar to your routing number in a bank account. And you most likely don't want anyone to get a hold of this.
WHY WOULD I USE ETHEREUM
First and foremost is security. You no longer need to put your trust in a third party. And nothing can really hack into your crypto wallets unless they were using quantum computing.
Second, you become your own bank. You're responsible for keeping your funds safe. This creates the freedom of not needing to wait for a bank or third party to approve (or getting bombarded with fees) what you're doing with your money.
Third, you're joining a new movement. You are quite literally becoming part of a global network that is going to change how hundreds of industries function through the use of smart contracts.
EXTRA STUFF YOU SHOULD HAVE AN IDEA ABOUT
The Ethereum Virtual Machine
Throughout the article, we talked about how anyone (with developing skills of course) could use the Ethereum blockchain technology to create their very own Dapp.
This is made possible through the virtual machine. This is basically a software that runs on the Ethereum Platform that allows for anyone to run any program, regardless of the programming language given enough time and memory.
Think of this as a template. You don't have to build blockchain applications from scratch, you simply can "copy & paste" Ethereum's protocols and build upon them into something new.
Performance & Scalability
ETH is fast and scale-able. Which is important as more and more people start to get involved.
Part of this comes down to how miners validate blocks/transactions.
There's Proof of Work (POW) and Proof of Stake (POS)
For example, Bitcoin runs on a POW model. As more and more people are using Bitcoin, it's becoming a little slow and clunky.
(Slow in a sense that, transactions could take up to 15 minutes. And if we were to send money across the globe, it could take up to roughly 1 to 2 hours.)
POW requires miners to show/prove that they are indeed doing "wasteful" math necessary to add a new block to the blockchain and validate it.
This does a great job at preventing spam, but it's very resource intensive and makes it hard to scale to more people.
POS doesn't require that "wasteful" math, making it much quicker and more energy efficient.
Instead, the minors will have to bet their own stake of Ether with confidence to create a new block on the chain.
If a spam or malicious block is created, that miner would lose their stake.
Currently, Ethereum is in its early adoption of POS.
Is Ethereum Tied To The Dollar?
The value of Ethereum is based on buying and selling in the crypto market. If there is a higher demand for Ether, the value will increase.
Ethereum is not tied to the value of any other currency.
And based on the demand, Ethereum is being traded on a day to day basis with Bitcoin, dollars, euros, yen, and other currencies which causes the price to fluctuate.
Is Ethereum Similar To A Credit Card Or Paypal
Bitcoin, for example, is primarily designed to be a digital currency for peer to peer exchanges. You can send and receive Ether in a similar fashion.
Since it's decentralized and you are in complete possession of your own money, you do not need to go through a bank, Paypal, or the third party to send someone money.
Although, Ethereum's main goal is to serve people with the use of Smart Contracts. Much more than just a form of money.
WHAT WE AT GCA THINK ABOUT ETHEREUM
We at Global Crypto Academy are full supporters in Ethereum. It's going to change how the world operates for the better.
In a sense, it's going to allow thousands of new ways to make exchanges with 100% trust, with people you don't have to trust.
The ETH Community is full of very intelligent and innovative folks and they are doing their best to deliver.
Investing in Ethereum will not only set you up for a financial advantage in the future, but it will also go towards an amazing movement in which you can be apart of.
If you liked this review and want to help support the academy donate some ETH below!
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