02

UNDERSTANDING BITCOIN AND ETHEREUM

02

UNDERSTANDING BITCOIN AND ETHEREUM

Now that you have a general understanding of what cryptocurrencies are, let’s apply what you’ve learned by looking at the two most popular coins that have the biggest potential for longevity and evolving our system of currency.

Those two coins are Bitcoin and Ethereum, and their purpose and potential make both of them amazing assets to get a hold of.

bitcoin and ethereum

THE CREATION OF BITCOIN

bitcoin and ethereum

THE CREATION OF BITCOIN

Bitcoin was the very first cryptocurrency to be created, and it still leads the way as the top coin on the market.

It actually could be said to have started back in 1998, when Nick Szabo, creator of Bitgold, created a whitepaper illustrating the purpose of a completely unique and new form of money that transfers easily and didn't have the ability to be controlled centrally.

But without a technical background, Nick Szabo couldn’t create the actual code, and his initial idea didn’t have the practical capabilities it needed.

He posted around the internet about his idea, getting feedback and spreading the idea, until one day in 2008 when someone named Satoshi Nakamoto, an anonymous and unidentified person to this day, whipped up a code and created a successful coin that functioned on something called “the blockchain” (which we will get into in two articles.)

This peer-to-peer electronic cash system was thus born in November of 2008, when Satoshi Nakamoto first created Bitcoin and registered bitcoin.org as a domain name.

At this time demand was low, and thus the price of it was low.

And it stayed low for many years.

bitcoin and ethereum

THE CREATION OF ETHEREUM

bitcoin and ethereum

THE CREATION OF ETHEREUM

Ethereum, on the other hand, is a bit of a newer invention.

In 2013, a programmer involved with Bitcoin named Vitalik Buteryin created a whitepaper detailing a new platform for creation called Ethereum.

After trying to get programmers and the Bitcoin team to create a scripting language for Bitcoin and being met only with contempt, Vitalik created Ethereum and with it the ability to create decentralized applications.

In 2014 it made headway, as the core team was publicly announced and the "Ethereum Foundation" was established in Switzerland.

bitcoin and ethereum

WHAT IS BITCOIN?

bitcoin and ethereum

WHAT IS BITCOIN?

Now both of those were quick and easy to understand foundational stories of bitcoin and Ethereum, yet we haven't discussed what they really are...

Let’s start with Bitcoin.

Bitcoin is a peer-to-peer electronic cash system that has a store of value and the ability to almost instantaneously be transferred from person-to-person without excess fees.

Bitcoin's underlying technology, called “the blockchain”, allows the creation of ledgers and smart contracts (like a digital contract) that can be used for multiple different actions.

We’ll dive into the blockchain and it’s revolutionary technology more in the next article, but the short version is that someone who is sending another person money in the form of Bitcoin, doesn't have to worry if it gets there, or deal with transaction fees.

These smart contracts ensure that as soon as you press send that contract is set in stone and the receiver will get the money, without the ability to lie and say it wasn't received.

bitcoin and ethereum

BITCOIN ITSELF IS A DIGITAL STORE OF VALUE 'LIGHTER' THAN MONEY, QUICKER THAN A BANK TRANSFER, AND MORE SECURE THAN ANYTHING ELSE.

bitcoin and ethereum

BITCOIN ITSELF IS A DIGITAL STORE OF VALUE 'LIGHTER' THAN MONEY, QUICKER THAN A BANK TRANSFER, AND MORE SECURE THAN ANYTHING ELSE.

Essentially bitcoin and other cryptocurrencies are the evolution and future of money.

And on top of everything it does it cannot be centrally held or controlled, as it is a peer-to-peer open source technology that exists everywhere and holds records of where it exists using the blockchain.

Let's think of it as a quicker, more efficient, and safe version of cash.

And the best part is... There are only and will only ever be 21,000,000 possible bitcoins to exist.

What this means, is that it can become rare and worth more over time, similar to gold, without the possibility of inflation caused by over printing.

See, the problem with Fiat currency is that printing is controlled by only a few people in charge, and it is taken advantage of with the increase of debts for each country paired with the increase in circulating cash.

And cash isn't traceable so they can keep printing more and control the economy in anyway they deem necessary.

Watch Ray Dalio, billionaire investor’s video on the economy here if you'd like to learn more.

Now these 21 million bitcoins aren't all in existence yet, and the model that allows these ledgers to be seen by other people is by proof of work.

Bitcoin miners (people who have computers dedicated to their network) get small bits of information that help to assure that a block is passed, and that the ledger is verified on the network, and after enough verifications this ledger goes through.

So instead of handing someone money and them saying "I didn't get it" you have multiple touch points by parties that aren't involved in the transaction benefitting from the transaction (through a small processing fee) and helping to guarantee that the contract was completed.

Which leads us to the formation of Ethereum.

bitcoin and ethereum

WHAT IS ETHEREUM?

bitcoin and ethereum

WHAT IS ETHEREUM?

Despite the protocol and execution of Bitcoin working well, Vitalik Buteryin saw an opportunity for something greater.

This is Ethereum.

Ethereum is different than bitcoin.

When we think of Bitcoin to Ethereum, we can use the analogy of email to the internet.

Ethereum allows for the creation of Dapps (decentralized applications, like a Google which isn't owned and housed by Google’s central controls), DAO's (decentralized autonomous organizations that help with voting, healthcare, etc...) and a form of currency called “Ether”.

Ether helps to run Ethereum's networks in the form of power and dedication of the networks resources to specific DAOs or Dapps.

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 (because ultimately, the decentralized nature means that there is no company or entity that holds the name). It’s all peer-to-peer, allowing people to connect with people and not companies.

Ethereum is a bit more interesting in what it is though.

bitcoin and ethereum

ETHEREUM CREATES A SIMPLE WAY TO ENSURE THAT WHAT A COMPANY, PERSON, OR ENTITY SAYS STAYS TRUE. OR ELSE THE EXCHANGE ENDS AND EACH VALUE COMES BACK TO EACH PERSON IN THE EXCHANGE.

bitcoin and ethereum

ETHEREUM CREATES A SIMPLE WAY TO ENSURE THAT WHAT A COMPANY, PERSON, OR ENTITY SAYS STAYS TRUE. OR ELSE THE EXCHANGE ENDS AND EACH VALUE COMES BACK TO EACH PERSON IN THE EXCHANGE.

Commonly people say Ethereum is going at $300 right now, but in reality this is 1 ether.

After an initial crowdsale funding and with today's current amount, there are only about 96,000,000 Ether in existence.

Similar to Bitcoin, Ethereum can and is mined by a proof of work (PoW) model. People can dedicate computers to this network and help increase computing power and transactions by dedicating their resources to it and in return getting paid out in Ether.

However, Ethereum also includes proof-of-stake (PoS) model for verifying smart contracts.

This means that by putting up the Ether you own, you can pool and verify that the Ether and smart contract being sent can go through.

This allows for more decentralization and also more possibility.

Essentially it helps to create what is known as the "Internet of Things" or the ability to create smart devices and ensure that they fulfill their duty.

Turn on a light and it is supposed to work, but if it falters then the contract is void and you get your money back.

Coindesk has a great definition of how Ethereum aims to work and what it does:

"While bitcoin aims to disrupt PayPal and online banking, Ethereum has the goal of using a blockchain to replace internet third parties — those that store data, transfer mortgages, and keep track of complex financial instruments."

This essentially makes the mission and creation of Ethereum to be a global upgrade to computing and the internet, or as they call it in the book, "Internet 3.0".

bitcoin and ethereum

WHAT YOU NEED TO KNOW

cryptocurrency_lightbulb_icon

WHAT YOU NEED TO KNOW

Bitcoin was created by Satoshi Nakamoto in 2009. Ethereum was created by Vatilik Buteryin and team in 2014.

Bitcoin is the peer-to-peer electronic cash system for easy transfer of money and storage of value.

Ethereum is a complete system allowing for Dapps, DAOS and a monetary store of value in the form of Ether.

Both can be mined and are completely decentralized. Both allow for open source peer-to-peer editing as well as a global ease of use. Both are good investments towards your future and the future of this planet. Bitcoin and Ethereum use blockchain technology to secure and facilitate transactions.

But what exactly is the blockchain?

That’s what we’ll be diving into in Part 3.