After Bitcoin, Ethereum is currently the second most popular cryptocurrency. Since its inception in 2015, there have been many prophesies about its bright future. Ethereum is much more than just an instrument of exchange, mainly due to the different technology used compared to its virtual currency rival, Bitcoin. What is Ethereum? Can Ethereum, one day, dethrone Bitcoin from the cryptocurrency throne? And how can you buy Ethereum? In our article, you will learn everything you want to know about Ethereum!
Ethereum, like Bitcoin, is encrypted based on a decentralised database that keeps and protects an ever-increasing number of records. In computer science, this special kind of database is called a blockchain. It is also a decentralised virtual machine for running smart contracts.
Ethereum was created by the Russian-Canadian programmer and cryptocurrency inventor Vitalik Buterin, who also contributed to the development of Bitcoin. Rather than creating new cryptocurrencies, developers could create a shared computing platform that allows the blockchain to operate with decentralised applications.
The whole development was financed by crowdfunding and they raised slightly less than 18 million euros. The Ethereum network was subsequently launched on July 30, 2015, roughly two years after the whole concept was conceived. Ethereum falls into the category of next-generation cryptocurrencies, often referred to as Bitcoin 2.0.
The primary purpose of creating Ethereum was to improve smart contracts and extend them into wider use where they could, for example, replace and, in a way, decentralise all conventional contracts and agreements. Their use is absolutely vital for the operation of the entire network, and this is what makes Ethereum significantly different from Bitcoin.
Bitcoin was the first technology to support basic smart contracts in the sense that the network can transfer something valuable from one person to another. The entire node network will only confirm and approve the transaction if all of the specified conditions are met. However, Bitcoin is limited to a currency-only case. Ethereum, on the other hand, has replaced the very limited scripting language that Bitcoin (containing only about 100 scripts) uses, and allows developers to write their own programs and, therefore, smart contracts.
Smart contracts are actually programs that do exactly what their creators set. Contracts will help you to exchange money, assets, shares or, in short, anything with value, in a transparent and non-conflicting process, avoiding any third party interventions (lawyer, notary). A very popular example for understanding smart contracts is their comparison to a digital sales machine. Computer scientist and cryptographer Nick Szabo described how users can put data or something valuable into a slot machine and get the final item (eg. a drink or house) from the same machine.
Each action in the Ethereum network is supported by a certain amount of "fuel", which is based on the required computational power and the duration of the action. Instead of serving as a virtual currency, it is used as a digital fuel for the entire network.
Miners, at the instigation of the administrator of the smart contract, will trigger a program (the change, deletion, modification), and are rewarded with Ether cash. The normal transaction, for example, is 500 units, this quantity is subsequently converted to Ethers and the resulting amount works as a transaction fee, as is the case with Bitcoin.
Cryptocurrencies have in recent times, attracted excessive, almost enormous levels of attention. However, the rapid development of virtual payouts brings with it a constant and often confusing motion of change. Ethereum, as probably the most attractive cryptocurrency of today, is no exception - the whole network is constantly evolving, changing, and almost always growing every day. In order to get yourself up to date and in the picture, we have prepared the most important news and updates on Ethereum.
CryptoKitties is one of the first blockchain games ever. Players can buy a virtual kitty (CryptoKitty) for Ethers (ETH), each kitten being absolutely unique in its appearance or features. These kittens can also be bred by their owners to create new unique companions that they can subsequently sell. The game has gained an incredible level of popularity across the Internet - according to statistics from ETH Gas Station, payments associated with CryptoKitties currently account for the largest portion of transactions across the Ethereum network.
Ethereum has for a long time been the leading cryptocurrency pursuing Bitcoin, but on November 12, after the value of one Bitcoin Cash exceeded $1500USD, everything has changed. Bitcoin Cash passed the market capitalisation of Ethereum thanks to the rapid growth of the exchange rate and in the process became the world's second most valuable cryptocurrency. Despite the fact that the situation did not last long, it was a significant moment for Bitcoin Cash, as Bitcoin Cash ranked second behind its "Big Brother" bitcoin. The event, together with many congratulations, was shared by Vitalik Buterin, the founder of Ethereum on his twitter account.
As previously stated, Bitcoin and Ethereum are networks based on a public and decentralised blockchain database. Although there are significant technical differences between these networks, the most important thing is that Bitcoin and Ethereum totally differ in their purpose and capabilities. While the Bitcoin blockchain is used to track Bitcoin virtual currency transactions, the Ethereum blockchain focuses on triggering the source code of any decentralised application (smart contracts).
Another difference is that the average time to extract one block - in the Bitcoin database it is about 10 minutes, whereas for Ethereum it is only 12 seconds. For this reason, the confirmation of transactions is faster and Ethereum does not have to deal with the same scaling problems that Bitcoin has been suffering from for a long time. In addition, two-thirds of all Bitcoins have already been recovered and most of them are the primary miners; on the other hand, Ethereum has decided to offer the first Ethers in a pre-sale and probably half of all Ethers will be extracted by 2020.
Practically since its birth, Ethereum has attracted great attention. The breakthrough occurred in 2016 when DAO ( Distributed Autonomous Organization) was established. DAO's goal was to provide a decentralised business model to commercial and non-profit companies with clever contracts on the Ethereum network. Nearly 150 million USD was raised for the ambitious project in less than a month. The problem arose a month later, when a hacker attack on an organisation resulted in an anonymous group stealing $50 million in Ethereum cash.
This event caused considerable upheaval throughout the community, and eventually led to its division. One part of it encouraged the return of money back to investors, but it would require major changes and divide the entire Ethereum network, while the other part of the community supported the continuation of the current network without major changes. In the end, a more radical variant of the network, or "hard fork", won, and the whole blockchain database was split into two distinct branches - Ethereum (which is an article) and Ethereum Classic.
The division was somewhat hectic, and to this day is criticised for its conduct. The decisive vote on changes in the Ethereum blockchain was attended by 860 users of the currency, while the entire "hard fork" was repeatedly under attack by hackers. Nevertheless, Ethereum surpassed the crisis and after one year it ranks among the most popular cryptocurrencies.
You can buy Ethereum in three different ways:
On the Internet exchanges and exchange automats, you can exchange Ethereum for most of the world currencies (EUR, USD, GBP), as well as for Bitcoins and other cryptocurrencies. A condition for purchasing them is an active Ethereum wallet and that your identity has been verified, using a copy of your identity card and a document with your address (such as a bank account statement). You can find an overview of the best exchange bureaus at hongikat.
For an end user who only owns Ethereum currency, it is important to have a secure place to store your money. Similar to Bitcoin, the easiest solution is to establish an Ethereum wallet. There are several types of electronic wallets - you can choose from classic desktop wallets for your computer, mobile wallets in the form of smartphone applications, or purely online wallets that are only available through the browser on your device. An overview of the best Ethereum wallets can be found on the coinstair website.
Historically, however, it has happened several times that wallets have been stolen or disrupted by hackers, which all cryptocurrencies are vulernable to. So far, the safest way to store Ethereum is in a hardware wallet. They work in a similar way to software wallets, but all of the private keys are retained in a secure hardware device and are therefore immune to computer viruses and hacker attacks. Also, confirmation of transactions takes place outside the PC with multiple authentication methods.
The simplest and safest way to buy Ethereum is through the Bitcoin exchange system that supports Ethereum.
Here's how to buy Ethereum through a specific Coinbase Stock Exchange in a few steps:
With a little bit of help and proper mining equipment, extraction of Ethereum still has high potential and, unlike Bitcoin extraction, can be profitable in the case of solo-mining. Bitcoin mining is extremely difficult because, to mine these days, you now need to use powerful ASIC chips, which are very costly. Ethereum, on the other hand, is best leveraged by GPUs (graphics cards) that you can effectively combine into a mining rig, creating a kit specially designed to extract cryptocurrency. Consequently, the extraction efficiency can also be increased by joining a mining pool that focuses on Ethereum, for example, on the cryptocompare site.
If you still wonder if extraction can be advantageous for you, this special calculator will help you calculate the net mining gain based on your computing power and the price of electricity. A great way to start crypocurrency mining will be revealed in our simple but detailed guide - How to Extract Cryptocurrencies with Simplemining.net.
The advanced functionality of the Ethereum network in the form of smart contracts makes the currency commercially attractive and attracts large banks, firms, and even governments. For example, more than a year ago, the Ukrainian Parliament has shown interest in implementing smart contracts into its voting systems.
Today, the technology has become so popular that there has been an association of commercial institutions interested in Ethereum and the establishment of the Enterprise Ethereum Alliance (EEA), which in May 2017 had 86 members (including companies such as Microsoft). If this trend continues, Bitcoin will quickly have an equal competitor. What do you think? Does Ethereum have a chance?