What is Ethereum?

Bitcoin maybe the most famous of all modern, digital, cryptocurrencies, but there’s a new player which could be about to steal its thunder. Ethereum is a sophisticated refinement of the blockchain idea, and one that is already seeing real world applications.

So, what does it do, and why should you care? We delve deeper. Be sure to also read our What is Bitcoin? feature to find out more about cryptocurrencies.

What is a blockchain?

Both Bitcoin and Ethereum use something called a blockchain network. These are decentralised databases spread across multiple servers online, all of which are constantly updated to keep in sync.

The idea is to remove the kind of weak points in a system that are found on traditional setups, which can be taken down if the primary server is attacked.

Another advantage is that the system doesn’t need to have owners, such as a central site which controls everything, but instead relies on peer-to-peer technologies to function.

With millions of computers involved in the blockchain it also makes the system transparent, as so many copies of the information exist.

For years Bitcoin has used blockchain technology to become the most talked about digital currency in the world. Now, Ethereum is beginning to put a new slant on the blockchain approach, which could see it surpass the previously unstoppable Bitcoin phenomena.

 what is ethereum

How is Ethereum different to Bitcoin?

While Bitcoin is pretty much just a cryptocurrency that can be used to buy and accept payments online, Ethereum offers a little bit more than that.

Ethereum itself is an open source software platform that uses its own blockchain to allow users the ability to create contracts, crowd-source funding, and even set up their own secure social network .

So, what is Ethereum?

The idea is the brainchild of Vitalik Buterin, who was a co-founder of Bitcoin magazine. He describes Ethereum as being ‘specifically designed for people to build decentralised applications.’

The attraction of these style of apps is that they drastically reduce the costs and barriers to entry for developers, while also providing protection against censorship and manipulation from outside agents. Something that seems more important with every passing day.

Smart Contracts

One of the standout features in the software is Smart Contracts. With this tool users can agree terms with another party – for example, they’ll pay them 10 Ether (the currency in Ethereum) if a task in completed by a certain day – and encode these parameters into the contract.

Then, if the goal is achieved, the funds will be automatically exchanged without the intervention of a middle-man, or with any party being able to back out or welch on the deal.

Both users’ anonymity can also be persevered, keeping their deals away from nosey government agencies, despotic regimes, or corporate entities.

Making Money online

Another interesting way that Ethereum could be deployed is for organisations that want to create their own internal currencies.

The Ethereum website describes this process as enabling developers to ‘create a tradeable digital token that can be used as a currency, a representation of an asset, a virtual share, a proof of membership or anything at all.

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