What is Ethereum?

Released on

Apr 27, 2020

You might have heard of Ethereum. What is it? How does it work? What is ether? How do you store it, and can you pay with it? We answer all your burning questions on the world’s second most popular cryptocurrency on the market today!

Introduction to Ethereum

Ethereum is an open-source, blockchain-based distributed computing platform and operating system that was created for developers to build on top of the blockchain.

It enables smart contracts and decentralized applications (ĐApps) to be built and run without interference from a third party.

What is a smart contract?

  • A smart contract is a contract that is written in computer code and set up to execute automatically under specific conditions.
  • When a smart contract is on the Ethereum blockchain, all parties can check its code before agreeing to it.
  • A smart contract cannot be tampered with or changed after it is initiated.
  • Smart contracts allow parties to agree on complex terms without needing to trust each other and without needing any third parties.

What is a ĐApp?

A ĐApp is an application that runs on a decentralized network and uses decentralized resources. They are not controlled or owned by a single person or group, and thus cannot be shut down nor have downtime.

Who created Ethereum?

Ethereum was first described in a whitepaper published in 2013 by Vitalik Buterin. Buterin became interested in Bitcoin in 2011 and went on to become co-founder of Bitcoin Magazine, a popular online crypto resource.

He dropped out of university to focus on crypto full-time, eventually creating Ethereum alongside Anthony Di Iorio, Charles Hoskinson, Mihai Alisie, & Amir Chetrit.

Interesting fact: Buterin was 21-years-old when Ethereum was released!

Why was Ethereum created?

Hear from Vitalik Buterin himself in a Business Insider interview in 2019:

“I started to realize that there were a lot more interesting things that you could do with blockchains than just a single peer-to-peer currency. And this was something a lot of other people were starting to recognize at the same time. I came up with the idea behind Ethereum. This idea of a blockchain with a built-in programming language as, kind of, what I thought was the simplest and kind of, most logical way to actually build a platform that can be used for many more kinds of applications.”

In response to what Buterin was trying to fix in Bitcoin using Ethereum:

“Just too limited functionality. So like, think of the difference between something like a pocket calculator and a smartphone, where a pocket calculator does one thing and it does one thing well, but really people want to do all these other things. And if you have a smartphone then on the smartphone you have a pocket calculator as an app. You have playing music as an app. You have a web browser as an app and pretty much everything else. So basically taking that same kind of idea of increasing the power of the system by making it more general purpose and applying it to blockchains.”

Who owns Ethereum?

Just like Bitcoin, the answer is everybody and nobody! Ethereum is an open-source platform. This means that if you are a developer, you can write code to build new ĐApps on Ethereum. Anybody can use these ĐApps as a participant.

No company, organization, nor authority controls Ethereum. The platform is maintained and improved on by a remote and international community of contributors, who work on everything from the core protocol to DApps for consumers.

Because of Ethereum’s popularity, its native cryptocurrency, ether, has the second-largest market cap in the crypto space.

What is ether?

Ether is the cryptocurrency generated by the Ethereum platform. It is a form of digital money, like bitcoin, and is used as currency that can be transferred from one person to another, or as a store of value. It is also used as a reward to miners for computations performed to support the platform.

Ether is the only currency accepted in the payment of transaction fees on Ethereum. It is occasionally compared to gas or fuel for cars.

Like gas, ether is used to power transactions on the Ethereum blockchain so that a transaction can go from point A to point B. Ether also powers smart contracts and ĐApps.

How much ether exists?

As of April 2020, there is a circulating supply of more than 110,493,061 ETH.

Ethereum caps the limit of new ether to an additional 18 million ETH per year, regulating its distribution on a yearly basis.

It is worth noting that ether does not currently have an upper limit for maximum supply.

How can I buy ether?

Generally, you can buy ether on exchanges, most of these are online. Exchanges let you trade assets such as fiat money (such as euros and yen) for ether, and vice versa.

When you buy ether, always check that you are buying from a trusted exchange. You can verify their legitimacy by checking for official business licenses and looking up user app reviews.

How to store ether?

You would store ether in a crypto wallet, which is essentially an interface that lets you transact using ether.

There are various types of wallets, most commonly known as hot wallets and cold wallets. It is recommended that you store ether in both types of wallets, depending on your needs.

Store a ‘spending’ amount of ether in a hot wallet

For convenience and ease of use, you can store some ether in a hot wallet such as the TenX Wallet, so that you can spend it easily when needed.

Store majority of your ether in a cold wallet

A cold wallet is the safest way to store ether as you are the only person who has full control of the wallet. If you own a lot of ether, we recommend that you store most of it in a cold wallet.

It is worth learning about the various types of wallets and their features so that you can make the best decision for yourself.

How can I pay with ether?

A crypto card is the simplest way to pay for goods and services using ether. This is because it typically uses an existing payment network such as Visa or Mastercard to process your payment, with the crypto card company acting as the middleman and helping you convert from cryptocurrency to cash.

The TenX Visa Card, for example, makes it possible for you to spend ether at more than 54 million Visa merchant locations in over 200 countries.

Paying using ether is not limited to just merchants, you can also pay individuals by sending the amount of ether to their wallet.

To do this, you will need to get their Ethereum wallet address. As the payment is irreversible, make sure to check that:

  • You have gotten the complete and accurate Ethereum wallet address
  • The wallet you are sending to supports ether

How secure is Ethereum?

Ethereum by itself is absolutely safe and secure. In fact, the majority of security issues in the Ethereum world are caused by third-parties such as exchanges, wallet developers, or a user’s poor handling of their private key.

To make sure that your ether is safe, you can take some precautions:

  • Make sure that you are sending ether to the correct wallet address
  • Make sure that you are always on genuine websites when keying in any usernames and passwords
  • Do not store ether on an exchange
  • Learn about the different Ethereum wallets and how to use them
  • Do not share your private key with anyone
  • Complete backup instructions by your cold wallet provider

Pros and Cons of Ethereum

Pros:

  • Ethereum allows anybody to build on top of it, you no longer have to rely on large banks or institutions to build money services
  • You can create services on Ethereum at any scale, even if it is just for yourself and your family
  • Ethereum makes it possible to create and run smart contracts, and do not need third parties to execute on the contract fairly
  • You truly and completely own ether, no one can confiscate it from you or limit your access
  • You do not need to trust a third-party when transacting using ether
  • It is cheaper to do international transactions using ether than traditional bank transfers
  • Ether has no borders, and can be seen as an international currency

Cons:

  • Because you own ether yourself, you need to take full responsibility for taking care of your own money
  • There is high risk and high volatility in the price of ether
  • It is not regulated in every country yet

What is the future of Ethereum?

Ethereum has a bright future and we are just at the start of its adoption as a cryptocurrency and as a platform. According to State of the DApps, there are more than 3,118 applications built on top of Ethereum today.

In Forbes’ list of Top 50 Billion-Dollar Companies Exploring Blockchain, more than half of the companies are working with Ethereum. Plus, the community is made up of talented and recognised developers continually working on upgrading the platform and the protocols.

Although we cannot make price predictions about ether, we can see that Ethereum is gaining traction and adoption and is an exciting platform and cryptocurrency to keep our eyes on.