What Is Ethereum?

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on July 19, 2023

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Ethereum is an open-source, public, blockchain-based distributed computing platform featuring smart contract (scripting) functionality.

Ethereum provides a cryptocurrency token called "ether", which acts as a vehicle for moving around on the Ethereum platform.

Ether is the value token of the Ethereum blockchain, though Ethereum's network supports other digital currencies.

The majority of ICO tokens issued on Ethereum are ERC 20 tokens that have built-in compliance with the set standard. Ethereum was proposed in late 2013 by Vitalik Buterin, a cryptocurrency researcher and programmer.

The development was funded by an online crowd sale during July–August 2014.

The system went live in 2015, with 72 million coins "premined" for the crowd sale.

This accounts for about 68 percent of the total circulating supply in 2018. Ethereum is currently the second-largest blockchain after Bitcoin by market cap, with a value nearing $14 billion as of May 2018.

The rapid growth of Ethereum has brought about an explosion in ICOs, which have been crowdfunding millions in capital for new projects on smart contract creation platform ethereum.

Its key feature is that it allows smart contracts - any digital agreements that are self-executing for either party involved in an agreement.

Because it's an open-source platform, anyone can create their own cryptocurrency that runs on the ethereum network - but they are independent of the ethereum team.

Ether is the currency that fuels transactions on ethereum, which means you need to buy Ether if you want to run dapps or make smart contracts. Ether has been referred to as fuel for the ethereum ecosystem.

In the future, that could very well change as Ether is not just a currency but also acts as a commodity as it will have to be consumed to access specific dapps on the network

Ethereum vs. Bitcoin

Ethereum's network is like Bitcoin in many ways, except that it has one major improvement - smart contracts. It was created as an improvement on bitcoin, but due to its popularity and success, it now competes against other currencies like Litecoin (LTC), Ripple (XRP), etc.

The primary purpose of Ethereum is that it's used to pay for smart contracts. Smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract.

The current version of Ethereum network effortlessly supports smart contracts. However, due to its scripting functionality and capacity to securely handle any type of transaction, Ethereum has been attracting many companies and has become a platform for ICOs.

How to Buy Ether?

In order to buy Ether, you'll need to open an account on a crypto exchange. Many exchanges are available, but the most popular ones for buying Ether are Robinhood, Coinbase, Kraken, Bitstamp, and Gemini.

You can buy Ether from fiat currency or bitcoin, depending on which one is available with your selected exchange.

Now that you have opened an account on your selected exchange, you'll need to link it with your bank account. After this process is complete, buy ETH by exchanging the currency available in your wallet for Ether. You can always trade it back afterward.

The History of Ethereum

Vitalik Buterin first described Ethereum in late 2013.

The system provides a decentralized Turing-complete virtual machine, the Ethereum Virtual Machine (EVM), which can execute scripts using an international network of public nodes.

The system went live on July 30, 2015, with 72 million coins premined for the crowd sale and 14 million coins more mined every year after that.

This accounts for about 68 percent of the total circulating supply in 2018. Ether is a cryptocurrency whose blockchain is generated by the Ethereum platform.

It is listed under the code ETH and traded on cryptocurrency exchanges, and the Greek uppercase Xi character (Ξ) is generally used for its currency symbol.

It is also used to pay for transaction fees and computational services on the Ethereum network. The Ethereum network is kept running by computers all over the world.

In order to reward the computational costs of both processing the contracts and securing the network, there is a reward that is given to the computer that was able to create the latest block on the chain.

On average, every 15 seconds or so, a new block is added onto the blockchain with the latest transactions processed by the network, and the computer that generated this block will be awarded three Ether.

Due to the nature of the algorithm for block generation, this process (generating a proof of work) is guaranteed to be random, and rewards are given in proportion to the computational power of each machine.

Pros of Using Ether

A user can get access to a wide range of dapps on the Ethereum network Ethereum is the pioneer in smart contracts and has been running its network for a long time, so there are many successful projects.

There are also new ICOs being launched every day on the network. Ether has a very promising future, and a large and dedicated developer community backs it.

Cons of Using Ether

The network can be very slow, especially when dealing with smart contracts or ICOs. The price of Ether is very volatile, which allows its users to make a lot of money if they know how to trade it properly, but that also means that you could lose a lot depending on what you do with it.

There is an increasingly larger number of ICOs, and thus, there's a risk that the value of ETH will drop if all these newly issued tokens get listed on exchanges.

The Bottom line

If you're looking to invest in a cryptocurrency, be it Ethereum or another coin, you should consider Ether as a long-term investment. This is one of the most valuable coins that have been developed so far and has many years of potential left in them.

Ether might lose their value in the short term, but they have all the chances to become worth double or even triple in the future.

Ethereum FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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