What is it?
Bitcoin is known as the leading cryptocurrency, designed as the next step in the evolution of money. With cryptocurrency offering the world a taste of what digital currency, without the central authority under governance and banking as we know it, could look like, Ethereum has been designed with a similar approach. However, instead of offering a digital approach to decentralise money, Ethereum aims to decentralise content and applications instead.
Many view Ethereum as Bitcoin’s main competition, but this is inaccurate because their concepts, while both rooted within blockchain technology, aim to fulfil different things.
In a nutshell, Ethereum is an open-source platform that makes use of blockchain technology to design, create and run decentralised applications (also known as “dApps”). These apps allow users to draw up agreements known as smart contracts which enable them to conduct transactions securely without relying on a middle-man such as a bank or other intermediary entity. For example, a person can make a trade or transaction directly to another using Ethereum’s technology rather than going to a lawyer to draw up a sales contract.
What are smart contracts and how are they relevant to Ethereum?
Smart contracts are self-executing contracts designed to carry out contract terms automatically. This helps reduce the risk of fraud, scams, and centralised or third party interference. Because of the way that they’re designed, they ensure that the terms of contractual agreements are met through digital means.
Smart contracts are relevant to Ethereum because of the way the blockchain-based technology makes use of them. Ethereum applications assemble and run smart contracts to conduct transactions. Once a buyer and seller agree to terms laid out on the network, the smart contract will be drawn up and will automatically activate the terms.
The benefits of Ethereum and blockchain technology
The Ethereum, network, using blockchain, is able to offer the world a better platform for exchange and storage because of the way it’s been designed as a distributed ledger.
This means that the network operates via a global network of computers and nodes which work together. Instead of having one source of data storage or operations, the data is distributed across the network, meaning that the chance of a hack or data breach is a lot less likely.
The main difference between Ethereum and the internet, in general, is how information and data are stored. All of the agreements, transactions, trades and data on the Ethereum network is stored in individual blockchain ledgers, meaning that you, as the user, are in total control of your own information. On the internet, information is stored in a centralised online warehouse, such as Google’s cloud server. This means the information that you own belongs entirely to you and is less likely going to face a data breach. It does mean, however, that if you lose the key to your information, you cannot get it back.
What Is Ether?
Because it’s an expensive process to run the computers that power dApps and execute smart contracts, the project relies on its cryptocurrency to help support the costs. This is where Ether comes in. It’s the platform’s native cryptocurrency that helps incentivise programmers and developers to run and operate the Ethereum network. The programmers are compensated in Ether tokens, which ensures that the applications continue running smoothly and that the network maintains its healthy operations.
In the same way that Bitcoin miners are rewarded with Bitcoin, Ethereum programmers are rewarded with Ether to add blocks to the ledger. The native cryptocurrency is also used if developers want to build and launch a new project on the platform.