Ethereum is, aside from Bitcoin, perhaps the biggest cryptocurrency giant today. Founded in 2013, it does have one key difference from Bitcoin, which is the fact that its blockchain applications are much wider; while it has its own cryptocurrency (the Ether), its platform is not just financially focused, but instead facilitates the use and distribution of decentralized software systems. This article will explain in some detail the way in which Ethereum differs from Bitcoin.
Ethereum and principles
Ethereum works from the principle that decentralized blockchain technology is a great idea not just for financial transactions, but more broadly. Because of this, it uses a blockchain ledger to run all sorts of applications on the Ethereum Virtual Machine – anything that can be expressed mathematically, from financial transactions to betting markets, private messages, voting results, sensitive software programs, and so forth. In this way, these applications benefit from the blockchain: they are kept more secure from hacking attempts, since they are stored on many computers at once instead of by one person or entity, and because of this decentralization, they also do not require trust in one particular middleman or entity. The entire system is conducted on a peer-to-peer basis.
The fuel for any Ethereum transaction is the Ether, and just like is the case with Bitcoin, Ether can be bought on exchanges. This is a quick and relatively easy way to acquire the currency, ideal for those who just want to use it as fuel. For those who are interested in acquiring it in a more challenging but also cheaper way, however, mining is also an option. Like in the case of Bitcoin, Ethereum miners are users who put some of their processing power at the disposal of the network in order to help process and secure the transactions of the blockchain.
Because Ethereum is newer than Bitcoin, mining is competitive but not as competitive as it is for Bitcoin; using regular PCs (CPU) is no longer profitable, but graphic cards (GPU) can still be used. Any GPU with at least 3GB RAM can be used for Ethereum mining with the help of a specific mining application for Ethereum, called GETH. The yearly Ether supply is capped at 18 million, in order to control the market and limit inflation, and successful miners can count on a reward of 5 ETH per block mined. They also receive all the “gas” expended in the transactions contained within the block – that is, the fees paid by users in order to conduct those transactions.
In terms of Ether’s history as a currency, one important event should be flagged up; this is the “hard fork” between ETH and ETC (Ethereum Classic) that took place in June 2016. At this time, TheDAO, which was a huge Ethereum project responsible for the mining of approximately 150 million dollars in Ether, was hacked. At this point, a vote was held to decide whether the code behind Ethereum should be altered in order to allow investors to recoup their lost funds; the majority of users agreed, and Ethereum continued under a modified code. Some users, however, did not believe a blockchain should ever be altered – since this goes against the very principle of decentralization – and decided to continue with the original code, as ETC, or Ethereum Classic. While the Ether remains a strong currency, this event should serve as a demonstration of the volatility of many cryptocurrencies: because of the upheaval at this moment, the Ether fell from $21 down to $8.