What is Ethereum? An Intro to ETH in Under 10 Minutes
There’s no doubt that in Bitcoin’s (BTC) lifespan, it has stood as the king of cryptocurrencies because of its high marketability—it was the first-ever cryptocurrency with its creator shrouded in mystery. Unfortunately, this casts quite a large shadow on other cryptocurrencies in the market. The fact that BTC keeps breaking its all-time high doesn’t help either.
However, one cryptocurrency, in particular, seems to be growing quickly out of the shadows. Let’s take a deep dive into Ethereum (ETH), the number two crypto with a market cap of just over 303 billion USD at the time of writing.
The story behind Ethereum
Before we go into how ETH works, let’s first talk about how it was created. The idea spawned inside a 19-year old Russian-Canadian computer science geek’s mind, Vitalik Buterin. He was first intrigued by blockchain technology when he got involved in Bitcoin as a programmer—he even co-founded Bitcoin Magazine. Buterin then started to imagine a platform that went beyond the financial use cases allowed by Bitcoin. He then released a whitepaper in 2013 describing what would eventually become ETH and the Ethereum blockchain.
In 2014, Buterin and the other co-founders of ETH launched a fundraiser where they sold Ethereum tokens to get their vision off the ground. They ended up raising more than 18 million USD and the first live release came the following year. Since then, hundreds of developers have come on board and the platform has snowballed, growing into the number two coin on the market.
ETH 101: The basics
Ethereum is an open-source, decentralized, blockchain-based software platform. It’s essentially a platform that enables the use of Smart Contracts and Distributed Applications (DApps), eliminating the hassle of downtime, fraud, or third-party interference.
Smart contracts are self-executing contracts, which means that the buyer and seller’s agreement is directly written into lines of code. This is one of the most popular features of ETH, leading many people to believe in this platform’s longevity. Essentially, smart contracts allow people to exchange money, stock, property, or practically anything without the need to make use of a lawyer, notary, or third-party intermediary.
This could dramatically cut third-party costs. Let’s say you want to buy a stock using the platform. What makes ETH so great is that it fully automates the process. If you don’t hold your end of the bargain, the transaction won’t follow through to completion—and the same goes for the seller. Basically, if one party tries to cheat the other, Ethereum will cancel the transaction. This is the primary Ethereum use case and is what makes it stand out against other cryptocurrencies.
Decentralized applications (DApps), on the other hand, are digital applications that run on a blockchain or P2P network instead of a single, self-serving computer. Additionally, with them being decentralized, there’s no single authority that controls the network. Ethereum even provides developers with a comprehensive set of tools to build these DApps.
For example, a developer can make a Twitter-like app using the ETH platform and publish it so that any user can post messages. As a result of its decentralized nature, people will be able to post whatever they want and no one, including the app creators, can delete those posts.
Because Ethereum currently uses the Proof of Work (PoW) consensus mechanism—with plans of moving to Proof of Stake (PoS) along with the Ethereum 2.0 (ETH2) updates—the mining process is largely the same as Bitcoin. This means that miners use highly specialized computers to solve complex mathematical problems, with the ones getting there first being the ones rewarded with new crypto.
Before you start mining Ethereum, there are a few things you should take into account:
- Equipment cost – To be able to earn from mining ETH, you’ll need a computer with specific hardware and software tailored for mining crypto. More often than not, these can get quite costly—so make sure you do your research on the specs you’ll need.
- Electricity costs – Mining computers run 24/7, meaning that your electricity bill can stack up. This is why people often move to countries where power is cheaper—in order to make mining more efficient.
- Cooling systems – Because these computers running 24/7 to mine crypto, they can often heat up. You can either invest in state-of-the-art cooling systems or take advantage of a country that’s cool all year.
- Legality – The rules and regulations of cryptocurrency vary per country, so make sure that you’re mining in a place that allows it.
Once you’ve taken all of that into account, you can start mining. Here’s an overview of how to mine Ethereum:
- Pick out a wallet – First, you’ll need a place to store all your ETH. There are different types of crypto wallets out there, so make sure to choose one that fits your trading style.
- Build your mining rig – Choose from either a central processing unit (CPU) or graphics processing unit (GPU) mining rig to do your mining on.
- Choose a mining software – Mining software are programs that allow you to mine ETH with your mining rig, so choose among popular options such as WinETH, Claymore, ETHmine, MinerGate, and CGMiner, among others.
- Figure out which strategy you’re going to use – Would you rather mine by yourself or with a group? Both have their own sets of pros and cons, so make sure to choose a path before mining.
What is Ethereum Gas?
On the Ethereum blockchain, there’s a cost for making transactions, and it’s called Ethereum Gas. The tricky thing about these transaction fees is that they aren’t fixed. This means that the amount of gas required for each transaction may differ depending on the complexity of the exchange.
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For example, the minimum requirement for every transaction is set at 21,000 gas, meaning that a simple transfer could cost that much already. However, the more complicated it becomes, the more expensive it is. A more complex transaction could set you back 1,000,000 gas, for example.
This gas system exists so that the network could differentiate the computational costs from other expenses. By establishing a separate unit for making transactions, people would be able to tell the difference between the computational costs of the Ethereum Virtual Machine and ETH’s actual valuation. If you want to save money on your transactions, it would be a good idea to check what time Ethereum gas prices are at their lowest.
Ethereum vs. Bitcoin
With all that said, we bet you’re wondering how ETH differs from BTC. If they’re both cryptocurrencies that pave the way for more cost-effective transactions, what are the key differences between them?
- Bitcoin primarily trades in cryptocurrency.
- Bitcoin uses the PoW security protocol, which is a system that requires all its miners to verify a block by using high-end computers.
- The average block time for Bitcoin is around 10 minutes.
- BTC miners only receive their rewards when they successfully verify blocks.
- The majority of BTC’s limited supply cap (21 million) has already been mined.
- Bitcoin only allows public—censor-proof or permissionless—transactions.
- Ethereum offers many methods of exchange, including cryptocurrency and smart contracts.
- Ethereum also uses the PoW system but has plans to move to PoS when the ETH 2.0 updates are finished.
- The average block time for Ethereum is 12 seconds.
- Ethereum’s platform doesn’t offer block rewards. Instead, miners are rewarded with transaction fees.
- There is no limit to Ethereum’s supply. Instead of having a hard cap, the supply of ETH increases every year.
- Ethereum allows both permissioned and permissionless transactions.
Why Ethereum has Value
ETH is often referred to as a world computer, meaning that it’s known for its DApps and smart contracts. Although BTC has smart contracts as well, ETH’s self-executing contracts are baked into the system, which makes it really easy to use.
Basically, Ethereum has value because it represents a wide range of uses outside of transactions and the exchange of money. An example of this would be the non-fungible token (NFT) markets, which mostly run on top of the ETH blockchain.
How to buy and sell ETH
Just like Bitcoin, Ethereum has exchanges and P2P marketplaces that allow you to buy and sell ETH. So if you’re not interested in mining Ethereum, you can look for a reliable cryptocurrency that has:
- Robust security features – Look for a platform that implements products and services to protect both buyers and sellers.
- Reasonable transaction charges – Each platform will differ in the way that they charge its users, so be on the lookout for the ones that have lower fees.
- Authenticity and reputation – Make sure that you find a platform that is verified within the crypto community. This ensures that you aren’t dealing with a fraudulent platform.
How to store and send Ethereum
Ethereum, like Bitcoin, also uses cryptocurrency wallets as storage. There are many different types of wallets out there, so make sure to do your research so you can find the one that best suits your needs.
Mainly, the types of wallets will be separated into two categories: Hot wallets and cold wallets. Hot wallets are storage systems that are accessible through an Internet connection. Examples of these would be web wallets and mobile wallets. Cold wallets, although some can access the internet, remain mostly offline. These wallets trade in a little bit of accessibility for more security. Examples of these would be hardware wallets, desktop wallets, and paper wallets.
The future of ETH
Over the past few years, Ethereum has upped its security, making it an even safer means of transaction. One of the best things about ETH is that it’s not as monopolistic as BTC. This means that when the platform is challenged with security or scalability issues, the community can be more open to reform.
It’s evident in the way the platform is built that the developers are not in it just to make a quick buck. Instead, many people seem to be in it for the long haul, only allowing more leeway for growth opportunities in the future.
At this point, no one really knows where it’s going to go or if another Ethereum hard fork is going to happen, but one thing’s for sure: we’re here for the ride. Right now, the Ethereum price is sitting steady just under the 2,600 USD mark. But who knows, maybe ETH will be the one casting the shadow in the future?