Although Bitcoin is probably the most well-known cryptocurrency, the latter can be successfully used in hundreds, if not thousands cases that go beyond virtual coins. A decade ago, developing blockchain-based apps required a serious background in programming, math, cryptography as well as other resources such as time and money. In 2015, a Russian-Canadian developer named Vitalik Buterin launched a project called Ethereum, which offered a new perspective on how Internet and applications can be developed and executed. Applications that implement advanced electronic voting & decentralized land registries, regulatory frameworks & blockchain gaming became possible with the introduction of Ethereum.
Previously, we have described how to buy Ethereum with Safello. In our new article, we will explain what Ethereum is and how a blossoming ecosystem has been built around its functions.
What is Ethereum?
Being the second largest cryptocurrency in the world by market capitalization, Ethereum is an open blockchain-based platform that allows its users to build and run decentralized applications (dApps). Similar to Bitcoin, Ethereum has a native token called Ether (ETH), which is generated through mining. Ether is well-known both as a tradable digital currency and a backbone of the Ethereum ecosystem. For example, it is used within the Ethereum network by app developers to pay for services and fees.
Even though there are some important differences between Ethereum and Bitcoin (mainly on the technical side), the most significant distinction to consider is that they differ in purposes. While Bitcoin offers a peer-to-peer platform which would eventually replace traditional online banking and payment systems, Ethereum focuses on creating a “world of decentralized applications”, which would eliminate the role of internet intermediaries - those that store and manage users’ personal data.
What is the idea behind Ethereum?
Nowadays, our personal records, passwords and financial details are kept on third party computers - in servers and data storages owned by multinational companies like Google or Amazon. Those parties are responsible for storing and securing terabytes of personal information and other sensitive data. That’s why the Internet as we know it today is centralized and monopolistic, i.e. there is a certain entity that stores and manages our data. At the same time, evidence has shown that hackers, interested parties or even governments can illegally access those files and thus make them exposed to attacks and manipulations.
Ethereum was designed with a goal to create the “next-generation internet” powered by decentralized applications, in which third party servers are replaced with “nodes” run by the network participants from all around the world.
Ethereum application cases
- Decentralized applications (dApps) are programs built on top of the blockchain network which provide certain services to its users. Due to the blockchain technology, dApps are not regulated by central (or individual) entities and are considered to be more reliable, secure and immutable to external control. Ethereum was the first platform that enabled developers to build all kinds of decentralized applications with the help of its blockchain. That’s why a lot of modern blockchain projects describe themselves as “Ethereum-based platforms”.
- Decentralized Autonomous Organizations (DAO) can also be built on Ethereum. DAOs are entirely autonomous self-governing organizations with a decentralized structure and no defined leader. They are powered by Ethereum's smart contracts and designed to eliminate the need for external control and vertical (town-down) structure. As a result, a DAO is co-managed by everyone who owns its native coin, which ensures its transparency and independence. The list of the most successful DAOs includes Dash, Aragon and many other organizations.
- ERC20 tokens. The Ethereum platform has also enabled developers to launch digital coins which conform with the so-called ERC20 standard. Simply put, users can define their own ERC20 tokens’ functionality, but they all should implement a list of common regulations outlined by the Ethereum Foundation. As of today, CoinMarketCap lists thousands of ERC20 tokens with different features and purposes.
To sum up
Ethereum (ETH) is more than just a digital currency. It also respresents an innovative blockchain platform powered by smart contracts which give its users endless opportunities and perspectives. Ethereum has the potential to fundamentally redefine the way the world functions and its actively moving towards it.