What is Ethereum? Find out in our Complete Beginner’s Guide

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Ethereum is the second largest Cryptocurrency by marketcap, right after Bitcoin, and it serves as a platform for creating decentralized applications on the blockchain. Many different cryptocurrencies, blockchain-based platforms and apps actually build on top of the Ethereum platform.  Essentially, Ethereum makes it possible for developers to easily create innovative cryptocurrencies and their accompanying platform, providing benefits for people involved in this ground-breaking area of technology.


How Did Ethereum Begin?

Ethereum got its inspiration from Bitcoin. Vitalik Buterin, a then-17-year-old Russian-Canadian, learned about Bitcoin in 2011. By 2013, he had visited developers worldwide and published a white paper in which he proposed Ethereum. His goal was to expand the uses of decentralization from just currencies like Bitcoin. In 2014, he received the $100,000 Thiel Fellowship and dropped out of university to work on the project full time. It went live in 2015, and in 2017, it hit the cap rate, $36 billion.

Vitalik Buterin

How Does Ethereum Use the Blockchain?

As a quick refresher, the blockchain is a type of digital ledger that always records and verifies records. It was developed as the foundation of Bitcoin, but Ethereum and every other cryptocurrency use it, as well. Ethereum is one of many public blockchain networks with a decentralized design. Ethereum relies on the blockchain by running the code for programming an application. As a basis for comparison, Bitcoin uses the blockchain to track who owns digital currency.

What Advantages Does Ethereum Have Over Bitcoin?

Each Ethereum and Bitcoin serve their own specific purpose, but Ethereum does have a few advantages over the other system. With Ethereum, a block is mined about every 15 seconds, while Bitcoin’s block time is about 10 minutes. This allows for quicker transaction confirmation, although more blocks become orphaned. Additionally, Ethereum has a more sophisticated structure for fees, as they are based on network usage and storage needs. By contrast, transactions on Bitcoin compete with each other due to block size limits. It is also more affordable to mine Ether than Bitcoin, as it does not require as much capital investment.

What Is the Main Goal of Ethereum?

In creating Ethereum, the developers wanted to produce a platform that is based on the blockchain and decentralized but serves a unique purpose from Bitcoin, which was the only other major cryptocurrency at the time. While Bitcoin primarily functions as a currency, Ethereum’s main goal is allowing for the building of decentralized applications, which are known as Dapps.

What are Smart Contracts?

The most important part of Ethereum is that it allows for the creation of smart contracts. These are scripts that automatically complete a given task when the correct condition is met. The Turing-complete Ethereum Virtual Machine, known as EVM, executes these smart contracts and is run with a public network of international nodes. Smart contracts represent a huge innovation, as you do not need to trust the other party in a transaction.

Smart Contracts

Smart Contracts, Image from CoinDesk.

You could, for example, set up a smart contract to execute a bet with another person. In that case, you would each put the bet amount in an escrow account and agree on how the contract automatically checks the conditions for the bet. The contract then automatically determines who won the bet and moves the money appropriately from the escrow account. You can use smart contracts for purchases and a range of complex transactions. The only requirement is the explicit rules and conditions written into the smart contract.

What Should You Know About the Ethereum Virtual Machine?

Buterin was able to meet his goal of allowing decentralized platforms and apps with the Ethereum Virtual Machine, which is the runtime environment for Ethereum. The EVM is responsible for executing smart contracts, as mentioned above. More importantly, each Ethereum node runs the Ethereum Virtual Machine, so any application built on the EVM is automatically decentralized, without the need to create a blockchain from scratch.

What Are Decentralized Apps, and Why Do They Matter?

As mentioned, one of the main goals of Ethereum is the ability to create decentralized applications, known as Dapps. In this day and age, we are all aware of what applications are, but Dapps are decentralized versions. A Dapp will serve the same function as a regular application, but instead of running on a single network from a specific company, it runs on a network made up of nodes, a decentralized network.

Decentralized Apps

Decentralized Apps, Image from CoinDesk.

Decentralized applications provide numerous benefits over traditional apps with a single central source. For example, there is no chance of the application not working temporarily because the server went down. Dapps have 100 percent uptime because the blockchain always runs. There is also no risk of hacking because the protocols and data get stored cryptographically on the blockchain. When using Dapps, users can go and see the app code whenever they want, including both the backend and frontend. This means you don’t have to wonder why an application needs your location or contact list; you can go check.

To make them even better, Dapps are autonomous, automatically following the rules set up in them so there is no chance of corruption from the outside. They are also much easier to implement since developers don’t need to create a blockchain to use blockchain technology. They just build on the existing Ethereum framework. Most of the time, a frontend user will not know if they are using a Dapp or a traditional app.

What Is Ether?

It is important to keep in mind that Ethereum is a crypto platform, not a cryptocurrency. The related cryptocurrency is Ether, which serves several functions. Ether pays people using smart contract conditions, a process that encourages people to work on improving the platform. It also is used to provide compensation for mining full nodes, which provide the power for the network.

The price of Ether has rocketed in the last year from $7 at the start of 2017 to over $1000 at the beginning of 2018 as people purchase it for speculation and usage of dApps. The price is expected to continue rising over the next 12 months as the platform reaches maturity and brings in measures to help with scaling and more dApps launch on the system.

Ethereum Price


Anyone interested in cryptocurrency and the crypto world should certainly be familiar with Ethereum and its token, Ether. Both play a key role in creating new platforms and cryptocurrencies, serving as an entry point for developers who want to enter the crypto world and anyone with an interest in the field.

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Andrew is a blogger and Technology and Corporate lawyer qualified in the UK and Ireland. He has extensive experience advising clients on Fintech, data privacy and intellectual property issues. He holds a Masters in Corporate Law and currently works with a fast-growing e-commerce company in Ireland, as well as advising other start-ups in the Fintech space

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