Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications.
Ethereum was proposed in late 2013 by Vitalik Buterin, a cryptocurrency researcherand programmer, and the system went live on 30 July 2015. In the Ethereum blockchain, instead of mining for bitcoin, miners work to earn Ether, a type of crypto token which can be bought and sold just like any other cryptocurrecy, and used by investors to buy into ICO opportunities.
Differences from Bitcoin
Like Bitcoin, Ethereum is a distributed public blockchain network. There are some significant technical differences between the two:
- The most important distinction to note is that Bitcoin and Ethereum differ substantially in purpose and capability. Bitcoin offers one particular application of blockchain technology, a peer-to-peer electronic cash system that enables online Bitcoin payments. While the Bitcoin blockchain is used to track ownership of digital currency, the Ethereum blockchain focuses on running the programming code of any decentralized application. The difference between Ethereum and Bitcoin is the fact that Bitcoin is more like storage of value, whereas Ethereum is a ledger technology that companies are using to build new programs. Both Bitcoin and Ethereum operate on blockchain technology, however, Ethereum’s is far more robust. If Bitcoin was version 1.0, Ethereum is 2.0, allowing for the building of decentralized applications to be built on top of it.
- Ethereum blockchain contains two types of objects, wallets which are used for holdings Ethereum (similar to Bitcoin wallets) and smart contracts which are similar to wallets in the way they can hold currency but are made of code. Once a smart contract code is deployed to the blockchain, it is executed by the network. This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middleman or counterparty risk. Because smart contracts run on the blockchain, they run exactly as programmed without any possibility of censorship, downtime, fraud or third-party interference.
- Bitcoin and Ethereum also cost their transactions in different ways. In Ethereum, it is called Gas, and the costing of transactions depends on their storage needs, complexity and bandwidth usage. In Bitcoin, the transactions are limited by the block size and they compete equally with each other, therefore, in our opinion, it more successful as a payment system.
Even though Ethereum is the second most prominent blockchain platform, Ethereum is less known and younger. It has a rich programming language built-in, but more complexity implies more opportunities to make an error. Ethereum features its own Turing complete internal code, which means that anything can be calculated with enough computing power and enough time. Bitcoin does not have this capability. While there are certainly advantages to the Turing-complete, its complexity also brings security complications, which contributed to the DAO attack in 2016.
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