Understanding Ethereum

Ethereum’s “ether” (ETH) is one of the top cryptocurrencies. Ethereum is an open-source, public, blockchain-based, distributed, smart contract system. Ether is the name for the token/cryptocurrency that is native to Ethereum’s smart contract platform (just like Bitcoin is the token native to Bitcoin’s blockchain).[1][2][3][4][5][6][7]

In other words, the cryptocurrency Ether (like Bitcoin) runs on the Ethereum “smart contracts” platform (which uses a blockchain and smart contract system, like Bitcoin’s platform with some technical differences).

Then, since it is open source, other tokens can be created on-top of the ethereum network by other developers. This results in unique tokens/cryptocurrencies like Augur, Golem, Aragon, etc (which are different than Ether, but run on on the Ethereum network).

Interestingly, tokens can represent essentially anything a physical contract can represent. They can represent a digital asset, like a cryptocurrency, or a traditional contract, like an insurance contract.

The video below will offer a simple introduction to Ethereum and the difference between Ether and Bitcoin.

TIP: Ethereum is the system, ether is the token, despite this… most people refer to all of this as ethereum and use the terms ether and ethereum interchangeably.

DID YOU KNOW? You can actually create your own token right now (via tokenfactory).

Ethereum Vs. Bitcoin: What Sets Them Apart? | CNBC. A simple introduction to Ethereum’s ether.

FACT: Ethereum initially launched as an ICO. Meanwhile, many ICOs use the Ethereum network.

The Basic of the Ethereum Platform and the Cryptocurrency Ether

In other words:

  • The ether token which trades under the symbol ETH is the cryptocurrency, and Ethereum is the underlying network ether tokens relate to.
  • The Ethereum platform is open-source, meaning any developer can work on it or build off it (see github.com). According to a former CCO, “Everything at Ethereum, including our website, our tools, our whitepapers and of course our all of our software and compilers are 100%, wall to wall open source and under the GPL.”
  • Ethereum is public, meaning all aspects of the platform are open to the public to use, buy, trade, develop, mine, etc.
  • Ethereum is blockchain based, meaning smart contracts and ether token transactions use blockchain technology like bitcoin’s blockchain.
  • Ethereum is distributed and decentralized, meaning the blockchain (a public ledger, a record of transactions) is held by those who use the platform and there is no central force (like a central bank) controlling the currency.
  • Ethereum uses a smart contract system, where people can use the technologies of cryptography and blockchain to create peer-to-peer contracts for just about anything via the Ethereum platform (by paying a transaction fee in ether based on the computational power required to secure the contract; see, “gas“). Learn about smart contracts. TIP: Bitcoin’s system is also a type of smart contract system. In all cases the general idea is recording transactions on a distributed digital ledger.

Dan’s Intro to How Ethereum Works. A somewhat technical description of Ethereum for novices.

Understanding Ethereum and Ether Cryptocurrency Tokens

With the basics covered, let’s focus on the cryptocurrency aspect of Ethereum’s platform, as most people who use Ethereum will primary be trading, investing in, or generally using ether.

To reiterate the above, the Ethereum cryptocurrency “token” is called “ether” (token=cryptocurrency).

Ethereum’s “ether” token trades under the symbol ETH and it is what most people think of when they think of Ethereum.

In other words, Ethereum is a blockchain-based smart contract system that spits out tokens, and those tokens are the cryptocurrency everyone trades and uses called “ether” (which is confusing, especially given that many people refer to “ether” as Ethereum in casual conversation).

To further complicate the issue, but also to show off one of Ethereum’s interesting features, the Ethereum network allows new developers to build unique token based systems off the main Ethereum blockchain (for example the KIN ICO by KIK uses ether tokens and the Ethereum blockchain.)

The result is that a few different cryptocurrencies and many ICOs use a token system based on the Ethereum blockchain.

Learn more about ether from ethereum.org.

What is an Initial Coin Offering?

TIP: In other words “ethereum” is the network, and “ether” is the cryptocurrency AKA “the native token for the Ethereum Blockchain that is used as fuel to run smart contracts.” Further, developers can “fork” off the Ethereum blockchain and create their own tokens (these may have different names in practice, for example KIN). Meanwhile “ethereum classic” is the original ethereum cryptocurrency. Ethereum classic still trades on cryptocurrency exchanges and can be used as cryptocurrency. A new investor probably just wants ETH (Ethereum’s ether) and a digital wallet like MyEtherWallet (or a coinbase account with a built in Ethereum wallet).[8]

FACT: Ethereum’s ether tokens are a popular choice for ICOs. About 1/2 of ICOs use ether-based coins.

Citations

  1. Ethereum – Wikipedia
  2. Ethereum – Official Site
  3. Ethereum Token – Official Site
  4. The Hitchhiker’s Guide to Smart Contracts in Ethereum
  5. ETHEREUM: A SECURE DECENTRALISED GENERALISED TRANSACTION LEDGER EIP-150 REVISION DR. GAVIN WOOD FOUNDER, ETHEREUM & ETHCORE GAVIN@ETHCORE.IO
  6. How Do Ethereum Smart Contracts Work?
  7. A beginner’s guide to Ethereum tokens What is an Ethereum token?
  8. What are differences between Ethereum and an Ethereum token (like augur, aragon, golem, etc.)?


"What is Ethereum?" contains information about the following Cryptocurrencies:

Ethereum