What is Ethereum?

I’m sure many of you have heard of the term Ethereum. But how many of you know what exactly it means? You probably know it has something to do with finance and block chain technology, but what exactly is it? Is it a cryptocurrency or a platform? Is it like bitcoin or is it completely different? Continue reading to understand what Ethereum is and how it is different from bitcoin. 

Terms you will learn in this post:

Decentralized finance

Blockchain technology

Cryptocurrency

dApps

Smart contract

What is Ethereum:

First and foremost, Ethereum is a decentralized system that relies on blockchain technology to store financial agreements. So what does this mean? Well, a decentralized system is a system that does not rely on a third party to verify and store financial transactions. A bank for example is managed through a centralized system. It is a third party that manages our finance and transactions. Ethereum, like bitcoin, however does not rely on an outside party to mediate and verify the legitimacy of the transaction. 

Instead, they verify these transactions completely through the use of technology. More specifically, blockchain technology. Blockchain technology is also the basis of storing information in bitcoin. Blockchain is a technology that is devised to record and store financial transactions in blocks, also known as nodes. When one block is full another is added, thus creating a chain. However, the financial information is encrypted so that third parties cannot edit the information. This prevents hacking and other ways of cheating the system. Furthermore, Ethereum is a public ledger, meaning that the records stored in the nodes can be accessed and viewed by anyone, however due to blockchain technology they cannot edit it. 

Ethereum has its own programming language called solidity. It also has its own cryptocurrency known as Ether. Cryptocurrency is essentially an asset, you can trade, sell, and purchase cryptocurrencies. As of now, you can typically only purchase other cryptocurrencies rather than any goods. 

But what is the difference between Bitcoin and Ethereum?

Well as we know, both bitcoin and Ethereum rely on blockchain technology to run their platforms, however there is a slight difference in their blockchain technology. Bitcoin is strictly a cryptocurrency, meaning it only records and stores transactions using blockchain technology. Like Bitcoin, Ethereum allows users to store and record data using blockchain technology, but it also allows people to build dApps and smart contracts. 

dApps are essentially apps that connect participants of the network. dApps rely on a decentralized system as there is no third party overseeing the transactions, instead the transactions are stored and verified using blockchain technology. These transactions happen using smart contracts. Smart contracts are self-executing contracts which are coded computer programs. They are executed when their prerequisites are met and verified. In simple terms they use conditional, also known as if/else statements to run. 

For ex: If the microwave beeps then I will open it. 

The action of opening the microwave will only be completed if the prerequisite of it beeping is met

They execute once the prerequisite is met, so both parties of the agreement can have the desired outcome, without the intervention of a third party(which can prolong the duration of the transaction). An example of a smart contract is the voting system. A smart contract creates a safe place for voting, without manipulation and the threat of dishonesty. This is due to its lack of intervention from a third party and use of blockchain technology, so the entire transaction is safely encrypted.