Introduction to Ethereum: How is it different from Bitcoin?
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What is Ethereum? How is it different from Bitcoin? How do you get Ethers? What does the future look like for Ethereum? In this tutorial, Jakob Mayer will answer all these questions and more.
What is Blockchain and why is it important to understand what Ethereum is?
To understand what Ethereum is and why it is needed, it is important to first define the term ‘Blockchain’. To best understand what Blockchain is, the easiest way is to visualize an Excel spreadsheet with the same information on it stored on thousands of computers. Whenever someone changes this spreadsheet, every user has the ability to see this change immediately.
The Blockchain database is not just stored on one computer or server, but on thousands of devices. This makes all existing data publicly accessible and easily verifiable. Also, hackers cannot attack a single database due to it being stored on thousands of computers. In short, Blockchain is a decentralized database that is transparent to anyone and less vulnerable to hacker attacks because the database is stored on thousands of computers.
What is Ethereum?
Ethereum is an open source software platform based on blockchain technology, enabling software developers to create decentralized applications.
What is the difference between Ethereum and Bitcoin?
Ethereum and Bitcoin are both Blockchain-based technologies. The biggest difference between Ethereum and Bitcoin lies primarily in the use of their technologies. Bitcoin only offers a Blockchain-based application. This is namely the ability to send and receive from a digital currency, that being Bitcoin. The Ethereum Blockchain on the other hand, not only provides the ability to receive and send payments but also allows all decentralized applications to be handled through the Ethereum Blockchain network.
Also, the Ethereum network has a digital currency called Ether. This can be mined by miners, similar to Bitcoins, and serves Ethereum developers to make payments for services and payments to use the Ethereum network. Another advantage of the Ethereum Blockchain over the Bitcoin Blockchain is the so-called Smart Contracts.
A Smart Contract is a computer code that allows an operation to be performed when a previously determined condition occurs. For Bitcoins, these Smart Contracts are limited to sending and receiving payments. The Ethereum Network, on the other hand, allows developers to develop a Smart Contract for a variety of operations. For example, a Smart Contract could be used to fulfill a service.
One problem with Blockchain technologies is known as ‘forks’. These are changes in the Blockchain code. These need to be done in part to counter network congestion or make operations more efficient. Such forks must be agreed within the community and carried out at the same time, otherwise individual applications will no longer work without corresponding updates. Such forks have been necessary for Bitcoin but also for the Ethereum network on several occasions.
How do you get Ethers?
As mentioned before, the Ethereum Network has its own digital currency called Ether. Ethers can be mined similar to Bitcoins. During mining, Ether blocks are found using complex computer operations in the Ethereum network. For the newcomers among you, this may not be the ideal solution for Ether. It is easier to acquire Ether in a crypto exchange. Coinbase and Kraken are quite popular options for such. Here you can exchange your Euros at the current daily exchange rate for Ether. Of course, if you own Bitcoins you can also trade Bitcoins for Ethers. Your Ether can be saved in a wallet below.
Here are some different options to choose from.
- For the more advanced among you, a paper wallet might be the safest option.
- For beginners, the page myetherwallet.com may be more appropriate. There, you can create your virtual wallet for free with your wallet address. From the crypto exchange, you can then send your newly purchased Ether to that wallet.
- As another safe wallet option, you should take a closer look at so-called hardware wallets. These wallets are similar to USB sticks and store your cryptocurrencies within such. For this, we can especially recommend the Ledger Nano S Wallet.
As a software developer, there is also the question of how you can become part of Ethereum yourself and develop your own applications. As mentioned above, Ethereum is an open source network — meaning anyone can become part of the community and develop products for free. A good starting point for interested developers is this website. This is the official Ethereum Beginners Guide for software developers.
What does the future look like for Ethereum?
The development of applications using the Ethereum Blockchain increased dramatically in 2017. With the strong growth of digital applications requiring Blockchain technology, the Ethereum network is also expected to experience further growth in popularity in 2018 and beyond.
Of course, with the increase in popularity and the development of more and more Ethereum applications, there are also some issues and challenges that the Ethereum team needs to overcome. The biggest challenge is to increase the number of confirmed transactions per second. Bitcoin can currently confirm about three to four transactions per second. Ethereum can currently confirm 20 transactions per second. At the moment, however, crypto-transactions are not yet a mass phenomenon and are only carried out by a minority of Internet users.
That being said, as Blockchain and Blockchain network transactions become a mainstream trend, it will be necessary to be able to handle thousands of transactions per second. To enable this, the Ethereum Developer Team is working on a technology called Casper. According to Ethereum founder Vitalik Buterin, this Casper technology will be available in the summer of 2018. With this Casper technology, up to one million transactions per second can be confirmed. From then on, it is also possible to handle mini transactions via the Ethereum Blockchain. The year 2018 brings a lot of excitement in any case, and hopefully a lot of progress within the Ethereum Blockchains.
You might want to take a look at this infographic about the history of Ethereum and how it could overtake Bitcoin this year.