Ethereum definition: what is Ethereum?

The creator of Ethereum, Vitalik Buterin, was inspired by the pioneering cryptocurrency, Bitcoin, but with a broader ambition: to change the world. How ? By providing developers with the ability to build decentralized applications on the Ethereum network. Back to the particularities of Ethereum, its history, how it works and the means to buy this cryptocurrency.

Definition of Ethereum

Ethereum is an open and decentralized blockchain network that also produces a cryptocurrency: Ether.

What is a cryptocurrency?

A cryptocurrency refers to electronic money that allows transactions to be carried out through cryptographic validation. It is a so-called “decentralized” currency, because it does not constitute a fiduciary currency (issuance of coins or banknotes) and payments by bank card or bank checks are impossible.

A cryptocurrency is therefore an alternative currency that is also not legal tender.. It is not regulated by any central body or financial institution, its price being neither indexed to a traditional currency nor to gold.

Different cryptocurrencies

On the other hand, a cryptocurrency can be exchanged on dedicated online platforms, or even ensure a return of money for the people who validate the operations at the level of the nodes of the network. This alternative currency works according to several principles:

  • Disintermediation : its technology and operation do not depend on the usual trusted third parties;
  • Security : the information provided is inviolable, due to a double security device of decentralized architecture and block code;
  • Autonomy : operating infrastructure costs (computing power and hosting space) are remunerated in cryptocurrency for network nodes, miners.

What is Blockchain?

The security and transparency of cryptocurrencies are guaranteed by the basic technology: the blockchain, a gigantic digital book that acts as an indelible and inviolable database. This chain of blocks ensures the authenticity of transactions through traceability controlled by all volunteer members. These “miners”, remunerated in cryptocurrency, provide the hardware providing the computing power and the storage.

A cryptographic process encrypts each block, this code being associated with the code which precedes it in the chain. Consequence: changing one block causes a chain reaction on all the others. The other security mechanism concerns the decentralized architecture, which duplicates all the blocks in each node of the network. Result: no danger of losing data on the way.

Representation of a blockchain network

The blockchain is a system that sees itself as revolutionary because it makes it possible to regulate what is not centralized. Moreover, Ethereum promotes Dapps, which are therefore decentralized applications.

Good to know: there are public blockchains like Ethereum and private blockchains like Libra launched, among others, by Facebook. The difference ? One is open to the public, the other has limited access.

What is Ethereum?

Ethereum is an open and decentralized platform that offers developers a blockchain on which they can build decentralized applications (Dapps) by signing smart contracts. These Smart Contracts are scripts that execute tasks automatically via the EVM (Ethereum Virtual Machine) virtual machine as soon as certain conditions are met..

The Ethereum network provides a cryptocurrency, Ether, which performs two functions:

  • Remuneration of the minors who work on its network, that is to say the people behind each computer serving as nodes in the network;
  • Remuneration of people who work directly on the Ethereum platform.
Fiduciary Representation of Ether

Note: the Ether cryptocurrency is symbolized by the series of three letters ETH on exchange platforms.

History and operation of Ethereum

The Ethereum project consists in creating a network of blockchains in order to offer developers a platform hosting decentralized applications.

The creation of Ethereum

The history of Ethereum begins in 2013, when Vitalik Buterin publishes a white paper on the subject. The following year, the student from the University of Waterloo decided to devote himself fully to his project. Working in concert with Gavin Wood, he benefits from a $100,000 Thiel scholarship.

The commissioning of the Ethereum platform occurs in 2015, the year during which the foundations of the project are established. On this project are added several companies (Bp, Intel, Microsoft), united within the Ethereum Enterprise Alliance (EEA) entity. Several changes are taking place to improve the platform, strengthen its security and efficiency.

Did you know ? The initial block of Ethereum is called genesis block. Launched on July 30, 2015, 60 million Ethers are in presale and 12 million for developers.

In 2016, Ethereum developers must perform a hard fork (creation of new software from source code), following an attack targeting the Ether fund
The DAO. Hackers hijack 5% of the total amount of cryptocurrency in circulation. If the hard fork annihilated the theft and returned the funds, part of the community rejects this choice, resulting in the splitting of the blockchain in two : Ether (ETH) remains the official one, classic Ether (ETC) its “spin-off”.

What are the principles of Ethereum?

The main idea of ​​the founders of cryptocurrency is not to enrich speculators, but to change the way transactions work in the world. If, initially, Bitcoin aimed to decentralize the currency, Ethereum wanted to broaden the scope.

Moreover, the 2013 white paper lists possible application examples:

  • Bank transactions;
  • Derivative financial instruments;
  • Market forecast;
  • Data flow ;
  • Creation of tokens (the tokens);
  • Data storage ;
  • Insurance contracts;
  • E-reputation and identity system, etc.

Currently, the decentralized applications (Dapps) built on it are open source, secure, self-contained, always available and simple to implement. Thus, all applications on the Ethereum network share the blockchain.

The Ether cryptocurrency can be bought, sold or exchanged against other cryptocurrencies, and even against classic currencies such as the Euro. The purchase of Ethereum can be done via:

  • Of the trading platforms
    like Kraken, CEX.IO, Gemini, Etoro and Coinbase Pro (GDAX);
  • Of the direct exchange platforms of cryptocurrency such as Coinbase, Coinmama and LocalEthereum;
  • Of the intermediaries such as Binance, Bittrex and Poloniex brokers.

Operation on Ethereum exchange platforms is simple, since all you have to do is register by entering certain personal data. The platform then verifies the identity of the subscriber (home address and identity document). The latter chooses his deposit method (credit card, PayPal or Skrill payment, bank transfer, SEPA transfer, etc.) by selecting his currency. As soon as the deposit is validated, it is possible to buy Ethereum.

Buy Ethereum

To choose the platform for buying Ethereum, you have to look at:

  • Deposit, transaction and withdrawal fees;
  • The reputation ;
  • The range of possible means of payment;
  • The security standards applied;
  • The exchange rate;
  • Geographic restrictions.

Good to know: by leaving their Ethers on the platform, the investor runs the risk of being robbed. Better to deposit them in an Ethereum wallet online, offline or physical (USB key, Ledger, Trezor).

Why invest in Ethereum?

Investing in Ethereum (ETH) is no different than investing in other cryptocurrencies. However, its rapid expansion is attracting attention.

The advantages of buying Ethereum

Ethereum is one of the three most popular cryptocurrencies on the market. Now used for many transactions, Ether is also adopted by international institutions and multinational firms, elements of reinsurance.

Note: Since 2018, the EEA has had more than 200 active members promoting cryptocurrency.

In the long term, investing in Ethereum is interesting because the blockchain network presents more promise for developers than Bitcoin for example. Written in full-Turing code, the Ethereum blockchain displays very fast transaction processing (12 seconds compared to 20 minutes for Bitcoin). The technology guarantees problem solving with maximum precision unparalleled on the market.

Unlike Bitcoin, Ethereum is not a threat to banks and financial institutions, but a source of opportunity. These players, scalded by the idea that the value chain of transactions escapes them, could take advantage of the Ethereum blockchain to accelerate their services by innovating via smart contracts.

Good to know: Bank of America has created, with Microsoft, an application on the Ethereum network in order to secure the transactions of their customers.

The risks of buying Ethereum

Obviously, its course depends on supply and demand, which implies respecting the basic principles of the functioning of the markets. Like other cryptocurrencies, Ether experiences great volatility in its price. The reasons: an economy that is still immature, a field still to be explored and illiquid markets.

The biggest risk of investing in Ethereum is therefore losing the starting capital. In order to limit these risks, we must adopt responsible behavior:

  • Limit investments in risky volatile assets;
  • Understand blockchain technology;
  • Monitor the degree of transparency of cryptocurrency;
  • Find out about specialized reference sites;
  • Find out about the quality of the developers on the job;
  • Understand the expansion limit of tokens whose volume can be limited.

By listing these common sense tips, buying Ethereum seems much less risky than investing in thousands of other virtual currencies, which do not have the same guarantees at all. Through its history, its institutional recognition and the prospects it offers, Ethereum is asserting itself as a serious competitor to Bitcoin, especially since its project to change the world still carries an intact ambition.

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Stephanie Guerrero

Consultant for 7 years in a large consulting firm, I wanted to specialize in new technologies, cryptos came to me!

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