Ethereum is second most commonly known blockchain project after Bitcoin and as such many people are asking about the difference between Ethereum and Bitcoin as well as how to buy Ethereum.
The aim of this guide is to both explain what Ethereum is, the differences between the two major cryptocurrencies and of course how to buy.
What is Ethereum
Ethereum is an open source software platform using blockchain technology that allows developers to create and deploy their own decentralized applications, also known as DApps and ushered in the era of smart contracts.
This opens a lot of possibilities and greatly expands on what blockchain technology is capable of. While Bitcoin offers a particular application on the blockchain in being a peer-to-peer electronic cash system with an immutable public ledger Ethereums focus is on running a protocol to support decentralized applications.
Ether or ETH is the name of the cryptocurrency that is generated by the Ethereum network. The distinction here is that Ethereum is the name of the network and Ether is their currency.
One of the primary uses for Ethereum over the past two years has been as a crowdfunding mechanism allowing developers to launch their own ICO's (Initial Coin Offerings) to raise capital for their own blockchain venture. ICO's account for a large portion of the growth in Ethereums value so far though as with all digital assets speculation is another primary influence.
You could compare Bitcoin to Email in that it is one application of the internet and then Ethereum as a web browser allowing you to connect to and use third-party services.
Ethereum was first proposed in 2013 and went live on the 30th of July 2015 by Vitalik Buterin also known as the Boy Genius to his devout followers after raising funding via their own token crowd sale in the summer of 2014.
One of the core pieces to making Ethereum so powerful is the Ethereum Virtual Machine (EVM) which is a Turing complete software developed by Vitalik thar runs on the Ethereum network. This makes the process of creating new apps on the blockchain far easier than before and allows develpers to avoid having to build entirely new blockchains for each and every application.
What is a DApp
DApp stands for Decentralized Application, and like existing applications provides some sort of service or utility however unlike existing apps these tools are run on a decentralized network like Ethereum using smart contracts.
There are many uses for these types of applications and some existing DApps include decentralized trading exchanges, provably fair online casinos and future prediction markets, Loyalty rewards, advertising networks, freelancing platforms, blogging platforms, games and not to mention digital collectibles like CryptoKitties.
Companies are working on many more implementations and examples of these types of applications could eventually include self-driving cars recharging themselves and then paying the charging station automatically once the battery is full.
Imagine solar panels on rooves that call a repairment when they notice a fault and automatically pay the company or serviceman (or robot) automatically once the fault shows as repaired. Yes, welcome to the future my friends!
State of the DApps is a website that keeps a curated list of decentralized applications that is a great way to browse through other ways this tech is being used.
What are Smart Contracts
Smart contracts refer to computer code that can facilitate in the trustless exchange of money, property, shares or pretty much anything else based on pre-defined rules and criteria that has been programmed into the contact.
When specific conditions are met, the smart contract can then execute whether that means sending funds to a predefined wallet or some other result and because these contracts run on the blockchain they can't be edited or censored with by third parties.
Provably fair casinos are a good example, where several players all enter a game and submit their tokens, then when somebody wins the game the contract that is holding all players tokens automatically pays out to the winner.
Due to running on a decentralized network of computers which results in a supercomputer the network is impenetrable to hackers and doesn't suffer from downtime.
All blockchains are capable of executing code however Ethereum has been developed by Vitalik to allow other developers to program and define their own own rules and operations resulting in new innovations taking place constantly in the cryptocurrency ecosystem.
Essentially any process within a traditional contract that can be automated based on a set of rules can be implemented into a Smart Contract, cutting out the need for middlemen and lawyers resulting in money and time being saved. Win-Win!
What is Ether Classic?
Ether Classic is a cryptocurrency that is the result of a hard fork that happened in 2016 that resulted in the Ethereum blockchain being split in two leaving two networks and currencies. Ethereum which has the ticker code ETH and Ethereum Classic with the code of ETC.
There is a long story behind this and what happened but the short and skinny of it is as follows. The DAO (Decentralized Autonomous Organization) which was an experimental ICO launching on the Ethereum network was exploited and millions of dollars worth of Ether were stolen.
Vitalik Buterin the head honcho of Ethereum was left stuck between a rock and a hard place. He could ignore it and consider it as a hard lesson for everyone in the space who lost money and continue with the existing blockchain or he could fork the chain allowing him and his co-developers to roll back the chain to a previous date, correct any code problems and then essentially press play again. For those that lost funds, once they connected up to their wallets on the new Ethereum blockchain their funds were restored.
In the end, the developers and the majority of participants chose to go for the fork and so Ethereum forked to create a new version of the blockchain.
So you might be asking, why does Ethereum classic still exist, why it still has supporters and goes up and down in value.
The answer stems for the philosophy of blockchain technology itself. One of the fundamental reasons for blockchain technology is the ability to have an immutable and uncensorable public ledger. If one man and his supporters can overrule this fundamental expectation then it undermines an essential purpose of cryptocurrency and blockchain technology.
It's also similar to the bank bailouts during the recession which is most probably another reason why Satoshi started the Bitcoin experiment, he even leaves a clue in the Genesis block "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks".
This lead to developers who didn't agree with the hard-fork to begin actively developing and supporting the original chain and this is still continuing to this day. Supporters of the main Ethereum network consider Ethereum classic an attack on the network especially since a hacker owns millions of these coins potentially from the original hack.
Understanding the nuances of the DAO hack or exploit as it should properly be described are technical but nonetheless interesting and if you have the stomach for it, I highly recommend you read this interesting article about how it all went down from Motherboard that includes how a team of white hat hackers played a game of digital Tom & Jerry trying to recover the funds while the prospect of forking the network was being debated in the open.
The Future of Ethereum
Ethereum and the tools it has created have the potential to disrupt every industry we know! It might be Ethereum directly, it may be another project inspired by Ethereum or it may be that Ethereum creates the new playground for innovative thinkers to all disrupt, innovate and improve the lives of millions symbiotically. My crypto is on the latter but there's a long road ahead.
Ethereum is an actively developed blockchain and as such constantly adding new features and improvements. There are a few major updates in the development roadmap for Ethereum coming up over the next year.
The Metropolis update that includes adding zkSNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) yes quite the mouthful but this is essentially an improved security method, allowing you to prove something without showing what the proof is. In most cases, this would be a password or private key.
Another update that is to change the algorithm from Proof-of-work to Proof-of-Stake meaning the end of Ethereum mining is possibly around the corner.
Expect an increasing number of companies and professionals beginning to accept and endorse Ethereum as interest in this new technology continues to increase.
It is still very early on for Ethereum and I am sure there will some fascinating developments to observe over the coming years, they aren't without competition though with NEO, EOS & QTum all offering new as yet unproven alternatives.
If you want to learn more about the innovative developments that are possible with Ethereum then visit the official website ethereum.org
Ready to Buy Ethereum?
How to Buy Ethereum
If you are a relative newcomer to the space of cryptocurrencies then we strongly recommend you start with buying Ethereum from an approved company that has a user-friendly experience like Coinbase.
To start, visit their website and sign up for an account with the usual details. Keep in mind as Coinbase are dealing with money and have to comply with KYC regulations to keep their license you will have to complete what is known as a "know your customer" process to make sure you are who you say you are. Don't be put off by this, it's no different to if you were to sign up for a bank or Paypal and is purely for consumer protection.
When you have been approved you can then log in and go to the Buy/Sell menu item.
You will then be presented with the screen below. Of course, you want to select Ethereum if that is your purpose of signing up.
Enter the amount either in your native currency or BTC value keeping within your weekly card limits. (These will increase as you buy more each week or month).
Now you will need to purchase fairly promptly if you are happy with the price to make sure the price doesn't expire as the price can change very rapidly in this volatile market. This is often the reason for people having failed payments when they wait on the screen too long before actually purchasing.
Next, you will see a pop up asking you to confirm your purchase. Click confirm and proceed, the order will then show as processing.
If the page hangs for a while it may still have completed, simply open the 'Accounts' tab on the menu in a new tab or window and check the balances to see if you now have ETH in your wallet.
In the below photo the Bitcoin BTC wallet is selected, you will have to click on the ETH wallet.
There you go, that's all there is to buying Ethereum from Coinbase. I plan on doing a video on this process in the near future.
Best Ethereum Wallets
Once you buy Ethereum you will want to store it on an Ethereum compatible wallet somewhere. If you have purchased it from Coinbase using our recommended approach above then you can store it there if you wish, but you can't actively use it from your Coinbase web wallet or the app.
Whatever you do, never try and fund an ICO directly from your Coinbase waller or that of a trading exchange as they will have no way to issue you your tokens.
If you want to use your Ethereum for investing in ICOs, to trade with other cryptocurrencies or to use in a DApp you will be far better off sending this to myetherwallet.com where you can create a wallet that supports all ERC-20 tokens, not just Ethereum itself.
If you want to use a desktop wallet on your Laptop or PC then we would recommend using the Exodus wallet and for those with a preference for smartphones like an iPhone or Android device check out the Jaxx wallet.
The MetaMask Chrome extension is an ideal tool for connecting your MyEtherWallet to when you want to use a DApp in the web browser like EtherDelta which is a decentralized trading exchange for ERC-20 tokens that runs on smart contracts to execute trades or if you want to purchase a cute and not so furry digital collectible.
The Mist browser works similarly to MetaMask in that is an Ethereum Network ready browser allowing you to interface with the network without any additional browser addons.
We have a full guide on Bitcoin wallets where most are also compatible with Ethereum and it will state if they are.
For maximum security, we recommend using an ERC-20 compatible hard wallet like the Ledger or the Trezor.
Difference Between Ethereum and Bitcoin / Ethereum VS Bitcoin
Bitcoin is basically digital cash, Ethereum, on the other hand, is more like an operating system that creates a platform that others can build on top of.
The Ethereum block time is considerably different to that of Bitcoin in that Ethereums is around 15 seconds compared with 10 minutes for Bitcoin.
Ethereum Mining (unless or until it changes to PoS) doesn't feature the block reward halving that Bitcoin and many other cryptocurrencies have.
Transaction fees are calculated based on their computational complexity, bandwidth, and storage rather than by competing with one another which is what happens with Bitcoin.
The transaction fees are also much lower than those of Bitcoin although they do increase with network usage and other factors that can slow them down like CryptoKitties taking over.
Bitcoin is considered a first generation cryptocurrency, Ethereum is considered part of the second generation.
Given that Ethereum has the ability to launch all sorts of tokenized projects the potential for growth and market penetration could be considered far greater, but then what has more penetration than money?
To put it into perspective here is a list of ERC-20 tokens that run on the Ethereum network, so if you own any of these tokens, you may not own Ether but you may still own tokens that are reliant on this network and the technology it provides.
VIU, INS Promo, EOS, Tronix, OMG, BitClave, Salt Lending, EthLendToken, Golem Network Token, PowerLedger, StorjToken, Status Network, FunFair, Basic Attention Token, Civic, Kin, Logarithm, 0x Protocol Token, Swarm City, TenX Pay Token, BitClave, VeChain Token, KickCoin, Bancor Network Token, Decentraland, loopring, Dragon, GOLDREWARD, Quantstamp, district0x, Credo, Kyber Network, Bytom, Populous Platform, Maker, Auger, Binance/BNB, ICON, CrypteriumToken, BitSerial, Cobinhood, Plexcoin, MonacoCard/MCO and many many more.
Keep in mind new tokens are being issued on the Ethereum blockchain on a daily basis and new blockchain technologies are offering rival solutions. An example is EOS that issued its tokens for ICO purposes on the Ethereum network but their aim is to launch an improved version of the Ethereum network that supports ICOs and smart contracts, at which point it would be expected that they will reissue their tokens on their own standalone blockchain when ready.
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