What is Ethereum? The Ultimate Guide for Newbies

Want to know - what is Ethereum? Not many people know what Ethereum really is. So, we're here to explain in simple terms.

Are you wondering – What is Ethereum? If you’ve ventured into the world of crypto, you’ve undoubtedly come across Ethereum. Ethereum is one of the top cryptocurrency coins in the world – second only to Bitcoin (although some say Ethereum will overtake Bitcoin one day!).

But what is Ethereum exactly? And, more importantly, what is Ethereum used for?

We’ll explain everything you need to know, including what Ethereum is, how it works and what it’s used for.

Ready to explore our Ultimate Guide to Ethereum? Let’s go!

What is Ethereum?

Before we explain how Ethereum works and what it can be used for, let’s discuss what is Ethereum – because it might surprise you.

Most people, especially those new to crypto, consider Ethereum a cryptocurrency. But this isn’t exactly true.

Ethereum is actually a decentralized blockchain network. Ether (ticker symbol ETH), on the other hand, is Ethereum’s native cryptocurrency token. In other words, Ethereum is the technology behind the crypto token Ether.

That said, the two names – Ethereum and Ether (or ETH) – are often used interchangeably.

Ok, so, we’ve established that Ether is not the same as Ethereum. But what exactly are the differences between Ethereum vs Ether? We’ll explain.

Ethereum vs Ether

The biggest difference between Ether vs Ethereum is that Ethereum is a blockchain network while Ether is a cryptocurrency. 

But there’s a bit more to it than that. Let’s take a closer look.

 

Ethereum – A Closer Look at What is Ethereum

Ethereum was developed in 2013 by Vitalik Buterin.

As mentioned above, Ethereum is a decentralized blockchain. It can be used to build dApps, send transactions, and much more – all without the need for a middleman.

In addition to being decentralized, Ethereum is also open-source. This means that the technology is completely community-led. As a result, anyone anywhere can contribute to and develop on the Ethereum network.

Ethereum also has smart contract functionality. Smart contracts are said to be the way of the future. Therefore, this gives Ethereum a strong advantage over other blockchain and cryptocurrency projects.

Want to learn more about smart contracts? Check out this article – Smart Contracts for Dummies.

 

Ether

As you now know, Ether is Ethereum’s crypto token. More specifically, ETH is digital money that can be used online and to fund activities on the Ethereum network.

FUN FACT: Ether is a cryptocurrency known as an altcoin. In fact, Ether is Queen (or King) of the alts – and has the second highest market cap of all cryptocurrencies (second only to Bitcoin)!

 

How is Ether used within the Ethereum network?

Now, you might be wondering – how is Ether actually used?

Well, within the Ethereum network, Ether has two main purposes:

 

1. ETH powers the Ethereum network – as you may know, blockchain transactions are processed and secured using crypto mining and staking. To incentivize miners and stakers to participate in the Ethereum network, they are rewarded with ETH.

To generate the funds to pay crypto miners and stakers, users are charged a fee (known as gas) each time they use the network. This fee is paid in ETH. Hence, Ether powers the entire Ethereum blockchain!

 

2. ETH is the basis of Ethereum DeFi – Ethereum developers are creating a decentralized financial system on the blockchain. Within this system, DeFi participants can use ETH. ETH can be used as collateral to borrow funds, lent to others, and used to earn interest.

Ether has many other uses as well. Some of the most common uses for ETH include:

• Sending/receiving payments directly to/from another person without the need for a middleman (like a bank).
• Trading for other cryptocurrencies, like stablecoins and Bitcoin.
• Fulfillment of smart contracts. Many developers write smart contracts that use ETH to complete transactions. For instance, when a smart contract is executed, payment may be received in ETH.

Now that we’ve clarified what is Ethereum and the difference between Ethereum vs Ether, let’s take a closer look at how Ethereum works.

How Does Ethereum Work – For Beginners

Like other blockchains, Ethereum works by using a distributed network of computers to process, validate, store and secure data.

Put more simply, identical copies of the Ethereum blockchain are stored on various computers around the world. You can think of a blockchain like a database. It contains the details of every transaction that occurs within the network.

Each computer that holds a copy of the Ethereum blockchain is referred to as a node. These nodes process new data and help to keep the blockchain secure. How? Well, a change to the blockchain is only made if the majority of the nodes agree on that change. Therefore, to cheat the system and fabricate or alter a transaction, you would need to alter the majority of computers in the network – a nearly impossible task. This makes Ethereum, and other blockchains, extremely secure.

What is Ethereum used for?

Ok, so you know what Ethereum is and how it works. Now, you’re probably wondering – What does Ethereum do?

Ethereum can be used for many different functions. In fact, it is one of the most robust blockchains out there!

Let’s take a look at some examples.

Ethereum is used for:

 

• Sending and receiving peer-to-peer digital payments. That is, sending payments without the need for a central authority like a bank.
• Creating smart contracts
• Building dApps
• Minting and trading NFTs
• Decentralized finance, including lending, borrowing, and saving

Ethereum vs Bitcoin

If you understand what is Ethereum, there’s no doubt you know a thing or two about Bitcoin. But what is the difference between Ethereum and Bitcoin?

First things first, let’s discuss how the two technologies are similar.

• Ethereum and Bitcoin both use innovative blockchain technology to add value to the digital world.
• The Ethereum and Bitcoin networks both use distributed ledger technology.
• Ether (Ethereum’s crypto token) and Bitcoin are the two most popular cryptocurrencies in the world. Both can be used for decentralized, peer-to-peer transactions and to store value. These well-known cryptos are traded on top crypto exchanges and can be stored in digital wallets. That said, ETH was not developed to be just an alternative currency. Rather, it is meant to facilitate and monetize Ethereum-based dApps and smart contracts.

Now, let’s take a look at several differences that set Ethereum and Bitcoin apart.

1. Bitcoin was designed to be an alternative to traditional currency. Today, Bitcoin is commonly used as a store of value, as well as a medium of exchange. It is a blockchain network that is used for digital payments only.

Ethereum, on the other hand, takes blockchain to another level. Instead of using distributed ledger technology for only digital payments, Ethereum also uses blockchain to store computer code for apps, smart contracts, DeFi, and more. In other words, the Ethereum blockchain is programmable. This means that programmers can develop and deploy decentralized apps on the network.

Therefore, unlike Bitcoin, Ethereum is more of a marketplace that is full of financial apps, social networks, games, and other decentralized apps.

2. Ethereum and Bitcoin use different methods to process, validate and post transactions. Originally, both Bitcoin and Ethereum used proof of work consensus mechanisms to process transactions. However, in 2022, Ethereum moved to proof of stake. As a result, Ethereum can now process more transactions faster and with fewer fees.

Learn more about Ethereum vs Bitcoin here – COMING SOON.

What is the difference between Ethereum and Ethereum Classic?

In addition to “What is Ethereum?”, many people ask – “What is the difference between Ethereum and Ethereum Classic?”.

The short (and simple) answer is this:

Ethereum Classic, or ETC, is the original version of the Ethereum blockchain.

On June 17, 2016, a smart contract operating on the original Ethereum blockchain was hacked. This smart contract was known as the DAO. As a result of the attack, the Ethereum blockchain was split in two.

Ethereum is the newer blockchain that was hard forked after the attack. Ethereum Classic, on the other hand, is the original Ethereum blockchain.

Ethereum uses ETH (Ether) as its cryptocurrency, while Ethereum Classic uses ETC. ETH and ETC share the same blockchain record prior to the hard fork that occurred in 2016.

Want to learn more about Ethereum vs Ethereum Classic? Check this out – COMING SOON.

Can Ethereum be converted to cash?

We’ve covered the question of what is Ethereum but what happens after you actually buy ETH? Can Ether be converted to cash?

Luckily, if you want to convert your Ether to cash that won’t be a problem! In fact, ETH can be converted to cash quite easily with the help of a crypto exchange.

Depending on the cryptocurrency exchange you use, you should be able to convert Ether to your local currency and transfer the fiat directly to your bank!

How many Ethereum are there?

Unlike many cryptocurrencies, ETH does not have a maximum supply. This means that there are an infinite number of Ethereum.

That said, as of August 2022, there are over 121 million Ether in circulation (i.e. the total supply of ETH is more than 121 million).

Is Ethereum worth buying?

Any crypto investment is risky. However, many prominent investors believe in the long-term future of Ethereum. In fact, many people believe that Ethereum will “flip” Bitcoin one day and take the top spot in terms of market cap. Therefore, Ethereum may be worth buying.

That said, before buying any cryptocurrency, please be sure to do your own research. Do not take financial advice from any crypto influencer or educator – including us! It is important that you fully understand what is Ethereum (or any crypto project you want to invest in), how it’s used, and all the risks associated with investing your money.

Please remember, never invest more than you can afford to lose!

Can Ethereum crash?

Like any crypto project, Ethereum can crash. Cryptocurrencies, including ETH, are susceptible to huge price swings and many cryptos will crash and disappear forever.

That said, ETH has been around since 2015 and has proven to be a strong project. Therefore, Ethereum is one of the most secure crypto investments you can make. In fact, once you discover the answer to the question of what is Ethereum used for, you can see just how strong of a project it truly is.

Please note: crypto prices can be very difficult to predict – this is why you should only invest what you can afford to lose.

Ethereum 2.0 – The Future of ETH

What is the future of Ethereum? Ethereum 2.0, of course.

Ethereum 2.0 is an updated version of the Ethereum blockchain that is expected to be complete in Q3 or Q4 of 2022.

This upgrade, also known as ‘The Merge’, will move Ethereum from proof of work to proof of stake. As a result, Ethereum will be more scalable, secure, and sustainable.

By transitioning from its original proof of work consensus mechanism to an eco-friendly proof of stake mechanism, The Merge will reduce Ethereum’s energy consumption by approximately 99.95%! Not only is this significantly better for the environment and long-term sustainability, but it will also greatly reduce gas fees.

The future of Ethereum looks bright!