Blockchain101: What is Ethereum? Why is it the second biggest Blockchain after the Bitcoin Network?

Welcome to Bitget – the world’s fastest growing crypto derivatives trading platform.

Ethereum was launched in 2015. And only a few years later, the price of Ethereum’s crypto, Ether(ETH) reached around $4800 USD. ETH is now the second-biggest cryptocurrency by market cap after Bitcoin. What makes Ethereum stand out from thousands of crypto projects? What is the difference between Ethereum and the Bitcoin network?

In the following article, we will introduce what exactly Ethereum is and the future of it.  What makes it different from other cryptocurrencies?

Outline

  1. What is Ethereum?
  2. The difference between Ethereum and Ether (ETH)
  3. How does Ethereum operate?
  4. What is “gas” (The pricing system of Ethereum)? 
  5. The reason why Ethereum stands out from thousands of crypto projects
  6. Ethereum vs. Bitcoin Network
  7. How Ethereum will change the future? And what is DAO?

What is Ethereum?

Ethereum is a decentralized Blockchain platform introduced by Vitalik Buterin, a Russian Programmer. Similar to the concept of the Bitcoin network, Ethereum is not managed by a centralized server or organization. Instead, it is run by thousands of computers distributed around the world. 

Ethereum is open and programmable. You can create smart contracts and issue tokens on it. How does a smart contract work? When some criteria are fulfilled, the achievement of a particular goal, the smart contract will manage the agreement itself without interruption and management from any parties.

Compared to the contract in the real world, if someone violates the agreement, it takes a huge legal cost to ask for compensation. 

But with the help of the smart contract, anyone, even the government or big company, still needs to follow the agreement that is open, transparent and immutable. They are recorded on the Ethereum Blockchain. The cost of regulation and discredibility can be avoided.

The difference between Ethereum and Ether (ETH)

Ethereum is a decentralized computing platform.The cryptocurrency of Ethereum is called Ether (ETH). They are not the same. 

ETH is used to pay the fees for the computational power spent on executing smart contracts. ETH can also be transferred between accounts like Bitcoin.

For example, developers are able to create and publish applications that run inside the Ethereum Blockchain, like gambling apps and social media platforms. These applications are called decentralized applications,D-Apps. The developers have to pay ETH for securing the running of DApps on the Ethereum platform. 

More than a hundred D-Apps are running on the Ethereum Blockchain, and there is an increasing tendency, which means there will be an increase in demand for ETH. You can also directly purchase ETH with credit card, Apple Pay and Google Pay on Bitget, if you consider Ethereum will be more popular in the future.

How does Ethereum operate?

Ethereum is decentralized and run by thousands of computers distributed around the globe. It does the work of documenting and securing transactions in a more flexible way than the Bitcoin blockchain. Developers can build various tools on the Ethereum blockchain, from D-Apps, software, games, gambling and DeFi applications.

In order to secure the running, it requires the expense of hardware and electricity provided by participants. To cover those costs, ETH will be rewarded to those who participate in the Ethereum Blockchain.

What is “gas” (The pricing system of Ethereum)? 

Gas is the pricing system of Ethereum. The cost of every transaction and execution of the smart contract on Ethereum will be calculated in gas used, rather than calculated in ETH, as the price of ETH is not stable enough to be a measure of the account.

“Gas” is used to measure how much computational resources like electricity are spent on operating the task you require, like oil in the real world. ETH is like USD, the fiat currency used to purchase oil. In order to secure the running of your software or D-App on Ethereum, you have to purchase gas by paying ETH to the “miners” who are providing computational resources like hardware and electricity.

For example, if you have developed a D-App on Ethereum, more complicated tasks with more procedures will require more gas to operate, which means you have to pay more ETH to operate the function of your D-App.

The gas price is charged hourly. In order to manage the risk, you may set up a gas limit to control the maximum amount of gas you are willing to pay for operating the required task. Otherwise, if there is an urgency that requires extra gas to operate, your budget will be over immediately. The extra cost of operating may not be estimated.

The reason why Ethereum stands out from thousands of crypto projects

Ethereum is a distributed database that is shared among the nodes of a computer network. The programs can’t be changed and edited easily by any party. In addition, the database is transparent and open to everyone, so users can monitor any misbehavior in it. 

Users, developers, and businesses around the globe can create applications with smart contracts. In most cases, they can be managed without humans. Any applications being launched can’t be taken offline.

For example, gambling applications are usually set on the Ethereum Blockchain. As the program settings of the applications are open and transparent. No one can cheat on it as the rules are immutable. 

Crypto projects and tokens can be created and stored on the Ethereum Blockchain. Even though you have zero Blockchain knowledge, you can still issue your tokens through Ethereum. This makes crypto becoming more popular than before.

Disclaimer

The opinions expressed in this article are for informational purposes only. This article does not constitute an endorsement of any of the products and services discussed or investment, financial, or trading advice. Qualified professionals should be consulted prior to making financial decisions.

Ethereum vs. Bitcoin Network

Both Bitcoin and Ethereum are decentralized Blockchain systems. Even ETH is the second-biggest cryptocurrency by market cap after Bitcoin. But it wasn’t created to be a kind of digital money for peer-to-peer transactions. 

EthereumBitcoin
NatureA decentralized computing platform that can build smart contract and issuing tokens, and carry out the function of peer-to-peer digital cash transfer like BitcoinA peer-to-peer digital cash system
FunctionFor creating smart contracts that can build applications and software without managing by a centralized serverFor financial transaction without any intermediates
Year of Birth20152009
Ranking The second biggest cryptocurrencyThe biggest cryptocurrency
All time high Around 4,800 USDAround 65,000 USD
Introduced byVitalik ButerinSatoshi Nakamoto

Bitcoin is a financial system, and Ethereum extends the usage of the Blockchain technology for a  border use, including creating smart contracts and issuing tokens for creating agreements and D-Apps.

How Ethereum will change the future? And what is DAO?

A new style of working and collaboration called decentralized autonomous (DAO), which are entities governed by computer programs that are immutable, will come true with the application of Ethereum.

Unlike the traditional companies like tech giant Amazon, Microsoft, Facebook or authorities with a centralized headquarters to decide and manage the operation of an organization by a small group of managers. In a DAO, DAO tokens were distributed in an ICO and gave an ownership stake, along with voting rights, to token holders. It has become more open and transparent that everyone can participate in the discussion of making important decisions about a DAO. 

Everyone, no matter who they are, can contribute to the development of a DAO and receive a reward based on the smart contract stored on the Ethereum Blockchain.

One of the most famous DAOs was “The DAO”. It would be made up of complex smart contracts running on Ethereum, functioning as an autonomous venture fund. 

However, malicious actors exploited a vulnerability and drained almost a third of the DAO’s funds. 14% of the entire ether supply was locked up in the DAO. This was a disaster to the Ethereum network.

Finally, the chain was divided into two chains. Those misbehaviours were finally fixed and this chain is what’s now known as the Ethereum blockchain. The original chain, where these transactions weren’t reversed, and immutability was maintained, is now known as Ethereum Classic.

Even though it shows the danger of over-depending on the computing program, it is a good try for the DAO and DAO may be one of the most popular working styles in the future that releases people’s creativity and incentive. It allows people to join and participate in different projects freely.

If you want to know more about blockchain and crypto-trading information, don’t forget to follow us on Bitget Academy. We have constantly provided useful information for crypto investors, so that they can enjoy better trading and a better life.

Looking to get started with cryptocurrency? Buy ETH and other crypto on Bitget now!

Subscribe to our social media today!

Twitter | Telegram | LinkedIn | Youtube | Facebook | Instagram