Ethereum **(⟠) & **Bitcoin (₿) have nearly become household names. However, while they’re often mentioned in tandem, they’re far from the same.
Bitcoin was created as an alternative, decentralized currency. Ethereum draws inspiration from Bitcoin but has bigger aspirations: To create a software platform that supports cryptocurrencies and any decentralized application that can run without a third party, thus giving people more control over their data.
So, what is Ethereum?
The easiest way to think of the Ethereum network is as a secure database accessible to anyone. When new “blocks” of data get added, they’re cryptographically “chained” to a parent block, effectively making an uneditable record of the previous changes. Ethereum is considered one of the largest cryptocurrencies (next to ₿) because ether is the second largest crypto next to bitcoin by market capitalization.
But what makes Ethereum so exciting to users and enthusiasts is the network’s potential to do more than handle financial transactions. Ethereum takes the Bitcoin blockchain further by allowing developers to run programs (known as “smart contracts”) that can host any decentralized application (known as “DApps”).
“Bitcoin was the pioneer of blockchain technology, used to create a peer-to-peer payment system”.
Ethereum uses similar blockchain technology but added the ability to create decentralized applications on its platform.”
How does Ethereum work?
Ethereum relies on node operators to process transactions on the Ethereum network.
“These operators collect a fee for running the hardware and software necessary to facilitate these transactions.”
The fees are called gas fees because they keep the network running. And they’re paid in ether (ETH).
- Consider the many ways that you could use an extensive network of computers. Like Bitcoin, Ethereum uses it to power peer-to-peer transactions and track who owns the ether cryptocurrency.
- Additionally, developers can create and run DApps on the network.
- The DApps connect to the Ethereum blockchain with “smart contracts,” which are more like computer programs than contracts in the traditional sense.
“Smart contracts are small programs stored on the Ethereum blockchain that can self-execute when certain conditions are met”.
- An excellent way to think about it is that the DApp is the program’s front end, and the smart contract is the program’s back end.
- Also, DApps rely on the decentralized and open-source Ethereum network and can’t be controlled by a single entity.
- Once a DApp is added to the Ethereum platform, it can’t be taken down — even if the original creator wants to remove or disbands it entirely.
- The decentralized system can lead to more anonymity for users, who may be able to use DApps pseudonymously. And it can also result in less control and censorship from third parties, including corporations and governments.