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What is Ethereum?

Simple Definition of Ethereum

Ethereum is becoming increasingly relevant as more and more people use it as a base for their new cryptocurrencies. Popular digital coins such as EOS, Tron, ICON, and OmiseGo all utilize the Ethereum blockchain and there are literally hundreds of others that use it as well.

Basic Concept of Ethereum

Ethereum does have its own currency, but in its most basic form, Ethereum is a software platform that contains its own blockchain and protocols for completing smart contracts. When people want to build things like cryptocurrencies, they typically have to build out every part of the currency platform in order to get the coin up and running. This means building all of the security and, of course, even the blockchain itself.

With Ethereum, the blockchain, security, and programming protocols for running smart contracts are all ready made. All you need to do in order to create your own decentralized application, or cryptocurrency if that’s what you want, is customize your own application using Ethereum’s platform.

Probably the best way to understand it is with a hockey analogy. Let’s say that you and your friends want to play a game of hockey. Other than the equipment that you bring yourself, you really need a rink and referees. You could build your own rink and train your own referees, but as an alternative, you can also go and rent some preexisting infrastructure and services. You do what most people do in this situation and find a rink that will rent you some time that also has some referees that you can hire to manage your game. With Ethereum, their blockchain is the rink and the referees are the protocols that exist for managing smart contracts. You can tell the referees to use slightly different rules for every game that you play, and that is the same thing that is done with Ethereum. The software protocols are just there to enforce the rules of the smart contracts that you decide upon.

As you might have guessed already, however, Ethereum does not exist entirely for building out cryptocurrencies. Any application with transactions that can benefit from decentralization and anonymity can be built upon Ethereum. Some of these proposed applications include voting systems, the transfer of real estate ownership, and even automated bureaucracy.

Key Concept Review – Ethereum is a software platform with its own blockchain. You can build your own cryptocurrency (or other decentralized application) on top of their pre-built platform.

Ethereum Currency and Wallet

As mentioned earlier, Ethereum does have its own digital coin. It is the ‘ether’ and it is currently one of the most popular and highly valued coins in the world. Ether came online in 2015 and it operates in a slightly different manner than something like Bitcoin. For example, block times are faster with ether. Bitcoin adds new blocks approximately every ten minutes while ether does this in just a little over ten seconds. Transaction fees are also generally lower with ether and the value for mining ether doesn’t specifically diminish over time like it does with Bitcoin.

Another advantage of using Ethereum is the Ethereum Wallet. Not only does the wallet allow you to hold ether, but it also allows you to hold any decentralized asset created on the Ethereum platform. This is enormously helpful considering just how popular Ethereum has become as a platform for cryptocurrencies.