What is ethereum? Well, it ain’t bitcoin. It’s a cryptocurrency, true, but ethereum is nothing like bitcoin, the crypto-granddaddy everyone is talking about.

Ethereum is the second-biggest cryptocurrency in the world, and it’s vastly different from bitcoin in terms of purpose, capability, and technology. It’s much more than a digital currency. You can create cool, innovative computer and smartphone applications with it. And there’s a lot of money behind ethereum, too. It’s currently valued at around $30 billion!

WTF is Ethereum and How Does It Work?

Think of ethereum as a massive programmable computer that incentivizes computer scientists, software developers, and data experts to collaborate by tagging, modeling, processing, and storing data. They’re then paid for their work in ether tokens (the name of the currency itself). They can then either convert the token into cash or spend it on things like more processing or storage power.

What is Ethereum’s Objective?

The data — or programming code — that these computer scientists, software developers, and data experts work on is open-sourced and decentralized. Anyone with a computer can participate. The data comes from businesses — namely startups developing artificial intelligence applications — that allow strangers to see their data in all its glory and ugliness.

The hope is that these networks of data miners will improve the data, which businesses can then use to create products or services.

What’s really at the heart and soul of ethereum and other cryptocurrencies are two key components: the blockchain and smart contracts.


How Do the Blockchain and Smart Contracts Work?

The blockchain is the mother ship that makes this whole idea possible. Look at it as the public ledger that records every transaction on the network. Once verified, the record can never be changed or deleted.

Meanwhile, smart contracts carry out these transactions on the blockchain. They’re basically bits of code that automatically execute an action on the network when certain conditions are met. Each transaction record — along with the data and code linked to it — is what you call a “block.” Add them up, and you have your blockchain.

How Does Ethereum Differ from Bitcoin?

Both of them share three things in common: they’re virtual, they’re decentralized, and they run on a blockchain.

The whole point of starting bitcoin was decentralization — to create an alternative to government-controlled banking and currencies.

Bitcoin remains just another currency like the U.S. dollar.

People use it to pay for goods and services while investors hope to make a profit off of its rising value. That’s about the whole story.

Just remember: The ethereum network was designed to make things with code. You can’t use ether to buy candy.

What is Ethereum’s Backstory?

Much like its 19-year-old inventor, ethereum is quite young. The Russian-Canadian computer programmer Vitalik Buterin created ethereum in 2013 after learning the ropes while working on bitcoin. Two years later, the first block of data was created and ethereum was officially born.

What is Ethereum’s Value?

Ether’s value is determined by the market. In other words, it changes value as people buy and sell it. But what makes ether truly valuable? The applications that can be created when you bring thousands of people together using their own computers (called nodes) to process and improve data and code.

Ether tokens are front and center both as the network’s fuel and as its members’ means of exchanging value. And as more people exchange ether in these networks, the currency’s value rises, as well.

What are the Drawbacks?

Let’s start with the technology. Again, look at the ethereum network as a gigantic computer (composed of thousands of smaller ones) that spans the globe. But as the network grows, the ability of each of the individual computers to process data slows down. Plus, these networks are energy hogs, and somebody pays for all that electricity.

Lastly, the U.S. government doesn’t currently regulate cryptocurrencies. When regulators step in and impose controls, this whole crypto thing could crash and burn. Just saying.

What Does Ethereum’s Future Look Like?

Promising. It represents the new way forward — a way to help create any computer application you can imagine. The ethereum network has already produced a few offspring, such as Etheria, a blockchain version of the popular online game Minecraft. Then there’s Gnosis, an app that rolls out a so-called “prediction market” — a place where you can vote on anything from politics to sports to the weather. Underwhelming? Sure, but it is a start. Ether users aren’t curing cancer right now, but you never know where this technology will take us.