Ethereum – definition and meaning
Ethereum refers either to the cryptocurrency ‘Ether‘ or the decentralized platform that runs smart contracts. The smart contracts are applications that run without any risk of third-party interference, censorship, or downtime. With the platform, fraud is impossible, so says its creator.
The Ethereum Wallet is a gateway to a decentralized platform that runs applications that allow people to hold and secure Ether. Ether is a cryptocurrency, i.e., a digital currency. Digital currencies are currencies that exist only electronically.
Cryptocurrency experts say that Ethereum and Bitcoin are the pioneer platforms of blockchain and distributed ledger technology. Bitcoin was the first cryptocurrency; it came onto the market in 2009.
According to Ethereum.org:
“Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.”
“These apps run on a custom built blockchain, an enormously powerful shared global infrastructure that can move value around and represent the ownership of property.”
Julian Goldie, who makes his living trading cryptocurrency, describes Ethereum as a super computer.
Ethereum – a cryptocurrency
Ethereum is a cryptocurrency that has been around since 2015. Cryptocurrencies first appeared in the marketplace in 2009. So, what is a cryptocurrency?
Cryptocurrencies are a type of digital money. In other words, money that only exists electronically. Their creators designed them to be ultra-secure, and in the majority of cases, also anonymous.
This means, that when people pay for things using this type of digital money, nobody knows who they are.
Wikipedia says that Ethereum is “an open-source, public, blockchain-based distributed computing platform and operating system featuring smart contract (scripting) functionality. It supports a modified version of Nakamoto consensus via transaction based state transitions.”
The word is a combination of ‘crypto’ and ‘currency.’
- Crypto means cryptography, i.e., the art of deciphering and creating codes.
- A Currency is a type of money that a country uses. Currency may also mean banknotes and coins, specifically when they are part of the money supply.
The pound Sterling, euro, Swiss franc, yen, dollar, rupee, and yuan for example, are currencies.
Cryptocurrency creators used encryption techniques, i.e., sophisticated codes, to regulate the generation of currency units. Their encryption techniques also verify the transfer of funds.
Unlike traditional currencies, cryptocurrencies have no central bank regulating them, i.e., they operate independently of a central bank.
All cryptocurrencies other than Bitcoin are Altcoins. Altcoin is short for ‘alternative coins.’ Therefore, Ethereum is an Altcoin.
If you want to buy, sell, and store a cryptocurrency, you must have a cryptocurrency wallet.
Ether and Ethereum
Ethereum is the platform which generates the cryptocurrency Ether. However, people commonly say ‘ethereum’ when referring to the cryptocurrency.
“Ether is a cryptocurrency whose blockchain is generated by the Ethereum platform. Ether can be transferred between accounts and used to compensate participant mining nodes for computations performed.”
Therefore, the issuance of new Ether units that are used to compensate participant mining nodes is called Ethereum mining.
“Ethereum provides a decentralized Turing-complete virtual machine, the Ethereum Virtual Machine (EVM), which can execute scripts using an international network of public nodes.”
Nodes are computers that connect to the network.
There is an internal transaction pricing mechanism – ‘Gas’ – that allocates resources on the network and mitigates spam.
What is a blockchain?
A blockchain provides each cryptocurrency chain’s validity. It is an expanding list of records or blocks which are secured and linked using cryptography.
Each block typically has a hash pointer as a link to the block that came before it. It also contains transaction information and a timestamp.
The Genesis Block is the only block with no data on the preceding block. This is because the Genesis Block is the first block of a blockchain.
Thanks to the way their creators designed them, blockchains are resistant to data modification.
Webopedia says the following regarding blockchains on its website:
“Blockchain refers to a type of data structure that enables identifying and tracking transactions digitally and sharing this information across a distributed network of computers, creating in a sense a distributed trust network.”
“The distributed ledger technology offered by blockchain provides a transparent and secure means for tracking the ownership and transfer of assets.”
Cryptocurrency mining refers to the validation process that ‘miners’ do. They add transaction data to a block and then attach it to the blockchain.
The blockchain stores what we call smart contracts, i.e., lines of computer code. These lines of code allow the digital contract to function automatically.
In other words, smart contracts are completely self-executing. The system does not require intermediaries such as notaries or lawyers.
History of Ethereum
Vitalik Buterin, a Russian-Canadian programmer, and writer, first proposed Ethereum in 2013. Thanks to an online crowdsale, Buterin could develop the system between July and August 2014.
The system became active in July 2015 with 11.9 million coins. Those coins today account for about thirteen percent of the total supply in circulation.
In 2016, the DAO (organization), a venture capital firm, collapsed. As a result of the collapse, Ethereum split into Ethereum Classic (ETC) and Ethereum (ETH). The original continued as ETC.
In 2017, the value of ETH increased by more than thirteen-thousand percent.
Buterin chose the name after scanning Wikipedia articles about science fiction and elements. When he found the name, he noted:
“I immediately realized that I liked it better than all of the other alternatives that I had seen; I suppose it was the fact that sounded nice and it had the word ‘ether,’ referring to the hypothetical invisible medium that permeates the universe and allows light to travel.”
Video – Buterin explains Ethereum
In this three-minute video, Vitalik Buterin talks about the platform that he created.
He says the platform makes it possible for developers to write and distribute next-generation decentralized applications.