After Bitcoin (BTC/USD), the second-largest market cap is held by another cryptocurrency named Ethereum, which has also drawn a widespread attention from investors and crypto-enthusiasts, as well.
What is Ethereum?
In simple terms, its purpose is not to act as a coin, such as bitcoin. Ethereum is a blockchain-based decentralized platform, based on which various decentralized applications can be built. It is worthy to mention that the blockchain-technology is the structure that runs cryptocurrencies. Blockchain also constitutes a database, with no central authority, that tracks every transaction and exchange.
Ethereum enables users to create their Dapps and smart contracts; they are scripts, designed to automatically execute tasks, when the given conditions are fulfilled.
For example, a smart contract could technically say, “pay Jonas £20, if he submits a 200-word article on Brexit, by September 15, 2018.” Jonas will be paid, once the aforementioned conditions are met.
Rather than requiring a central authority to say 'yes' or 'no,' these contracts are self-operated. This not only makes the entire process more resilient and impactful, but it also creates a fair and objective trading-ground. Therefore, smart contracts can be used to automate a wide range of tasks, without the need for any intermediaries; it only requires the inclusion of arbitrary rules in the contract.
The cryptocurrency of the Ethereum network is called ether, which is aimed at serving two different functions:
- Pay people under smart contract conditions: this is the clause that boosts users to work on the Ethereum platform.
- Compensate the full-mining nodes that power its network: this helps to keep things running smoothly at the administrative level.
Decentralized Apps (Dapps)
In this modern age, everybody has a decent understanding of what an application (app) is. Apps have been designed for many purposes; they check our bank balance, pay our bills, or allow us access to entertainment channels – be it games, or videos- and more.
Dapps cater to similar needs; however, they operate on an entire network of nodes, rather than on a single central source. Their de-centralized nature gives them an added advantage over conventional apps.
Unlike traditional apps, Dapps do not bare the risk of being hacked, or running slow due to server issues.
Some more advantages of Dapps are:
- Open Source – allow users to access the coding on both the frontent, as well as backend.
- Autonomous – operate on an automatic basis, guided by the rules encoded into them.
- Secure – data and protocols are stored on the blockchain cryptographically, in a secured manner; almost nil number of hacks are possible on it.
- 100% Uptime – the blockchain is always running, which means that there is a zero downtime for apps, with a negligible number of crashes.
- Easier to Implement – developers who intend on taking advantage of blockchain technology, do not need to create a new blockchain. The framework is already there, thus, they’ll be saving time and effort, and yielding better leads to more effective results. There is only the need to pay transaction-fees for Dapps to run in this decentralized network.
Ethereum vs. Bitcoin as a Coin
Although the two cryptocurrencies serve different purposes, Ethereum boasts more benefits over Bitcoin:
- Shorter Block Times – on the Ethereum blockchain-technology, blocks are mined every 15 seconds; compared to the 10-minute time-lapse, with Bitcoin mining. The short span allows the blockchain to quickly confirm the transaction data.
- More Sophisticated Fee Structure – the transaction fees involved in Ethereum are based on storage needs and network usage. Bitcoin transactions are limited by the size of the blocks and compete with each other.
- More Sophisticated Mining – Ethereum’s mining algorithm is designed with an eye for ASIC-resistance, which helps in the decentralization of mining. However, Bitcoin mining requires ASICs (Application-Specific Integrated Circuits), necessitating a large amount of capital investment.