Blog Ethereum Terms

What is Ethereum? A Pioneer in Blockchain Smart Contracts and Decentralized Applications (Dapps)


Ethereum is an open source blockchain protocol and operating system known for its smart contract capabilities. The main purpose of Ethereum is to build and run decentralized applications (Dapps).

Ethereum is greatly different from other blockchain protocols that have a limited ability to process code. The platform allows developers to build diverse Dapps on the network.

The Ethereum ecosystem consists of Ether, Gas, smart contracts, Dapps, and Ethereum Virtual Machine (EVM).

What is Ether

Ether is the native cryptocurrency of the Ethereum blockchain network. It is considered to be the fuel that keeps the Ethereum network running. There is no hard cap on the total supply of Ether.

Ether can be transferred between different compatible wallets and is used to incentivize the nodes running and maintaining the Ethereum network.

Together with Bitcoin, Ether is one of the most valuable and well-known cryptocurrencies used in the world – especially in ICOs. The value of Ether has grown over the years due to its utility in the crypto sector and the 2017 price boom.

According to CoinMarketCap data, the price of Ether has grown from $2.83 in August 2017 to its current price of $108 in January 2018.

During the bull run in 2017, a single Ether coin was exchanging hands for close to $1,400 but the prices came crashing down during the ICO bust.

What is Ethereum Gas

Ethereum Gas is an important component of the Ethereum network that is used to measure the computational effort required to process certain transactions.

Every transaction on the Ethereum network requires some amount of Gas. The Gas was introduced into the Ethereum ecosystem as a way of incentivizing network users. There is no fixed price of converting Gas to Ether. The sender of a transaction has the right to determine the Gas price they want.

Smart contracts

Unlike the Bitcoin network, Ethereum is known for its smart contract capability. A smart contract is simply a program that self-executes without a third-party intermediary if pre-defined conditions are met.

The individuals or entities involved in the smart contract are anonymous although the contract is on a public ledger. The users of smart contracts have peace of mind because since the contracts run on the blockchain; they are free from censorship, fraud, and tampering by third-parties.

Smart contracts have proven to the world that blockchains are more than a payment system but capable of something more powerful and important.

Ethereum Virtual Machine (EVM)

Ethereum runtime environment for smart contracts is known as the Ethereum Virtual Machine (EVM). It was created to run the same code for smart contracts as initially intended. EVMs are implemented in several programming languages including C++, Java, Python, Ruby, Rust, Haskell, and Go.


Applications running on Ethereum are known as decentralized applications (Dapps) because they are based on decentralized EVM and smart contracts. Ethereum has several use cases including finance, IoT, sports betting, exchanges, etc.

Perhaps, Ethereum’s popularity is rooted in initial coin offerings (ICOs). Using data from 2017, Ethereum is used by 50 percent of all ICO projects. There are currently more than 250 live Dapps on the Ethereum network and more are under development.

History of Ethereum

Ethereum was proposed in late 2013 by Vitalik Buterin, a Russian-Canadian programmer who is widely regarded as the pioneer of smart contracts. His intention was to include the ability to build decentralized applications on the blockchain.

Buterin had earlier suggested and argued that the Bitcoin network needs a scripting functionality for the development of applications but he failed to gain support.

Buterin wrote the white paper for Ethereum. Its development began in 2014 and the core development team included Buterin, Charles Hoskinson (founder of Cardano), Mihai Alisie, and Anthony Di Iorio. Ethereum went live in 2015 with 72 million already mined.

Ethereum forks

There are two types of forks in the crypto sector – soft fork and hard fork. A soft fork is like an upgrade or update of the blockchain and does not result in new rules being implemented. It is just like updating an operating system of a computer.

A hard fork, on the other hand, is a radical change to the blockchain’s rules and can result in several chains. It is also called a chain split.

After the infamous DAO hack in 2016, Ethereum was forked into two distinct chains – ETH, the new chain that reversed the hack and Ethereum Classic (ETC), the original chain.

Ethereum has undergone a number of upgrades and is currently stuck on the Constantinople hard fork upgrade that has been called off a number of times.

Bitcoin and Ethereum: differences and similarities

Ethereum is often compared to Bitcoin, the world’s largest and most valuable cryptocurrency to date. There are a number of differences and similarities between the two.

  • They are both blockchain and subscribe to principles such as decentralization, immutability, etc.
  • Ethereum has a block time of 14s – 15 s whereas Bitcoin has a 10-minute block time.
  • Ethereum is slightly faster than Bitcoin. The former supports up to 15 transactions per second (TPS) while the latter can only handle 7 TPS.
  • Mining in Ethereum produces a constant number of new coins while the reward in Bitcoin halves every four years.
  • Bitcoin has a hard cap of 21 million coins and Ether has no hard cap.
  • The Ethereum network is working on a new consensus algorithm to migrate from the Proof-of-Work to a Proof-of-stake system that reduces the need for energy-intensive mining hardware.
  • Both protocols are still slow when compared to legacy systems such as Visa. They are both implementing off-chain solutions to improve the speed of transactions.

Competition, regulation, and future outlook

The Ethereum network is facing competition from a number of new blockchain protocols that offer the same functionality but with better scalability.

Tron is one of Ethereum’s main competitors led by Justin Sun who is not shy to take a swipe at the blockchain network. The platform also faces stiff competition from EOS which raised more than $4 billion in its ICO.

However, a report surfaced last year claiming that EOS is not a blockchain but an over glorified cloud database. EOS fought back and said the report was published by entities affiliated with Ethereum.

In terms of regulation, Ethereum is not considered to be a security by the U.S Securities and Exchanges Commission (SEC) because it has achieved a sufficient level of decentralization.

The future of Ethereum is not under threat at all but with the ICO market taking a backseat, it could harm the price of Ether in the long-term. Ether derived much of its value from its use as the base platform for launching ICOs.

With future hard fork upgrades in the pipeline, Ethereum has good days ahead and can continue being a force to reckon with. It will likely become stronger and resistant to attack if it implements a new consensus mechanism that does not give advantages to ASIC miners.

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