After you mastered what a Bitcoin is, let’s move on to the world’s second most popular cryptocurrency – the Ethereum. There are many similarities with the Bitcoin, but they are also important differences. Here are some:
- Both of them use the blockchain technology. The blockchain is basically a global decentralized network that helps assets to move around unrestrained. That means that, like the Bitcoin, the Ethereum is also a decentralized system, free of third parties.
- Ethereum is not exactly money. The Ethereum is a distributed, decentralized, open source, public, platform which contains the smaller entities of the Ether tokens. To chop up: it is more as a system with thousands of operations, algorithms, etc. that support the coins themselves.
- Bitcoin uses Proof of Work, while Ethereum will soon switch to Proof of Stake. Proof of Works means that miners go online and solve problems, and when they do, they receive a reward. This is how a transaction is validated in a certain block. With Proof of Stake, miners won’t get rewards, they will take the transaction fee instead. The block is determined to a developer from a pool and it uses much smaller amounts of electricity. Vitalik Buterin, the Ethereum co-founder, works now on the Casper protocol which will be soon announced through a hard fork.
- Ethereum functions with the so-called ‘smart contracts’. Simply put, this is a code pre-programmed to execute a certain operation. This deliberates the transactions of parties/ institutions/ companies that are supposed to approve the process. That is the reason for the super fast transactions Ethereum can conduct, currently up to 15,000 per second. In comparison, Bitcoin can do 7 but intends to upgrade with the Lightning protocol to a 60,000 limit. Vitalik is bragging around the Ethereum will soon reach 1 million per sec, which would be truly revolutionary. To recap: with Bitcoin you can wait for a few hours, while Ethereum is faster.
Since Ethereum is a platform, it allows developers to create unlimited decentralized applications, also called Dapps. There is this Ethereum Virtual Machine which enables programmers to write codes and to invent new blockchain applications much easier, faster and on the same platform.
But I don’t want to give you headaches, so sit back and watch this guy’s delightful explanation:
*Video content posted on CryptoFrog is under the Creative Commons License. Credit goes to Ameer Rosic.