What is Ethereum (ETH)? The simple explanation

If you are wondering what Ethereum is, how it works and what it is used for, you will find the answers to your questions in this article.

You will also see why and how Ethereum could drastically change some of our industries or at least improve them.

Yes, indeed, when we talk about Ethereum, we are not just talking about a cryptocurrency or an evolved blockchain. The whole purpose of this article is to present to you the broad outlines of this blockchain which has opened the way to what we call decentralized finance.

What is Ethereum?

It's not easy to describe Ethereum in a single sentence since Ethereum is a real Eco-system in its own right. Ethereum was designed as a platform to host applications that can run autonomously.

These different applications are what we call "Dapps: Decentralized applications". The cryptocurrency of the Ethereum blockchain is called "Ether" (often mistakenly called ethereum).

How and why was Ethereum created?

The Russian-Canadian founder is named Vitalik Buterin and he originally published the idea for Ethereum in a white paper in 2013. He wanted to create what he felt was missing at the time, namely the ability to develop applications on the Bitcoin blockchain.

Many members of the Bitcoin community had shown their disagreement with such a deployment. This is how he decided to create his own blockchain independent of Bitcoin, namely Ethereum.

The project was officially launched in January 2014 with an ICO that took place between July and August 2014. A year later, in July 2015, Ethereum officially became operational. That said, at this stage, Vitalik wasn't alone and was surrounded by relatively influential people in the cryptocurrency world. His team included Charles Hoskinson (the founder of Cardano ), Anthony Di Iorio (founder of Jaxx), and Mihai Alisie (co-founder of Bitcoin Magazine, for which Vitalik had written articles—well-written ones, at that).

For the small clarification, initially, the ETH token was sold at $0,311 per token. Today, in January 2020, the token reached $1200…

So, Ethereum did not invent blockchain technology per se. That was done by Bitcoin and Satoshi Nakamoto. But Ethereum allowed it to be used and improved exponentially. That is why Ethereum was initially called "blockchain 2.0". It is certainly a technology similar to Bitcoin, but richer and more sophisticated.

How does Ethereum work?

Just like Bitcoin, Ethereum has its own blockchain. The principle is the same: all transactions are recorded on the Ethereum network. Everything is recorded on what are called nodes across the network worldwide. While Bitcoin's blockchain only records transaction records, Ethereum does a bit more than that. Ethereum also hosts what are called smart contracts and DApps.

Smart contracts are contracts programmed to operate autonomously. For example, a smart contract can be summarized by the following equation: If x occurs, then y results. Therefore, the smart contract activates and triggers automatically. There's no need for a human to activate the contract. I will discuss what a smart contract is in more detail later in this article.

Why do we talk about decentralization?

Thus, with Ethereum, servers and clouds are replaced by a network of systems called nodes. These nodes store the entire blockchain. And logically, the more nodes there are, the more decentralized the network is , and therefore, the more secure it is.

This different information held on the blockchain is fully verified by what is called "consensus". Basically, more than half of the nodes must agree to affirm that the information is correct. Once it is validated by the majority, then it is recorded and validated on the blockchain. This is why hacking blockchains (all blockchains, even Bitcoin) is an impossible mission. To do this, you will need to control more than half of the network to force a consensus.

How do transactions work?

Transactions, whether simple money transfers or the execution of smart contracts or dApps, require what's called " gas ." In fact, gas is also considered transaction fees. You pay for gas with Ether, and the transaction fees go to Ethereum miners.

What is Ethereum used for?

Ethereum's strength lies precisely in its smart contracts and dApps. In fact, almost anything is possible with these two core components. This is why Ethereum is somewhat at the origin of all the various practical blockchain applications we see today. Bitcoin, on the other hand, for example, is solely dedicated to payments. Furthermore, Bitcoin has scalability issues for wider use.

As for Ethereum, it's best viewed as a matrix for other projects. This is precisely why we started talking about "blockchain 2.0" with the arrival of Ethereum, because we had just moved beyond cryptocurrencies used solely for payments.

What are smart contracts?

Understanding what Ethereum is is like understanding what smart contracts are. In fact, when we understand smart contracts (how they work) then we finally understand why Ethereum is revolutionary.

This is how we understand how much of an impact it can have on our everyday lives.

So, as we saw briefly above, smart contracts are contracts that are programmed to work by themselves. Basically, a contract can be summed up as "if x then y". Concretely, for example, if we take an example of a home rental service like Airbnb, it comes down to this: For example, we can define a smart contract that says that a person who pays so much, to have access to the house. Thus, the contract activates itself if the person pays so much. This can apply to all sectors.

That's just one example and there are a thousand other possible examples. There are endless possibilities; The only limit is our imagination.

Likewise, if the conditions of the contract are not met, then the contract will not activate. Can you imagine the power of the thing? A contract that activates only if conditions are met. No more need for manual human presence (and therefore subject to defects and slowness).

What are Dapps (Decentralized Applications)

dApps are simply applications that don't run on a traditional central server like other applications. Instead, these applications run on a blockchain. In fact, dApps are truly at the heart of Ethereum's design. The founders wanted developers to be able to create solutions within Ethereum itself. That's why they implemented a language specific to Ethereum: Solidity.

For those who don't know computer coding, imagine that Solidity is a kind of JavaScript (one of the most used programming languages).

Solidity is used to create dApps. This encourages developers to create an ever-increasing number of applications. Some say that in a few years, dApps could even replace traditional centralized applications. This will be particularly true and relevant in sectors such as banking, healthcare, e-commerce, and so on.

How does the Ethereum system (Mining and Staking) work?

You know, a blockchain works according to particular mechanisms. We are not going to go into detail here on Proof of work and POW for example. That said, I'll tell you enough so you understand how it works.

Ethereum mining: the earlier version of Ethereum

So, when you make a transaction on Ethereum, it's recorded on the Ethereum network, right? Originally, Ethereum operated using the Proof-of-Work mechanism, like Bitcoin. Miners verified transactions and grouped them into blocks on the blockchain. Many people contributed to Ethereum's growth by mining it . That's how, over time and very quickly, Ether became the second-largest cryptocurrency in terms of total market capitalization.

It was only recently that Ethereum decided to migrate to Proof Of Stake in order to overcome the disadvantages of Proof of Work.

The big disadvantage of POW is that it consumes a lot of computing power and electricity. Therefore, it is expensive and very bad for the environment. This is also the reason (among others) why Ethereum decided to move to POS.

Ethereum in POS version: Ethereum 2.0

This method consumes significantly less electricity. That's why staking is so popular in the community. In the Proof-of-Stake (PoS) version, users with a large amount of Ether are randomly selected to verify network transactions.

These users will be rewarded with fees instead and it will consume much less energy and electricity. Users selected in the PoS to verify transactions are called “stakeholders”.

–>Read the article to understand " The Ethereum merge".

The great division of Ethereum: Ethereum Classic and new Ethereum

At a time when Ethereum was starting to get traction, there was a crowdfunding round for the venture capital project “The DAO”.

There was a big hack on the network. A huge hack. It was, in fact, the largest crowdfunding campaign at the time. And there was a huge hack. A third of the DAO's funds were stolen (at the time it was worth $50 million). It was a great tragedy and that's when there were splits in the community.

In fact, more than just a huge financial loss, it was rather a huge loss of confidence that was dramatic. At that time, there was an awareness of the entire community that what we call "the attack surface" (i.e. the number of flaws exploitable by hackers) was strong. It was therefore absolutely necessary to secure the computer system of smart contracts. In short, it was the entire security of Ethereum that had to be rethought.

This is actually how there was a big fork on Ethereum. Basically, there were two camps. Some wanted a hard fork (a big split) of the Ethereum blockchain in order to restore stolen funds. So, coming back and touching the blockchain then. Which goes against the irreversible nature of blockchain. It is precisely this point which was criticized by the other camp, which did not want to touch the immutability of the blockchain; It was against the very ethics of blockchain! It is this disagreement which led to the split of Ethereum (ETH) and Ethereum Classic (ETC, the original blockchain).

What are the advantages of Ethereum?

Even if by quickly explaining what Ethereum is, we can understand its advantages. However, here are the concrete advantages of Ethereum.

Transparency: Nothing can be hidden on Ethereum simply because it uses blockchain technology. Data and transactions are hosted on nodes across the globe. In fact, it's impossible to modify or hide data without controlling half of all nine. This is technically extremely difficult, if not impossible.

Continuous service: Ethereum is not hosted on a single (centralized) server, but rather on thousands of (decentralized) nodes. Since everything is on networks and the internet, it operates continuously. There is no downtime (unless, by chance, all the nodes fail simultaneously).

Adaptable and Versatile: With smart contracts, Ethereum is fundamentally a very versatile platform. Ethereum can literally be adapted to every conceivable sector, from insurance and real estate rentals to healthcare and commercial logistics.

Ideal for funding: It's worth remembering that Ethereum is the one that has enabled so many ICOs. It was absolutely incredible at the time to be able to raise funds (and millions of them) so easily and simply.

Technically accessible: Ethereum allows developers worldwide to relatively easily create dApps and even tokens. Essentially, Ethereum enables us to quickly build projects, even real startups.

Transaction speeds: Compared to the Bitcoin blockchain, token transfers are significantly faster on Ethereum. Bitcoin transfers can take 10 minutes (or even more) – while Ethereum transfers take only a few seconds.

What are the disadvantages of Ethereum?

Yes, there can't be only advantages. So let's now see the disadvantages of Ethereum.

Unknown programming language : Ethereum uses its own programming language, Solidity. It's said that the major DAO hack was made possible by poor code writing… Projects similar to Ethereum then emerged to address this issue. This allows developers to use more familiar and well-known languages ​​like JavaScript, for example.

Scalability issues : Ethereum, like Bitcoin, faces problems related to ever-increasing usage. For example, we've seen cases of massive network congestion… If Ethereum can't handle numerous transactions, some people are (rightly) wondering how it will evolve to meet the demands of a large consumer user base.

Inflation . Transaction fees on the Ethereum platform are paid in gas – and these fees can rise rapidly . This is another significant issue that can hinder the efficient use of tokens on Ethereum. Read: Why are gas fees on Ethereum high?

Security and bugs: Like any technology, Ethereum has been subject to security vulnerabilities and bugs in its smart contract code. Errors in contracts can lead to significant losses, as happened with some notable incidents such as the 2016 hack of The DAO.

To learn more, you can consult our article which details the criticisms and complaints leveled against Ethereum.

What is the difference between Bitcoin and Ethereum?

Ethereum versus Bitcoin. So what are the biggest differences between Ethereum and Bitcoin?

More complete and versatile: Smart contracts – the main difference between Ethereum and Bitcoin is that Ethereum allows smart contracts and DApps instead of being limited to payments.

Faster transactions – the mining time for a single Ethereum block is measured in seconds compared to minutes (Bitcoin). The goal – Bitcoin is more like a store of value, while Ethereum allows for the development of decentralized applications on its platform.

Functionality – Ethereum's technology is designed to enable DApps and smart contracts. This is what makes Ethereum much more versatile than Bitcoin. Furthermore, with the new version of Ethereum, there will also be a difference between Proof-of-Work (PoW) and Proof-of-Stake (PoS).

How can Ethereum be used?

We will now see the concrete uses that can be made with Ethereum. We have covered the key elements in this article but here we need to go in more depth.

Decentralized Autonomous Organizations (DAO).

DAOs are decentralized, autonomous organizations that operate using smart contracts. Smart contracts contain the rules and operational structure of the organization, eliminating the need for centralized control and leadership.

For example, members can submit proposals, which are then voted on by the entire organization. If a proposal gets enough votes, it is automatically approved without the need to count votes or move the initiative forward. While a DAO is decentralized, it is owned by those who purchase its tokens. Tokens give members voting rights proportional to the percentage of the organization's tokens held by members.

Perhaps the most famous example of a DAO is “The DAO,” which was a decentralized venture capital fund. Investors in the DAO were given voting rights on investment proposals proportional to the amount of DAO tokens they owned. Unfortunately, “the DAO” was hacked (as mentioned earlier).

Clea says, despite the flop of The Dao, experimentation in this area has never really stopped. And, even in 2019, we even saw a boom in these new projects.

For example, we have seen DAO creation systems on the mainnet with Aragon and Colony.

• the availability of the three main DAO creation systems on the mainnet: Aragon, DAOstack or, colony.
• the appearance of DAOs to manage protocols like Polkadot to name just one of the best known.
• Also, we find DAOs of the decentralized jurisdiction type with kleros or, Aragon court.

(We are preparing a dedicated article on DAOs)

Initial Coin Offering (ICO).

Initial coin offerings (ICOs ) allow entrepreneurs to raise funds quickly and easily. Imagine a kind of crowdfunding platform , but this time in crypto. The concept is similar. Anyone can participate and buy tokens from the company in question.

ICOs have been victims of their success and today there are regularizations that have been put in place. Indeed, there have unfortunately been far too many crypto scams… In fact, states have imposed strict regulations. This is also what explains why there have been fewer ICOs launched in recent years.

Another thing to take into account is the fact that some projects have been able to raise hundreds of millions of dollars. However, such a level of financing for a company at the beginning of its development is not relevant. Likewise, there were projects that raised millions when there weren't even real working products! However, some don't even have functional products!

This explains why new variations of ICOs have emerged, such as IEOs. These still constitute fundraising, but they have the advantage of being legally regulated. For the investor, this also provides a guarantee of security.

—> To learn more about this topic: What is the difference between an IPO, an ICO, an STO and an ETO?

Initial coin offerings, or ICOs, are one of the most famous uses of Ethereum.

Yes, this is one of the best-known uses of Ethereum: being able to create tokens and thereby raise funds. Although there are ICOs that have taken place on other platforms, the largest majority have been carried out on Ethereum in terms of number of projects.

It was especially in 2017 that ICOs became extremely popular. There were new projects launched almost every day and the amounts raised were incredible. We are talking about raising millions of euros in a few days, even in a few hours. According to the ICOdata site, ICOs raised more than $6 billion in 2017 with 875 projects launched.

And on the coinist site, you can also see the 50 best ICOs of all time with the amount raised for each of them.

Decentralized Applications (DApps)

After ICOs, the other major use case for Ethereum, and one that truly underpins the strength of this ecosystem, is decentralized applications . Today, there are thousands of them.

At first glance, what we can say about Dapps is that they are classic applications, like those we know and use every day. However, as their name suggests, Dapps operate on decentralized networks. Therein lies the big difference.

We can code relatively simply with the computer language created by Ethereum: Solidity. This allows everyone to be able to develop applications that will run on the Ethereum blockchain.

Some are more or less popular, like CryptoKitties , which was one of the first to gain notoriety.

There are many other decentralized applications that are also well known. We can talk about OmiseGO which was one of the largest Ethereum ICOs of 2017 (raising $25 million). The company behind the project, Omise, is a Southeast Asian payment services company. With OmiseGO, the company seeks to develop a platform that enables value exchange and various payment solutions in different currencies (both cryptocurrencies and fiat currencies like dollars, for example).

Omise itself is already a well-established company with over 100 employees, offices across Asia and recognition such as being named “” by Forbes Thailand in 2016.

How to buy Ethereum and store it securely?

In fact, you can buy Ether on almost all cryptocurrency exchange platforms.

If you simply want to buy some to keep and possibly resell later, then the ideal would be to use simple platforms like BitPanda or Binance for example.

To know the difference between a hot and a cold wallet, just remember this: If a wallet is connected to the Internet, then it is called hot. We say "hot" because it is riskier to keep them on a platform that is linked to the Internet (and therefore to hackers etc.). If it is not connected to the Internet, it is called a cold wallet. When storing private keys, it is recommended to use a combination of hot and cold wallets for optimal security.

As with Bitcoin, to have ether, you will need to have a dedicated address.

When it comes to storing your Ether, ideally you should use what are called cold wallets rather than hot wallets. If this concept is still unclear to you, read the article on the different types of crypto wallets.

Overall, you can choose a Ledger or a SafePal wallet for example, especially if you don't plan to use them regularly.

Otherwise, to use your wallet effectively, you'll need to choose a specific type of wallet. I recommend the following tutorials for properly installing an Ethereum wallet.

• Installer MyEtherWallet
• Installer MetaMask (Tutorial)

In fact, using dedicated Ethereum wallets like the Argent app for example mainly allows you to take advantage of dApps and especially DeFi services , for example.

Store on a decentralized wallet

You can store your public and private keys directly in a wallet on your computer or on your smartphone. For a decentralized wallet, you can for example choose the Exodus wallet. You can also choose Jaxx where you can store up to 13 different cryptocurrencies.

You can also use and further secure your cryptocurrencies by using Exodus and Trezor. (Note: Exodus is not compatible with Legder).

In the same wallet, there is also the Jaxx wallet.

Final Word on Ethereum: Can it Really Change the World?

So, I think that so far you know the main points and the most important points to know. Besides, there are many applications and sites on Ethereum. They are used more and more and the craze is ever stronger.

In fact, all this new technology is already a big step towards the future for many people! But, despite all these advances, we must not forget that this remains a new technology. Some reviewers say the platform is too complicated for most users.

Some compare Ethereum to DOS because DOS needs Windows to make it friendly and easy to use. So, maybe this is just what Ethereum needs to achieve mass adoption. No?

That being said, with the new Ethereum version, we will certainly move to another milestone…I have a future article on the subject for you!

You can watch the explanatory video about what Ethereum is by clicking here:

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This does not constitute investment advice. Always do your own research before investing.

To buy cryptocurrencies (in a simple way) :

• Speaking on Bitpanda (Simple and accessible platform)
• Speaking on Binance (Complete crypto trading platform)

Generate interest on your cryptocurrencies:

• Speaking on Youhodler (Earn up to 12% interest)

To secure your cryptocurrencies:

• On the wallet Ledger 
• On the wallet safepal

To have fun and play 

• The Bitcoin sports betting

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