What is Ethereum? A Beginner’s Guide

Before we dive into the details, let's take a moment to talk about Ethereum's visionary creator, Vitalik Buterin, who proposed the idea of Ethereum in 2013 when he was just 19 years old.

The Birth of Ethereum

Vitalik’s idea was straightforward yet revolutionary:
"Run programs on top of a blockchain."

While Bitcoin’s blockchain is designed only for transactions (acting as a decentralized digital currency), Vitalik imagined a platform that could run complex programs along with transactions. This idea led to the creation of Ethereum, a blockchain that can host smart contracts and decentralized applications (dApps).

What Makes Ethereum Unique?

Ethereum isn't just about cryptocurrency (Ether). It's a platform where developers can create programs that run on a blockchain. Here's how Ethereum differs from Bitcoin:

This ability to run programs makes Ethereum a powerful tool for creating decentralized systems.

Decentralized Applications (dApps)

Ethereum’s support for decentralized applications (dApps) opened new doors in the tech world. dApps are programs that run on a blockchain, offering transparency, security, and autonomy by removing intermediaries.

Clearing the Cryptocurrency Terminology

Cryptocurrency can seem overwhelming, with terms like blockchain, Ethereum, Bitcoin, tokens, and protocols often used interchangeably. Let’s simplify these concepts:

1. Technology Layer

   • The foundation of cryptocurrencies is blockchain, a distributed immutable ledger.

2. Protocol or Coin Layer

   • These define the rules for how blockchain operates. Examples include:

     • Ethereum (Ether is its currency)

     • Bitcoin (Currency: Bitcoin)

     • Neo, Waves, and more.

3. Token Layer

   • Tokens are created on existing blockchain platforms (protocols) like Ethereum.

   • They are primarily used for ICOs (Initial Coin Offerings) or specific applications.

   • Example tokens: TRX, SNT, REP (Ethereum tokens); WGT, WCT (Waves tokens).

Ethereum vs. Bitcoin: The Rulebook

Think of protocols like Ethereum and Bitcoin as setting the "rules" of a blockchain ecosystem. For example:

• Consensus Mechanism:

  • Ethereum uses Proof of Stake (PoS) in its latest version.

  • Bitcoin uses Proof of Work (PoW).

• Mining Rewards:

  • Each protocol determines how much cryptocurrency miners earn for validating a block.

These rules differ across protocols, making each unique in its application and functionality.

What Are Tokens?

Tokens are created using protocols like Ethereum. They serve various purposes, including participating in ICOs (Initial Coin Offerings). Tokens are often confused with coins, but here’s the distinction:

• Coins:

  • Native to a blockchain protocol (e.g., Ether for Ethereum, Bitcoin for Bitcoin).

• Tokens:

  • Built on existing blockchain protocols (e.g., Uniswap on Ethereum).

  • Used for specific utilities like voting, governance, or services within applications.

A Practical Demonstration: Coin vs. Token

To see this in action, visit CoinMarketCap, a popular cryptocurrency tracking website.

1. Filtering Cryptocurrencies:

   • Cryptocurrencies listed include both coins (like Ethereum and Bitcoin) and tokens (like USD Coin and Binance USD).

2. Explore Coins vs. Tokens:

   • Use the "Filter" option to separate coins and tokens.

   • You’ll notice that coins belong to blockchains (protocols), while tokens are created on them.

Key Takeaways

• Blockchain Technology: A distributed, immutable ledger at the heart of cryptocurrencies.

• Protocols: Frameworks like Ethereum and Bitcoin define blockchain operations.

• Tokens: Digital assets built on blockchain protocols, primarily used in ICOs and decentralized applications.

Why Ethereum Matters

Ethereum isn’t just a cryptocurrency—it’s a gateway to decentralization, empowering developers to create applications that redefine how we interact with technology and services. With its robust framework, Ethereum has become the backbone for countless innovations in the blockchain space.