What is Ethereum?

If you’re interested in the world of cryptocurrency then you will certainly be familiar with the Ethereum platform.

But if you want to know more about Ethereum blockchain networks and how to use this form of digital currency, this beginner’s guide is for you.

What is the Ethereum virtual machine?

Ethereum is a cryptocurrency platform. It’s an open-source platform utilising blockchain technology.

External developers can use Ethereum services to create digital assets, such as cryptocurrencies and other digital applications. This has led to platform being called the Ethereum virtual machine.

Ethereum is also the commonly used name to describe the cryptocurrency Ether. So, if you are interested in learning how to trade ether, you will hear it referred to as Ethereum.

Who created the Ethereum network?

When answering the question ‘what is Ethereum’, we need to look at how it was conceptualised and who developed it.

Many different entrepreneurs and programmers can be credited as Ethereum developers. But it’s commonly accepted that those most responsible for this decentralized finance system are Gavin Wood and Vitalik Buterin.

Who controls the Ethereum platform?

While specific Ethereum developers were responsible for creating the platform, it’s not controlled by them.

As it’s a decentralized finance platform, this means that no single person controls the platform. Instead, it’s self-regulated and managed by the Ethereum community.

What is Ethereum timeline of development?

The Ethereum blockchain platform moved fast from conception to launch.


The then founder of Bitcoin Magazine, Vitalik Buterin, issued a White Paper about bitcoin cash alternative and how this cryptocurrency could be improved.

One of his original ideas was to expand Bitcoin to other developers. These developers would then be able to come up with other decentralized apps that could be run on the Bitcoin platform.

When no-one took him up on this suggestion to change the way digital money was handled, Vitalik Buterin decided to build totally new platform.

This, of course, became the Ethereum blockchain network. From the start he planned to make sure that the platform would be able to do more than trade cryptocurrencies.


Ethereum began crowdsourcing funding, which ended up selling $18 million worth of tokens called Ether.


Ethereum was launched by developers in this year. The first block (genesis block) was created on 30 July of this year.

How does a blockchain based software platform work?

Blockchain technology underpins bitcoin and other cryptocurrencies like Ether.

It is a way of using cryptography to chain together the blocks that contain digital records of each transaction.

If one of the computers on the Ethereum network, or any other blockchain network, goes down, the entire chain remains stable.

There are usually many thousands of computers and users linked in a blockchain network.

A network built on blockchain technology is a decentralized application. In order to encourage users to use and trust a system developed like this, such as the Ethereum network, means a high level of transparency.

Clear and open record keeping encourages users to trust in and therefore manage the system. This is why the Ethereum blockchain network’s records are publicly available.

Using cryptographic principles to secure the records, blockchain technology ensures that every transaction is mathematically verified.

This means that if someone wanted to change a record retrospectively, they would have to trawl back through the whole network and change every single block.

What is Ethereum blockchain technology and how does it work?

In the same way as any other blockchain platform, Ethereum is a decentralized public ledger.

Ethereum uses the same blockchain technology to record transaction history as bitcoin does.

The difference between bitcoin and other distributed ledgers and the Ethereum blockchain is that it doesn’t limit the use of technology to create and sell Ether, its own cryptocurrency.

Ethereum uses blockchain technology to do much more than these other decentralised applications.

Accordingly, Ethereum is available to outside developers so that they can develop their own blockchain applications. This is one simple example of the key differences.

What is Ethereum changing from other decentralized applications like bitcoin?

Ethereum protocol allows outside developers to use its technology to develop their own applications. This has led to some developers and people in the industry to refer to the platform as the Ethereum Virtual Machine.

Another differentiator for the Ethereum network is its use of smart contracts.

What is a smart contract for Ethereum?

Smart contracts are used by Ethereum. Think of a smart contract as a set of code that outlines and establishes the rough outline of a contract.

The parties in the smart contract then have to do what it says according to the smart contract’s terms.

An Ethereum smart contract obliges the two parties to initiate and implement a smart contract between them. This is because the blockchain allows both sides to create this smart contract without the need for an intermediary or any other third party.

So instead of using the blockchain to verify blocks of personal data for transactions, the Ethereum protocol uses it to allow users to create and enforce smart contracts with each other.

Smart contracts are totally unchangeable and are fully transparent to anyone on the Ethereum app network. This means that both sides are obliged to carry out the terms of the contract and can’t alter smart contracts in their own favour.

Are smart contracts a legal contract?

While contracts are generally thought of in a legal way, smart contracts often do not include anything to do with judicial matters.

Instead, the smart contracts that Ethereum operates are lines of code created to implement and execute a specific function.

Smart contracts are business software, albeit a specialist form of business software. Unlike existing blockchain used by Bitcoin that is used to regulate its version of bitcoin cash (held in the user’s cryptocurrency wallets), Ethereum uses its blockchain platform for much more.

Developers can, therefore, create smart contracts to create applications of their own. These are then decentralised applications and are sometimes referred to as DApps.

It’s important to understand that smart contracts can only work well if the underlying code works for the digital platform.

If the person who creates the code does it incorrectly, then while smart contracts affected like this will continue their instructions down to the last detail, this will not be what the creator of the code actually wanted. While this usually results on a small glitch, this could end up as a flaw that could feasibly attract fraudsters.

What is different about smart contracts and other protocols?

As smart contracts usually operate within the very wide-ranging and globally located crypto community, they can include many different users.

Traditional business software, while still relatively complex instruments for action, usually operates within one company or business.

Blockchain allows Ethereum to reach large numbers of users. However, its smart contracts don’t reach all of the computers on the network. Instead, the smart contract’s creator holds it on their server.

How does Ethereum’s token system function?

Ethereum work can be carried out by external developers using its blockchain. In this way, it’s known as one of the world’s programmable blockchains.

The smart contract based on the creator’s programmed code creates a digital token. This cryptocurrency Ether (eth) can then be utilised as digital currency for transactions on the Ethereum app.

Cryptocurrency transactions can then be made in the same way as they’re made on the bitcoin blockchain. However, bitcoin only hosts its own tokens, while the Ethereum blockchain hosts unlimited cryptocurrencies from all around the world.

These include, but are not limited to:

  • ChainLink.
  • Maker.
  • Ether.
  • Tether USD (USDT).

Smart contracts create the token and then also goes on to manage transaction records for that token using the same code.

People can buy the brand newly release token by using Ether to buy it during the new token’s initial coin offering (ICO).

Any transactions using cryptocurrency exchanges are largely unregulated and do not involve central banks. People using Ethereum work in the same way from all around the world.

Ethereum works by updating security

Traditional apps for financial services and bank accounts have a different kind of security, as they are managed by central banks.

Non-traditional financial services like Ethereum tokens have a different form of security.

For example, an issue was identified when independent developers started to issue their own tokens after creating smart contracts.

The blockchain itself had to communicate with each different token in a different way. This resulted in Ethereum ensuring that externally owned accounts are protected by the new token standard – ERC20.

What is ERC20 and what does it mean for the public blockchain?

ERC20 has six requirements that must be achieved for a newly created token to achieve the requisite designation.

Complex instruments like blockchain platform and other cryptocurrencies need ongoing security updates so that it automatically executes standards.

The ERC20 standardisation makes the creation of tokens really easy, regardless of computing power. It’s now possible for websites to create a token in a few minutes thanks to the platform referred to as Ethereum.

What else is Ethereum used for?

Ethereum is totally unique within the world of open access cryptocurrency platforms. This is because it has software that can be used for different purposes.

Developers can use this software to create their own applications, depending on their own computing power.

Many entrepreneurs have already used the existing blockchain from Ethereum to create and launch their own initial supply of tokens.

And, of course, transactions can be made using Ethereum’s own token, which is called Ether (Eth).

While it can be easy to confuse Ether and Ethereum (the cryptocurrency and the Ethereum foundation platform), there is a trick for remembering the difference.

The trick is to remember that it’s not possible to trade Ethereum, but you can make Ether transactions. And when anyone refers to the Ethereum market cap or price, they actually mean Ether.

In the same was as bitcoin, the blockchain data is available to users through a private key. This key must be stored, either on the website itself, on the hard drive or ideally completely offline for full security.

Here are some other Ethereum uses:

From the Ethereum foundation date, the platform was intended to bring in a new world of decentralized applications across multiple industries.

Ethereum is a relatively new concept in this way. Rather than focus only on how to earn interest on Ether transactions or how to mine Ethereum tokens in return for a block reward for proof of work, Ethereum set out to be different.

Crowdfunding using Ethereum

Developers routinely use Ethereum to raise funds to start a new business.

To do this, the company creates a new digital token that can be traded via Ethereum with a certain date placed on for the end of the process.

People then decide to speculate on this new token that is free from traditional central authority by buying it during the company’s ICO.

This is how Ethereum originally made money through its own Ether currency.

Since then, all kinds of newly created tokens have found similar crowdfunding success. For example, Golem raised $8.6 million and Augur $5.3 million.

Lending systems using Ethereum

Lenders who are using decentralised technology don’t look for credit reports in order to lend to someone.

Instead, these lenders use cryptocurrency records of users as collateral. This is another way that Ethereum democratises financial services.

It’s easier for people to get a loan and the terms are always more flexible than a loan from a traditional bank.

Insurance services

Decentralised insurance services have the potential to work much faster on behalf of the client.

For example, it would free the insurance up to get to people who need it. Homeowners with traditional insurance have to wait weeks for the money when they need it most.

An example of a decentralised insurance company using Ethereum blockchain is Etherisc. This pays straight away based on weather data around the house or small business of the injured party in the case of natural disasters.

Comparing Ethereum and Ether with other alt coins

Alt coins are cryptocurrencies that aren’t bitcoin. It stands for ‘alternative coins’ and is used to refer to those cryptos that started after bitcoin.

This is how three of the most widely used alternative cryptos compares with Ethereum’s Ether.


This altcoin uses the same model as bitcoin and is used solely to buy and sell Litecoin. No other applications or cryptocurrencies are built on this platform.


Ripple is a similar platform to Ethereum. It also has its own digital currency called XRP. In the same way as Ethereum’s platform, Ripple is another global system that has other functionalities.

Financial institutions can make transactions using Ripple and can transfer money across borders. The security and speed of the Ripple blockchain allow this to happen.

However, unlike Ethereum, Ripple is not an open network that allows other developers to use it to create services. It’s an exclusive network that only works on its own services.


Tether is recognised by investors as a different category of cryptocurrencies. These are called stablecoins, and their value is linked directly to the worth of fiat currencies.

The idea of stablecoins is to provide crypto that isn’t as volatile through tying value to one of the more stable fiat currencies, such as the US dollar.

How does Ethereum compare with Bitcoin?

Bitcoin is the first and original cryptocurrency built on DLT.

An important distinction between the two is that Bitcoin is primarily about facilitating transactions of its own digital currency. The entire platform was designed and works on this basis. Its market cap rank is first.

Ethereum, on the other hand, is a whole different crypto ball game. It’s a platform that welcomes external developers and creators. Ethereum allows them to test out new decentralisation ideas across any number of industries.

So, while Bitcoin is very much a cryptocurrency system, Ethereum’s entire purpose is as a decentralised platform. The market cap rank for Ethereum is second.

There is no coin limit on Ethereum Ether either, while Bitcoin will only ever create 21 million units.

Transactions are also faster on Ethereum compared with bitcoin transactions. The platform benefits from being created six years after bitcoin, with features that have been developed since then.

Want to buy Ethereum Ether? Here’s how

First select a cryptocurrency trading platform. There are a number on the market, and it’s best to go with one that is trustworthy, such as NiceHash.

Then you simply create an account. The next step before you can make any transactions is to transfer money into your account.

To do this you can link your bank account or use a debit card or credit card or transfer other cryptocurrencies. You’re then ready to start transactions and buy Ether.

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