In the Bitcoin mania closing out 2017, a lot of new investors learned for the first time about Ethereum, the #2 cryptocurrency in the world by market cap. Profiting even more than Bitcoin in 2017, Ethereum has been hailed by many for its Smart Contracts and ability to launch separate tokens. But there’s two versions of Ethereum, Ether, and a bunch of Ethereum-backed tokens. It can all be a bit confusing, so we’ll explain the distinctions.
What’s the Real Ethereum?
Ethereum jumped onto the crypto scene in a big way in 2017, founded by Russian-Canadian programmer Vitalik Buterin. Ethereum is a blockchain-based project, like Bitcoin. However, it’s different in several key ways. Vitalik first founded Bitcoin Magazine and worked on projects like Dark Wallet and Egora. He envisioned an upgrade to Bitcoin to make it more practical. Incorporating smart contracts and giving developers the ability to launch their own projects through the platform, he released Ethereum.
Ethereum hard forked into two separate coins, Ethereum and Ethereum classic, after a hack a few years ago. It’s a long and complex story, but fortunately not directly relevant: Ethereum is the much larger cryptocurrency, and the one being used more and more. So we’ll break that down.
Smart Contracts aren’t a new idea, but Ethereum was the first cryptocurrency to package them into a blockchain and release it to the world. Smart Contracts are automatic transactions fulfilled by set conditions. A smart contract could automatically send you goods from a website after you pay and the funds arrive. Or it could facilitate a business deal between two companies, refunding company A if company B does not fulfill their set conditions. The sky is the limit for smart contracts, and new real-world implications are conceived daily.
Smart contracts have a number of advantages over traditional business practices. They’re faster, cheaper, transparent and safer. Neither party can influence them. They’re one of the reasons developers have leaped to use Ethereum for launching their own projects.
It’s important to understand the Ethereum ecosystem. Ethereum’s own token, ether, is the fuel that keeps Ethereum running. Say you want to launch an application through Ethereum. This will have a set cost, measured in “gas” and paid in Ether. Gas is like electricity for Ethereum. It reflects the underlying cost of doing things. This helps prevent a DDOS attack by hackers, since it would be extremely pricey in gas to execute.
Ethereum is leaps and bounds easier to code with than in Bitcoin, which has made it the platform of choice for programmers. It’s also enabled the launch of different tokens through Ethereum, which are called ERC-20 tokens.
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Tokens Within Tokens
Standing for “Ethereum Request for Comments,” ERC-20 tokens are coins built on the Ethereum network with Ethereum technology. These tokens often function as IOUs or assets in a new digital ecosystem. It’s easy for someone to launch their own cryptocurrency, even without nuts-and-bolts programming experience.
ERC-20 tokens often incorporate use of smart contracts. Basic Attention Token is a project creating a new internet browser; internal transactions and ads are paid in their BAT token. Bitshares is a decentralized online exchange hosted on a blockchain; smart contracts govern sending and receiving of funds. SALT is a platform for loans, where a smart contract holds the collateral. Novel new uses of smart contracts pop up in ERC-20 tokens daily.
It’s exciting to see both the Ethereum coin and Ethereum platform finding real-world applications to help people’s lives. Ethereum’s smart contracts make it a great platform for developers to launch programs through. And many of these platforms are using their own tokens for some truly innovative work. The sky is the limit for Ethereum and ERC-20 tokens.