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What is Ethereum?

Ethereum is a blockchain-based distributed computing platform that hosts smart contract functionality.  Ethereum also provides a traded cryptocurrency token called “Ether”.  ETH is the ticker symbol on exchanges for the Ether token.  The Ether token’s value is to compensate the network’s participants or miners for providing computing power to help run the smart contracts.  This pricing of the Ether token or ETH is considered Gas.

To simplify, the Ethereum network is made up of different components.  There is the blockchain which is the public ledger which all of the smart contracts are recorded.  To run each smart contract, a different amount of computing power is needed depending on the complexities of the contract.  Since there is no central company running this software the public needs to contribute computing power.  To compensate the people who are running and executing these contracts, Ether tokens are given in exchange for the computer processing.  When a person creates a smart contract they need to pay gas or Ether tokens for the smart contracts to run.

How Ethereum is Different from Bitcoin?

While it does have value, it’s purpose is not to act as a currency but a method of creating and autonomously running the smart contracts.  The term “smart contracts” was created by Nick Szabo in 1996, who was a computer scientist and cryptographer but Ethereum was later posed by Vitalik Buterin in 2013 and launched in 2015.

Bitcoin is considered a digital currency that could substitute traditional fiat currencies in some scenarios.  It stores value and can be transferred from person to person.  Ethereum is a platform that executes contracts that are written into the blockchain.  This is the main difference between the two projects.  Since computing resources are used to run these contracts on the blockchain it uses the Ether token to pay people providing the computing power.

In order to run these the smart contracts, the network uses what is called, the Ethereum Virtual Machine (EVM).  It is a runtime environment for smart contracts which is  isolated from the network, filesystem and processes of the host the computer system.

Related Terms

Whаt is a TX Fee for Cryptocurrencies? A TX Fee is the fee that is charged for transferring on Bitcoin or other сrурtосurrеnсies frоm one аddrеѕѕ to another. Ethereum fees are called Gas.
Block in a Blockchain A block in Bitcoin or on a blockchain is a group of transactions bundled together that will be placed on the blockchain as public record.
What is a Cryptocurrency Fork? A fork or hard fork is a the a blockchain to splitting into another branch, allowing for the development of other features or maintenance of different data.
What is an ICO? An Initial Coin Offering (ICO) is a way for a company to crowdfund and distribute a token or coin for cryptocurrency prior to release on exchanges.