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What is Ethereum?

by Ethereum 29 days ago in fintech

People often identify Ethereum as a cryptocurrency, that is usually the first mistake and I imagine that is why you are here.

People often identify Ethereum as a cryptocurrency, that is usually the first mistake and I imagine that is why you are here. Ethereum is a platform , the name of its currency is Ether.

It is true that both terms are currently used regardless of what it refers to. Ethereum development as a platform is the work of the Russian Vitalik Buterin , who unlike Satoshi Nakamoto, is a natural and identifiable person.

Ethereum has a very clear vision of what the Internet should look like. The Internet should replace servers and clouds with a network of global computers that from this point on we will call Nodes . Each node will store all the data of the blockchain, which you already know as the Blockchain .

In the network that Ethereum raises there are thousands of nodes and the more they join, the more secure the network and the data it contains .

This has a very simple explanation, each data stored on the network has to be verified by consensus, that is, 51% of the nodes must accept that the information is correct for it to be added to the Blockchain.

Hacking such a system is almost impossible since to suffer such an attack, more than half of all the nodes on the network would have to be controlled. Getting control like this is so expensive that an attack loses all meaning.

Up to this point Ethereum and Bitcoin are almost no different , but if the community has baptized the Ethereum Blockchain as Blockchain 2.0 it is because it is much more advanced, especially in two aspects:

Smart contracts

Ethereum is designed so that every transaction takes place if certain conditions are met. These rules are defined in smart contracts, Smart Contracts.

To give you an idea, imagine that you want to buy a chocolate bar from a vending machine, but instead of having the euro that it is worth, you only have 50 cents. Obviously, no matter how much you put the coin in the machine, you will not be able to buy the chocolate bar.

That translated into the Smart Contract would be to program that if you put € 1 in the machine, it will give you the chocolate bar.

A Smart Contract is totally invariable , that is why the transactions carried out through this system are characterized by being “Without trust”, that is, it is not necessary to trust the other person, since if the terms are not met of the contract, this will not happen.

This allows us to have a decentralized network and what is more important, dehumanized, that way we could guarantee its operation by leaving aside the interpretations.

In Spain, the insurance company AXA has begun to implement Smart Contracts in the compensation contracts for flight delays , since it is a fact that does not give rise to interpretations, if we have a contract of this type with the insurer, we will not have to do no management to claim, since the contract would be activated instantly.


A decentralized application does not run on a central server, it runs on a Blockchain . For the founders of the Ethereum platform development, the strength of its design, its creed and its principles are based on users learning about them and designing applications based on their blockchain.

To have a decentralized database, you must have security. To be safe, you need incentives.

To do this, Ethereum has developed its own encoding language, Solidity . This language can be compared to one of the most common, JavaScript. Solidity allows us to program and develop new and exciting dApps every day.

The idea is that these Ethereum-based dApps can compete to replace centralized applications, social networks, emails, banking etc. The Ethereum network offers endless possibilities for development.

Ethereum is without a doubt one of the greatest, if not the greatest, technological revolution since the invention of the internet .

So far, you have learned that Ethereum is a Blockchain that allows the generation of Smart Contracts and dApps, the union of these forces could change the Internet forever, if they have not already done so.

How does Ethereum work?

Let's get a little more specific with this question, what is Ether and how does Ethereum work?

Ether is the cryptocurrency used by the Ethereum platform . If you want to do something based on your system, you will need some Ether.

Ether, also known as "gas" is the food of Ethereum. Each transaction requires an amount of Ether and as is obvious, the larger and more complex the work, the more "gas" is consumed.

I'm going to give you an example of how Ethereum works exactly; Imagine that you need to prepare a report for your business, that report will cost you 10 Ethers. In a traditional transaction or even Bitcoins you transfer the money and wait for the report to be made.

With Ethereum the transaction can be linked to a Smart Contract in which it is reflected in the following way: If B makes the report for A, 10 Eth are sent to B.

As you can see, it is a very simple transaction that guarantees us that we will receive the report, because if we did not, the consultancy would never see our money.

Ethereum actually relies heavily on the protocol and design of Bitcoin , but makes a number of adjustments to support applications that go beyond monetary.

The goal of Ethereum's Turing-Complete is to allow developers to write programs in which self-governance and automation of their blockchain transactions are a priority.

The main characteristic of Ethereum, the capacity for innovation

This capacity for innovation is surely the greatest characteristic of Ethereum.

Ethereum stores in its nodes the most recent states of each Smart Contract, in addition to all Ether transactions.

For each Ethereum dApp, the network needs to keep track that includes each user's balance, their smart contract code, and where everything is stored.

Blockchain-based software companies may end up merging with existing software giants, at which point blockchain patents will become part of the current patent war.

Bitcoin uses unspent transactions to track the balances of its users. This jargon will soon sound like Chinese to you, but it's pretty simple. Every time someone makes a transaction, the network divides the total amount of Bitcoins and issues the Bitcoins back to each user.

To carry out any transaction, the Bitcoin network must add up all the exchange currencies and classify them as spent or unspent.

Development of Ethereum actually makes use of accounts , as if it were a bank account. The tokens pass from one wallet to another. That way the money is always somewhere, without having the need to have an ongoing relationship.

For the nodes to run, all Smart Contracts use EVM (Ethereum Virtual Machine) using the rules that the developer initially programmed.

The calculation in the EVM is achieved with a Bytes code language , but developers can write Smart Contracts in coding languages ​​such as Solidity or Snake.

The miners of the Ethereum network are in charge of avoiding bad practices such as someone spending their money more than once.

How Ethereum is generated

In any system based on Blockchain, the figure of the mining nodes is essential to turn the system into something reliable, secure and decentralized.

On the Ethereum platform it is no different and the miner invests their software, hardware, time and energy resources in the process. That contribution is the well-known Proof of Work (PoW) and the computer system is Mining.

As you already know, Ethereum is the platform and Ether the cryptocurrency, therefore what we define as Ether mining is the process of classification and verification of the blocks within the Blockchain that make up the Ethereum network

What guarantees us that there will always be people willing to mine for us is that mining always gets a reward, a salary . In the case of Ethereum we would be talking about 5 Ether for each mined block.

In each transaction that we carry out in Ethereum, we will have to pay a commission called “Gas” to compensate for the computing work of the miners. Apart from Gas, we could offer a portion of the Ether that we send to speed up the transaction.

The Ethereum PoW works through the Ethcash algorithm, designed to find solutions to the mathematical problems that have to be solved for mining to be effective.

To solve these problems, miners employ high-performance equipment to try to be the fastest to come up with a solution.

Differences between Bitcoin and Ethereum

Actually the Bitcoin project and the Ethereum project have many things in common, but also many differences.

The biggest difference between the two is your goals. Bitcoin was born to be a tangible good, a wealth, like gold. It could even replace traditional money. The objective of Ethereum is to be the way to execute Smart Contracts

Bitcoin is a digital currency, and the protocol is written to maintain this cryptocurrency. Clearly, the Ethereum platform has ETH and that is also a digital currency, but it exists to maintain the protocol.

Another big difference between Ethereum and Bitcoin is the number of coins of each project, Bitcoin is limited to 21 million units and the Ethers of the Ethereum platform are infinite , although it is expected not to exceed 100 million in a long time.

On the technical side there are quite a few differences, although when we are at a relatively early age both projects seem quite similar. As progress is made and improvements are seen in the systems, the differences will be more and more evident.

If we had to choose 10 clear differences, they would be the following:

1- Issuance of cryptocurrencies: Bitcoin creates 12.5 cryptocurrencies every 10 minutes, that is, 75 Bitcoins per hour, while the Ethereum platform has the possibility of creating 3 new Ethers every 15 seconds, that is, about 720 Ether per hour.

2- Production limitations: As I have mentioned before, Bitcoin limits its production to 21 million, currently there are almost 17 million in circulation. Ethereum does not propose a limited number of Ethers, but it is considering reducing or stopping the issuance in one or two years, there are currently about 96 million Ether in circulation.

3- On average a block of BItcoin is created every 10 minutes, of Ethereum every 15 seconds

4- While Bitcoin uses a built-in scripting language with very limited functionality, Ethereum uses a complete language, Turing-Complete. From this language programs known as Smart Contracts are born

5- The operating cost in Bitcoin is linked to the size of the transaction, while in Ethereum the cost, known as Gas, is assigned to each operation.

6- A Bitcoin node is limited to 1MB in size, in Ethereum the nodes are limited by the Gas limit. In practice, Bitcoin processes 4 transactions per second, Ethereum processes 15.

7- The Ethereum Smart Contract code is housed in its own address within the Blockchain, instead of being housed within the transaction as is the case with Bitcoin.

8- Ethereum includes within its Blockchain valid nodes that have been overtaken by other blocks. These are known as "Uncles" and provide greater security to the Blockchain and allow Ethereum to have shorter times.

9- The Bitcoin Hash algorithm, SHA-256, is performed efficiently with specific hardware such as ASIC. The Ethereum Hash algorithm, the KECCAK-256, consumes a lot of memory, which ensures a greater mining decentralization.

10- Ethereum's future plans go from moving away from consensus algorithm mining, PoW to a Proof of Stake, PoS. This creates blocks based on the tokens of the nodes. Furthermore Ethereum advocates the implementation of Sharding, to divide the Blockchain into many interconnected Sub Blocks. Bitcoin don't have those plans.

How is the value of Ethereum calculated?

You may wonder how the price of Ethereum is calculated and as in any cryptocurrency, its support lies in supply and demand.

I'm going to give you an example that you will surely understand. Imagine that you want to sell a kilo of apples, that kilo you put on sale for € 10. As is normal, there will be no one willing to pay you that for a kilo of apples, no one in their right mind at least.

But it turns out that you find people willing to pay you € 2 for your apples, you realize that and decide to lower the price of the Kilo to € 3, in this case you do find buyers, therefore we could calculate the price of your apples around at € 3.

As you can see, I am explaining the law of supply and demand ... It is that thinking that right now prices are based on anything else is crazy.

It is important that you keep these principles in mind when deciding to embark on this exciting journey of cryptocurrencies, be it with Ethereum, Bitcoin or whatever you want.

What are the advantages and disadvantages of Ethereum

The advantages of Ethereum are several, for many it is the cryptocurrency destined to unseat Bitcoin as the queen currency of the Blockchain world, but beware that, like Bitcoin, it has its disadvantages.


1- Ethereum has created a global access platform on which complex network contracts can be executed. It totally eliminates the need for services provided by third parties for its operation.

2- Ethereum serves as a platform for other products or services , that allows a robust ecosystem to be created that makes the platform stronger and stronger. As we move forward in time, there will be better and better information about Ethereum.

3- The Ethereum Road Map is clear, that way the community has the standards on what to expect in the coming years much clearer than with other Blockchains. The improvement in the Ethereum network development is continuous and that is a balm for an industry hungry for advancements.

4- Beyond the founders of Ethereum, there are many companies involved in its study and development, such as the Ethereum Enterprise Alliance or the Hyperledger team. After Bitcoin, it is the Blockchain with the most support from the business community.


1- The biggest advantage of Ethereum is also its disadvantage. Remember that Ethereum is intended as a platform, not as a cryptocurrency. That causes it to never be as effective as other Blockchains . Bitcoin is simple and effective, instead Ethereum is designed to be a supercomputer, generate Smart Contracts, etc. This complexity makes it very flexible but at the same time it is less optimized.

2- Thanks to your roadmap, we know that great improvements are coming for Ethereum, including a change from Proof of Work to Proof of Stake. If there were any problems in this important change, it could cause serious damage to the platform architecture and block the system, let's trust the great team behind it so that this does not happen.

3- The precariousness of the documentation that exists for developers is a major obstacle for all those who want to develop projects in Ethereum. Most of the technical tutorials that you find on Google tend to be out of date or very simple.

Over time it will improve, but for the moment, getting involved in developing Smart Contracts is going to be very difficult for many.

Conclusions on Ethereum

A global supercomputer, the necessary platform to tokenize the world, the successor to Bitcoin, the only viable cryptocurrency, the Russian bitcoin ... A lot has been said about the Ethereum platform and about Ethers, what we are sure is that Ethereum represents a world full of possibilities .

If we were to advise you of a cryptocurrency that should never, ever be missing from your portfolio, that is Ether, firstly because it will be the currency that most altcoins demand of you to invest in them, secondly, because few projects have as much support and study as the Ethereum platform



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