What is Ethereum (ETH)?
Ethereum (ETH) is an open-source, decentralized platform based on blockchain technology. The Ethereum network enables the use of smart contracts, which are being programmed in the form of decentralized applications. More on smart contracts below. The Ethereum network consists of one blockchain which hosts its own currency, Ether, but also many other crypto coins and tokens. Hence, the Ethereum platform is used by developers to create and distribute various sorts of new applications and cryptocurrencies. This is also why a majority of newly developed coins and ICOs (Initial Coin Offerings) make use of the Ethereum platform.
What are Smart Contracts?
Smart contracts are a form of self-enforcing code. To be able to understand the opportunities that are made possible by Ethereum, it is important to know how smarts contracts work.
Smart contracts enable you to exchange any piece of valuable data in a transparent manner without the use of a third party. Traditionally, when you are in need of a specific contract or document you would go to a specialized consultant and pay for the service of setting it up. After paying, you wait until the job is done and you will receive the required documents.
With smart contracts, the need for a consultant, lawyer, attorney, or any other third party is no longer needed. The way in which smart contracts function is often compared to a traditional vending machine. By simply “throwing an Ether into the machine”, a contract will be generated automatically in which the rules and penalties of the deal are already defined.
How smart contracts work in daily life can be illustrated best with an example. Let’s say you are buying a house and you want to pay with Ethers. A smart contract between you and the vendor is generated in which all the rules of the transaction are defined. Moreover, these rules are also automatically enforced. This means that if you hold up your end of the deal and pay the agreed price, you will automatically receive the keys of the house.
What are Ethers?
The terms Ethereum and Ether are often used interchangeably. This, however, is incorrect, since they do not have the same meaning. Ethereum is a network, and Ethers are the fuel to keep the network running. Ethers are an incentive for both developers and miners to keep the Ethereum network operating. You can sell and buy Ethers just like you can buy any other cryptocurrency. So when people say they are buying Ethereum, they are in fact buying Ethers. It is important to note that, unlike Bitcoin, there is not a fixed amount of Ethers available. As the Ethereum network grows, the total amount of available Ethers can increase as well. There is a limit, however, as the total supply can increase with a maximum of 18 million Ether each year.