In addition to Bitcoin, Ethereum is an integral part of the current crypto landscape, and for good reason. Ethereum was designed by Vitalik Buterin in 2013 and went live in 2015. While Bitcoin was designed as a form of digital currency, the idea behind Ethereum was different. Vitalik saw the necessity of decentralisation, but wanted to make it possible to add other applications to this decentralisation, and not just use it for currency.
This became one of the characteristic of the Ethereum blockchain, on which it is possible to create “smart contracts”. A smart contract is a contract or agreement that is recorded on the blockchain. These can vary from simple agreements to complex programs. When such a contract or program is sent to the blockchain, it is essentially irreversible. Therefore, you could say that Ethereum is more like software, and Bitcoin is more like a currency. To give a simple idea; For example, a parent could agree with a child that if the child gets good grades all year long, the child will get a hundred euros at the end of the year. You would write this down in a smart contract and send it to the blockchain. At the time the grades are submitted at the end of the year, the transaction is automatically carried out if the grades are sufficient. If the grades are not sufficient, the money is automatically refunded to the parents’ (blockchain)wallet.
Proof of work and proof of stake
Like Bitcoin, the network has to be secured and supported. You may have heard people talk about proof of work versus proof of stake. These are the two ways in which a network can be maintained. In the past, both Bitcoin and Ethereum projects ran on the proof of work principle. Proof of work requires users to use their computer power to solve complex mathematical problems, whereas proof of stake requires users to stake (secure) a certain number of ether tokens to show that they are motivated to support the network. If users are willing to stake their tokens, they’ll be compensated in Ethereum. In 2022 Ethereum changed from proof of work to proof of stake.
Ethereum as an investment and ‘gas fees‘
If Ethereum is not a currency, or “digital gold”, why would people invest in Ethereum? The main reason could be that people expect more and more applications to be developed on Ethereum. When an application, in the form of a smart contract, is written, there is a certain complexity involved. All agreements in such a contract must be resolved by the network. A certain price has been set in advance for each detail (for example, a plus or a minus) in the form of “gas”. When the contract is executed, gas is paid out in Ethereum. The more applications there are, the more Ethereum needed to pay for these gas fees. For this reason, it is believed that the demand for Ethereum will increase and therefore so will the value.