Today’s cryptocurrency headlines are dominated by Bitcoin. As each day goes by, it is harder and harder to meet someone who has never heard of cryptocurrency. However, seasoned investors, like Jordan Lindsey, recognize that Bitcoin is really just one possible application of an incredible technology.
A common analogy is to call Bitcoin the email to Ethereum’s internet. When something is being widely compared to the internet, there is reason to take notice. Bitcoin is only a small part of the possibilities blockchain brings to the table. And while forex investors like Jordan Lindsey, and even banks like J.P. Morgan, recognize that a peer to peer currency system has awesome potential, that only scratches the surface of the blockchain.
Ethereum aims to take things a step further and realize the full potential of blockchain technology. Rather than creating a single service using blockchain, Ethereum aims to provide a platform on which decentralized applications can be easily created. In the past, creating decentralized applications (such as Bitcoin) took large amounts of skill, time, and money. But Ethereum has changed all that by giving developers an easy-to-use platform to create decentralized applications, also called DApps.
With that kind of potential, it’s worth learning more about Ethereum. So, we created this FAQ to bring you up to speed. You can also learn about Ethereum from an investor’s perspective on Jordan Lindsey’s YouTube channel.
What is Ethereum?
Put simply, Ethereum is an open software platform that allows programmers to create decentralized applications using blockchain technology. Ethereum uses the cryptocurrency ether. Miners who are able to successfully add blocks to the chain are rewarded with ether. As well as being a tradable cryptocurrency, ether allows developers to buy services and pay for transaction fees.
What’s the Difference Between Bitcoin and Ethereum?
Bitcoin and Ethereum are both publicly distributed ledgers running on the blockchain. But as stated earlier, Bitcoin is one possible application of blockchain technology whereas Ethereum is more of a platform.
While Bitcoin allows for peer to peer payments and presents a new currency solution, Ethereum has many more potential applications. Programmers can use the Ethereum platform to create decentralized applications, for example.
What is a Smart Contract?
A smart contract is a set of code that allows a contract to be put online. This is code that can facilitate the transfer of anything of value. Smart contracts create an exciting future because they have so many potential applications. The contracts are considered smart because they require no human oversight to make sure the contract is completed. The smart contract will simply look to see whether the stipulations of the contract have been met and then execute the corresponding code.
While all blockchain technology has the ability to process code, the difference with Ethereum is the scope. Most blockchains are limited in their ability to process the code, but not Ethereum.
What Are Some Potential Applications of Ethereum?
The vast number of possible applications is what makes Ethereum so exciting. Any service that relies on a central authority could be decentralized by a DApp on Ethereum. Bitcoin is an application which decentralizes currency so that, as Jordan Lindsey points out, consumers and investors alike can use a currency that stores value like gold but is also easy to transport.
A DApp on Ethereum could decentralize services like loans, real estate, and even voting systems.
There are so many exciting projects in the works using Ethereum. One example is Provenance, an application designed to make supply chains more transparent. This application allows shoppers to get verified information on origins and ingredients. In an increasingly socially aware world, this application would allow shoppers to make more informed choices by seeing where their products are coming from.
What Are the Benefits of Decentralized Applications?
People everywhere want Bitcoin to become more widely accepted because there are so many benefits to decentralized applications. Decentralized applications take away power from central authorities and allow for more efficiency in the marketplace. Because these DApps work on publicly distributed ledgers, all the information is public domain and yet still protected through cryptography.
Taking away a central authority prevents a third party from manipulating or secretly using the data they have access to. Because these DApps require consensus to make any changes, it is extremely difficult to tamper with existing contracts. The lack of a central authority means the information is widely distributed and more difficult to hack.
Are there any drawbacks to Decentralized Applications?
Decentralized applications offer the possibility of huge improvements to many of our current standard operating procedures, but they are not foolproof. Smart contracts are only as good as the human who codes them. That means that a mistake in the code could lead to an unwanted outcome. This outcome would be difficult to alter because it would require a majority consensus to change. Being able to change unwanted outcomes might require a central authority which would take away much of the benefit of DApps.
Who is Behind Ethereum?
The creator of Ethereum is a man named Vitalik Buterin. Buterin said, “I thought [those in the Bitcoin community] weren’t approaching the problem in the right way. I thought they were going after individual applications; they were trying to kind of explicitly support each [case] in a sort of Swiss Army knife protocol.”
Buterin’s approach was to, instead, create something that has many potential uses rather than just one. This is what has so many people excited about Ethereum and why many are calling it the new internet. Just like the internet, Ethereum is just a starting point for innovation. This is why many believe that ether will eventually catch up and overtake bitcoin as the most valuable cryptocurrency.
However, that doesn’t mean that investors like Jordan Lindsey are jumping ship on Bitcoin. Even if Ethereum ends up overtaking Bitcoin, that doesn’t make Bitcoin obsolete.
What Does the Future Hold for Ethereum?
This is one question about Ethereum that can’t be answered. When the internet first came into existence so many years ago no one could have possibly predicted all the ways in which it would change the world. The amazing thing is that Ethereum has that same potential. It’s very likely that in just a few years, applications on Ethereum will be an integral part of our everyday lives.
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