Bitcoin vs Ethereum: Beginners Guide

Bitcoin has been the face of cryptocurrency for a while now.

Its concept is pretty easy to understand, even for the technologically-challenged. It's basically digital money- there is monetary value attached to it and you can use it to buy stuff. Most important is that it is decentralized, a feature which many people consider its biggest draw. There is no single entity that controls and regulates bitcoin- no government, no state, no banking system- and its existence is dependent on its users, i.e. the people who placed their good will and trust on the Bitcoin community in the first place.

Another huge difference that Bitcoin has from fiat currency is that there is a limited number of bitcoins that can exist in the world. Once the number of mined bitcoins reaches 21 million- that's it. It would be impossible to create more. The cryptocurrency community believes that having this limited supply would help curb inflation and stop the cryptocurrency from devaluing too much over time.

Here Comes Ethereum

Ethereum is the brainchild of Vitalik Buterin, a Russian-Canadian programmer and bitcoin enthusiast (he was the co-founder of Bitcoin Magazine) who felt that bitcoin can be further improved with the addition of a scripting language.

Initially, his white paper on the subject was ignored. But when he received a Thiel Fellowship grant worth $100,000 in 2014, he was able to fully realize his dream and work on Ethereum full-time.

So thus Ethereum the cryptocurrency was born. Ethereum is somewhat like Bitcoin in the sense that they are both decentralized cryptocurrencies, but it takes the concept a bit further.

Ethereum is a PROGRAMMABLE cryptocurrency. According to its official website, Ethereum runs something called "smart contracts." The term itself is unintelligible to a lot of people, and cannot be fully comprehended until one understands what Ethereum is trying to achieve.

Ethereum the World Computer

Ethereum is sometimes called as the "World Computer." But what exactly is it?

The term World Computer stems from Ethereum's desire to decentralize the widespread client-server model that most software and computer systems use. For example, if you ever had your files and data stored away on a cloud storage service like Dropbox, you are betting on the thought that Dropbox itself won't just close one day without warning and take all of your files with them. If you like to pay using your credit card on eCommorce sites, you are putting your trust on whatever payment provider that website is using to secure your personal information and credit card information. Your digital life is basically at the mercy of companies and their servers.

But Ethereum aims to destroy this client/cloud-server model and turn it on its head. Instead of relying on third-party servers, computing power on Ethereum is provided by volunteers who run thousands of "nodes" from all over the world. Hence, it's a "World Computer" in its most literal sense.

Smart contracts, on the other hand, are the "laws" on which the government of Ethereum operates. However, these "laws" are very different from the traditional, real-life laws that we are all accustomed to.

How Ethereum Works

One, anybody can make a "law" or a smart contract. These smart contracts are written in code. Because it is written in code, there is not much room here for creative interpretation like those in real laws.

Two, once you've written a law, the Ethereum government's executive branch- i.e. the aforementioned network of nodes run by volunteers- is required to execute and enforce it. There is a cost for your law's enforcement though (to pay for the upkeep of volunteers' computers), but this is very negligible and as of this writing costs about half a penny.

Third, YOU choose what laws you will follow. Not everyone will follow the laws you enact and you wouldn't expect them to. This way, the Ethereum community can weed out bad laws easily just from the simple fact that most people would ignore them.

What Ethereum Can Be Used For

Imagine buying a house with Ethereum. You can write a "law" that will release a specified amount of Ethereum to the seller if and only if the title has already been transferred to your name. You wouldn't need a third-party or a bank to release the funds to the seller.

There are a number of apps that are currently in development that is being built on Ethereum. You can use to Ethereum to run something like uPOrt, which is a decentralized identity management system that gives you full control over your data withough having all of your information stored in one centralized server.

Ethereum can also be used for fundraising, capital management, and eCommerce. The node networks that power Ethereum can also be rented out to those who want to pay for extra computing power.