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What is Ethereum?


1a – What is ‘ether’?

Ether is the cryptocurrency supported by the Ethereum blockchain. The term ‘Ethereum’ is commonly misused to refer to both the cryptocurrency and the blockchain. This is not the case: ‘ether’ is the digital currency that is used and transacted on the ‘Ethereum’ blockchain. The Ethereum blockchain publicly records the history of ether transactions.

In order to understand Ethereum, it is important to know why it was created and where it came from. Continue reading and we’ll take you through all the details you need to know, before moving on to explaining how Ethereum works and how you can use ether today.

1b – Who or what created Ethereum?

Ethereum was devised and created by Vitalik Buterin.

The idea behind Ethereum was first put forward in 2013, when Vitalik was just a 19 year-old blockchain enthusiast. In his article, Vitalik proposed the creation of a blockchain network platform that would allow for decentralised applications (known as dApps) to be built on top of it, almost like how mobile apps can be built for the App Store or Google Play Store.

Development on the Ethereum blockchain started after the article gained traction amongst the early cryptocurrency community, and the first publicly available version of the platform was launched on the 31st of July of 2015, the day the first block was created.

1c – Why was it created?

Vitalik envisioned that the potential for blockchain technology could be extended beyond simply allowing users to transact peer-to-peer with each other without a central authority. Ethereum was created because Vitalik wanted a blockchain network that allowed its users to create their own decentralised applications on it.

The purpose of Ethereum was to go beyond simply being a cryptocurrency, and also provide a network which allowed users to make blockchain technology a part of everyday life. Unlike cryptocurrencies such as bitcoin, which use a blockchain simply to record the movements of currency, the Ethereum blockchain allows for people to set up automatically executing ‘smart contracts’.

These will be explained in further detail in section 3c, when we look in closer detail at how Ethereum works.

1d – Who owns the Ethereum blockchain?

Although Vitalik created the Ethereum blockchain, he does not own it. No one owns the Ethereum blockchain. The nature of a blockchain is to be decentralised, which means that no one person, group, or entity controls it.

On a technical level, the Ethereum blockchain is a form of open-source software, meaning that it is controlled by its users, who vote on any proposed changes to the code through direct democracy (like the football game with no referee in section 1a). People can freely look at the source code of the blockchain and suggest edits to it, but updates require an ‘economic majority’ to be successfully incorporated.

Just like any app on your phone, updates are made to the blockchain to help it work more efficiently, increase security, or any other improvements it may need. However, when updating an app, it’s the company that owns it that will decide and enact the updates; with Ethereum, only updates that the majority of users agree to are implemented.

This democratic approach to the management of Ethereum is a core component of how the Ethereum network works.

By Harry Atkins
Harry joined us in 2019 to lead our Editorial Team. Drawing on more than a decade writing, editing and managing high-profile content for blue chip companies, Harry’s considerable experience in the finance sector encompasses work for high street and investment banks, insurance companies and trading platforms.

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