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What Is Ethereum?

The foundation for our digital future

A complete beginner’s guide to how Ethereum works, the benefits it brings and how it’s being used by millions of people around the world.

What is a cryptocurrency?

Crypto (short for cryptocurrency) is a new form of digital money powered by cryptography.

It all started in 2008 with Bitcoin. You could use it to send funds to anyone anywhere globally. What made crypto different from normal bank transfers or other financial services like Paypal or Alipay is that there was no middle man for the first time.

Wait, what is a middle man?

A middle-man is a central authority like a bank or government that intervenes in a transaction between the sender and recipient. They have the power to surveill, censor or revert transactions and they can share the sensitive data they collect about you with third parties. They also often dictate which financial services you have access to.

Things are different with crypto. Transactions directly connect sender and recipient without having to deal with any central authority. Nobody else will have access to your funds and nobody can tell you what services you can use. This is possible because of the blockchain technology upon which cryptocurrencies operate.

What is the difference between Ethereum and Bitcoin?

Launched in 2015, Ethereum builds on Bitcoin’s innovation, with some big differences.

Both let you use digital money without payment providers or banks. But Ethereum is programmable, so you can also build and deploy decentralized applications on its network.

Ethereum being programmable means that you can build apps that use the blockchain to store data or control what your app can do. This results in a general purpose blockchain that can be programmed to do anything. As there is no limit to what Ethereum can do, it allows for great innovation to happen on the Ethereum network.

While Bitcoin is only a payment network, Ethereum is more like a marketplace of financial services, games, social networks and other apps that respect your privacy and cannot censor you.

Why would I use Ethereum?

If you’ve ever sent money overseas (or plan to), or had to worry about the future of your assets due to external forces outside of your control where you live, or been fed up by the numerous restrictions and fees imposed by traditional financial institutions for everyday transactions, you might be interested in what cryptocurrencies have to offer.

Bear in mind that Ethereum is a story that is still being written, and many more reasons to use it are being uncovered as it evolves and develops over time.

Meet ether, Ethereum’s cryptocurrency

Ethereum has a native cryptocurrency called ether (ETH). It is purely digital, and you can send it to anyone anywhere in the world instantly. The supply of ETH isn’t controlled by any government or company – it is decentralized and completely transparent. New coins (also commonly called tokens) are created only by miners and stakers who maintain the network.

Every action on the Ethereum network requires a certain amount of computational power. This fee is paid in the form of ether. This means you need at least a small amount of ETH to use the network.

What can I do with ETH coins?

Turns out: a lot of things! One of the most prominent usages of the Ethereum technology is decentralized finance (DeFi) that opens entire areas of banking services to anybody with an internet connection. You can use your ether as a collateral to take out loans or provide liquidity to earn interest on your funds.

Who runs Ethereum?

Ethereum is not controlled by any one entity. It exists solely through the decentralized participation and cooperation of the community. Ethereum makes use of nodes (a computer with a copy of the Ethereum blockchain data) run by volunteers to replace individual server and cloud systems owned by major internet providers and services.

These distributed nodes, run by individuals and businesses all over the world, provide resiliency to the Ethereum network infrastructure. It is therefore much less vulnerable to hacks or shutdowns. Since its launch in 2015, Ethereum has never suffered downtime. There are thousands of individual nodes running Ethereum network. This makes Ethereum one of the most decentralized cryptocurrencies out there, second only to bitcoin.

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