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What is Ethereum (ETH) - Simple Explanation for Beginners

Ethereum (ETH) guide
Wed, 05/16/2018 - 09:53
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George Shnurenko
As of 2018, Ethereum has the second bigger market cap among all the cryptocurrencies.
What is Ethereum (ETH) - Simple Explanation for Beginners
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Similarly to Bitcoin, Ethereum utilizes blockchain technology, but there are some important differences between these major cryptocurrencies. Firstly, Ethereum is not restricted for developers, and that allows the currency to significantly extend its capability. As of 2018, there are numerous apps on the market (for example, Cypherium and Loci) that are specifically designed for the Etherium’s blockchain while Bitcoin provides only one app for making online payments. Secondly, Ether, unlike Bitcoin, can be also used in some blockchain-based apps to make payments for transaction services, so it is more than just a tradable cryptocurrency.

How is Ethereum different from Bitcoin?

Despite the huge drop in 2018 Bitcoin is still far ahead of its competitors in terms of its market cap. Ethereum, while being a Bitcoin-based cryptocurrency, remains the second most popular platform in the crypto world with estimated market cap of about $116 billion. One can’t deny that Bitcoin paid the way for the development of blockchain technology, but at the same time Ethereum offers more possibilities for dealing with digital money. Here’s the list of some major distinctions between Bitcoin and Ethereum:

what is ethereum
  1. In the Ethereum network, the transaction verification time is around 15 seconds. For comparison, Bitcoin transaction can take up to 10 minutes, so it may be inconvenient to use it for making in-store payments.
  2. The hash rate of ether usually doesn’t change unless hard forking is involved. Bitcoin’s hash rate in expected to drop by 50% during the next 4 years.
  3. To deter numerous cyber attacks, it uses PoW algorithm which is called Ethash. This algorithm makes the currency ASIC-resistant. However, there is a new Chinese mining chip that can be used specifically for processing Ethereum transactions.
  4. If a user wants to complete a transaction he will have to pay a gas price which reflects the amount of computational effort, bandwidth usage and the necessary size of storage. Each unit of gas can be bought with ether. An analogy could be drawn with an ordinal gas station where each gallon costs a certain amount of dollars. At the same time Bitcoin uses the method of byte-counting when users pay a certain amount of currency per byte or kilobyte of data.
  5. Speaking of transaction fees, it is also important to note that Ethereum transactions fees are lower compared to Bitcoin. As of May 2018, the Bitcoin’s fee crisis is finally over since now the median price of a transaction is about $1.43 (it was about $23 in December 2017), but Ethereum still remains significantly cheaper with an average fee of about $0.44.
  6. Ethereum uses balance model which is opposed to Bitcoin’s UTXO model. With Ethereum, there is a state storage of easily manageable accounts while Bitcoin goes with a stateless model which makes it hard to create decentralized applications. But at the same time UTXO model makes transactions more private since new addresses are assigned to users every time they transfer money. The growth of Ethereum


As of 2018, Ethereum has the second bigger market cap among all the cryptocurrencies. Furthermore, it is the first contender to dethrone Bitcoin if so-called “flippining” takes place. Experts believe that among the key factors that will potentially secure Ethereum’s dominance on the cryptocurrency market will be high confirmation speed, low transaction fees and numerous Bitcoin’s hard forks that may lower its value.

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About the author

George Shnurenko is a Bitcoin and cryptocurrency enthusiast, financial analyst and writer. He's majoring in history but he believes that the digital currency which has taken the world by storm will bring about change to all us humans.