What is Ethereum?

Ethereum is the second-biggest cryptocurrency by market cap after Bitcoin. It is also a decentralized computing platform that can run a wide variety of applications — including a universe of decentralized finance (or DeFi) apps and services.

Everything from financial tools and games to complex databases are already running on the Ethereum blockchain. And its future potential is only limited by developers’ imaginations. As the nonprofit Ethereum Foundation puts it: “Ethereum is for more than payments. It's a marketplace of financial services, games and apps that can't steal your data or censor you.”

How does Ethereum work?

Ethereum-based apps are built using its key innovation: “smart contracts.” Smart contracts, like regular paper contracts, establish the terms of an arrangement between parties. But unlike an old-fashioned contract, smart contracts automatically execute when the terms are met without the need for either participating party to know who is on the other side of the deal — and without the need for any kind of intermediary.

What is the difference between Bitcoin and Ethereum?

Ethereum, like Bitcoin, is an open source project that is not owned or operated by a single individual. Anyone with an internet connection can run an Ethereum node or interact with the network. However, Ethereum differs from Bitcoin in its ability to build and execute smart contracts. Smart contracts enable a vast ecosystem of applications on Ethereum, such as stablecoins (which are pegged to the dollar by smart contract), decentralized finance apps (collectively known as DeFi), and other decentralized apps (or dapps).

Like Bitcoin, Ethereum is secured by a global network of computers called “miners'' that process and verify transactions. However unlike Bitcoin, Ethereum plans to phase out mining altogether, eventually shifting to a mechanism called “proof of stake.”

Who created Ethereum?

In 2013, a 19-year-old computer programmer (and Bitcoin Magazine cofounder) named Vitalik Buterin released a whitepaper proposing a highly flexible blockchain that could support virtually any kind of transaction. In 2014, Vitalik, along with a team of cofounders including Gavin Wood, crowdfunded the development of the Ethereum protocol with the sale of $18 million in pre-launch tokens. In 2015, the first public version of the Ethereum blockchain launched in July and smart contract functionality began to roll out on the Ethereum blockchain.

How are new ETH created?

Today, anyone with a powerful graphics processor can mine Ethereum on their computer, however it may not be profitable. Like Bitcoin, small-scale miners compete with more large operations using powerful, specialized hardware. Ethereum mining is planned to be phased out in 2022 in favor of a technology called proof of stake. The official transition from proof of work to proof of stake, which has been years in the making, is culminating in an event called The Ethereum Merge, often times shortened to just The Merge.

Via proof of stake, Ethereum will be secured by a global network of validators running Ethereum’s software while staking a certain amount of ETH tokens. Once the Ethereum Merge is complete, anyone with an ETH stake and computer meeting the requirements can become a validator.

Why does the price of Ethereum fluctuate?

Like Bitcoin, Ethereum’s price is based on a global marketplace of supply and demand. Its price can be volatile in the short-term as demand overwhelms supply and vice versa. However, over the long-term the price of ETH has historically outperformed many traditional investments such as major stock and bond indices.

How can I buy Ethereum?

By creating an account on Coinbase or an increasing number of other reputable financial technology companies, you can buy, send, and receive Ethereum. 

Released: July 2015