Most people who discover cryptocurrency start with Bitcoin. The second thing they encounter is usually Ethereum. It is the second largest cryptocurrency by market value, and it is fundamentally different from Bitcoin in ways that matter.
Ethereum is a decentralised blockchain platform. Its native cryptocurrency is called Ether, though most people refer to both the platform and the currency as Ethereum or ETH.
It was created by Vitalik Buterin and launched in 2015. Unlike Bitcoin, which was designed primarily as a peer-to-peer payment system, Ethereum was designed as a programmable platform. You can build applications on top of it.
The key difference is purpose.
Bitcoin is digital money. Its primary use case is as a store of value and a medium of exchange. The Bitcoin network is deliberately limited and conservative in its design. Security and simplicity are prioritised over flexibility.
Ethereum is a programmable blockchain. Developers can build and deploy applications on it. These applications run on the network itself, without any central server or company behind them.
Think of it this way. If Bitcoin is digital gold, Ethereum is more like a decentralised app store or a global computer that no single company controls.
The core innovation that makes Ethereum different is smart contracts. A smart contract is a piece of code stored on the blockchain that executes automatically when certain conditions are met.
For example, a smart contract could hold funds in escrow and release them automatically when goods are delivered. Or it could distribute revenue to multiple parties based on predetermined rules. No intermediary, no trust required on either side.
Smart contracts are the building blocks of almost everything interesting happening in crypto right now.
A huge range of applications run on Ethereum, including:
Most of the innovation and activity in the broader crypto ecosystem runs on Ethereum or networks built to be compatible with it.
Every transaction on the Ethereum network costs a fee, paid in ETH. These fees are called gas. Gas compensates the validators who process transactions and keep the network running.
Gas fees fluctuate based on network demand. When the Ethereum network is busy, fees rise. During quieter periods, they can be very low. High gas fees have been one of Ethereum’s biggest criticisms, though various solutions have reduced this problem over time.
In September 2022, Ethereum completed a major upgrade called the Merge. Before this, Ethereum used the same energy-intensive proof-of-work system as Bitcoin to validate transactions. After the Merge, it switched to proof-of-stake.
Proof-of-stake selects validators based on how much ETH they have staked (locked up as collateral) rather than computational power. This reduced Ethereum’s energy consumption by around 99%. It also introduced staking as a way for ETH holders to earn rewards.
This is not financial advice, and we will not tell you what to buy. What we can say is that Ethereum is the second largest cryptocurrency, has been operating for over a decade, and underpins a vast amount of activity in the broader crypto space. It is covered on all major exchanges and is one of the most liquid cryptocurrencies available.
Like all cryptocurrencies, it is highly volatile and carries significant risk. Do your own research before making any investment decisions.