What Is Ethereum? A Guide To The Unusual Cryptocurrency Network

Senior Contributor
12.18.17
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Bitcoin, according to none other than Jordan Belfort, aka the Wolf of Wall Street, is the biggest scam ever. And it’s easy to see why Belfort believes that, because one of the fundamental problems with Bitcoin is that it’s only worth what the people who buy Bitcoin think it’s worth. The same is true of a lot of cryptocurrencies, really. They’re all driven by little more than hopes and dreams, usually by design.

But not Ethereum, and the currency it uses, ether.

  • Ethereum is one of the few cryptocurrencies actually built on the value of something, namely the work your computer does: Ethereum, abbreviated as ETH, is a system where the cryptocurrency is used as payment in exchange for your computer doing work. The cryptocurrency is really just a sideline to constructing a huge, powerful computer network. That work is, to some degree, keeping the system up and running; Ethereum uses that to set the minimum value of ether. So, your computer works, and you get paid.
  • The inner workings of Ethereum are somewhat complicated: Ethereum uses a measurement called “gas,” like the gas in your car, to keep the network running. In order for anything to get done on Ethereum, you need gas. If you don’t have enough gas, your task does not get done (but, importantly, the other person in your transaction gets paid anyway.) So, you need to calculate how much gas you need, you buy it with ether, and the task gets done.
  • This isn’t a perfect system, mind you, but it does tie ether to something of value, unlike most other cryptocurrencies: Basically, people are using ether to buy your CPU cycles when you’re not on your computer. Of course, this means the value of ether is tied somewhat to demand, in this case demand for its computer network. So if people decide to stop using it for any reason, the value of ether will crash. It also makes it unlikely that it will hit Bitcoin’s obscene highs unless people suddenly have a very deep demand for CPU cycles.
  • That said, Ethereum has a messy history: You might wonder why we specified we were talking about ETH. That’s because there’s another currency, called Ethereum Classic (ETC). This happen because the DAO (Decentralized Autonomous Organization), think a corporation that exists entirely as computer code, was crowdfunded in May 2016. A month later, a flaw in the code was found and the DAO got robbed of a third of its funds. In order to keep this from destroying the entire network, Ethereum “hard-forked”, or in other words reset the whole works, something that remains controversial. They’ve had to do this multiple times in recent months to keep the network stable and prevent scammers and heisters.

So while Ethereum has a solid foundation, it’s not perfect, and if you’re going to invest, you need to remember that ether has a specific use. And, like any other cryptocurrency, it’s an experiment. Before buying any ether, get to know Ethereum in detail and learn how the system works. Especially in the long term, that’ll be the key to growing your money in this particular cryptocurrency.

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