But another cryptocurrency has been quietly growing in volume while everyone was focused on Bitcoin. Ethereum, which is kind of like Bitcoin but slightly nerdier and more complicated, edged up against Bitcoin in its daily volume earlier this month. In plain english, Bitcoin is much bigger in terms of monetary value, but Ethereum is being used so much that it’s facilitating nearly as much business.
Even people who don’t care about digital currencies at all have heard of Bitcoin. But according to a brief unscientific survey of the Mashable offices, it appears that approximately no one outside the cryptocurrency loop knows what Ethereum is.
So what is Ethereum?
Ethereum is a decentralized application that supports a cryptocurrency, or digital currency, just like Bitcoin. You can pay for things online, trade money, and buy and sell anywhere that accepts it.
But there’s more to Ethereum than there is to Bitcoin. The cryptocurrency, called ether, runs on a “smart contract.” The smart contract is a blockchain technology and “if:then” system that allows Ethereum to be traded if a certain condition is met.
Bitcoin runs on the blockchain (a distributed, decentralized ledger of transactions) too, but it doesn’t involve the extra step of a smart contract.
What is the blockchain again?
Blockchain is a distributed ledger where all of Bitcoin’s — and Ethereum’s — transactions are recorded. It’s totally decentralized, which means it’s not run by any one person or company. Its decentralization gives it a ton of other applications besides Bitcoin — distributing music rights, powering components of traditional financial institutions — and it’s integral to digital currencies.
What can Ethereum do that Bitcoin can’t?
Ethereum’s cryptocurrency is like Bitcoin with a few extra features.
The smart contract means that you can use Ethereum to do more than just pay for something. If you want to place a bet on the Super Bowl, for example, you could use Ethereum to pay only if the Patriots win.
An if:then tool has bigger applications that just gambling. You could set up a crowdfunding campaign using Ethereum, as the Huffington Post pointed out, that would only take your money if a project’s goal was met — without the fees charged by Kickstarter or GoFundMe.
“Things are possible with Ethereum that aren’t imaginable with any other technology today.”
The smart contract could even replace lawyers, CEOs and companies.
“You don’t need to have Uber, the company, anymore,” said Benedikt Bunz, a Ph.D. student at Stanford who studies cryptocurrencies. “You could have the Uber contract handle the money and do the payouts.”
Who’s using Ethereum now?
Ethereum, perhaps unsurprisingly, has similar clientele to Bitcoin. But Ethereum is in an earlier, more experimental stage. Investors and speculators are still focused on building new applications — not on introducing Ethereum ATMs.
How can I buy Ethereum?
Getting started with cryptocurrencies is a whole thing — you need an account, for instance, but a good place to start is Coinbase.
What’s the price of Ethereum?
A single Bitcoin is really expensive: on Thursday morning, it was valued at $1,050. Ethereum isn’t nearly as pricy by unit. Its value hovered around $41 on Thursday.
What has Ethereum already done?
Developers can use Ethereum to build apps that take advantage of its smart contract technology. A few cool ones support microfinance, build virtual worlds and prevent identity theft.
Is Ethereum the only alternative to Bitcoin?
No, but it’s the best one. Most other cryptocurrencies provide an alternative to Bitcoin without adding any real reason to switch. Ethereum is the only one that comes with a totally different set of advantages because of its smart contract.
The cryptocurrency Zerocash is the most persuasive alternative besides Ethereum, Bunz said. Its innovation is improving the privacy of transactions, since Bitcoin transactions are public on the blockchain ledger.
Besides that, everything else is pretty much just like Bitcoin.
What are the risks of Ethereum?
If something were to go wrong with Ethereum’s smart contract, it could be really bad. The program wouldn’t just crash — it could wipe away money with no way to get it back, since an if:then command could go through and would be irreversible, Bunz said.
The chance of that happening is pretty low, but it’s still a scary prospect.
There’s also the general volatility of Ethereum, Bitcoin and other cryptocurrencies. During a recent three-day stretch in March, the price of Ether doubled and has been all over the place since.
How important could Ethereum actually be?
Ethereum’s main quality at the moment is its potential. Cryptocurrency believers say that the technology could, well, replace Uber and, theoretically, a variety of other services.
“There are things that are absolutely possible that aren’t possible with mainstream currency and are not even possible with Bitcoin today,” Bunz said. “Things are possible with Ethereum that aren’t imaginable with any other technology today.”
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