The electrifying news of Bitcoin’s meteoric rise in valuation has made cryptocurrency a household name. Yet blockchain technology – the underpinnings of Bitcoin – can accomplish so much more than simply the creation of digital currencies. With developments like the Ethereum blockchain, Bitcoin is just the beginning of what cryptocurrency can do.
The Biggest Thing You’ve Never Heard Of
As a cryptocurrency, Ethereum isn’t nearly as well-known as Bitcoin. Despite being one of the biggest up-and-coming blockchains out there, and one that has been growing by leaps and bounds since its inception in 2013, Ethereum’s Ether cryptocurrency (ETH) is still valued at only a fraction of what a single Bitcoin is worth.
This has likely led to the majority of cryptocurrency enthusiasts – those simply interested in the speculative worth of Bitcoin – to largely ignore the Ethereum blockchain. In some sense, they’re justified – ETH is likely never going to experience the same massively volatile growth that BTC is – but there’s more to blockchain technology and crypto coins than just the development of digital currency.
Why is Ethereum So Different?
So what differentiates Ethereum from Bitcoin and all the other blockchains – and cryptocurrencies – out there? In essence, it comes down to the core design philosophy behind the project. While Bitcoin was initially developed to be a digital currency – its exclusive role to this day – Ethereum was designed not just as a method for creating the ETH currency but also as new, revolutionary way to create and run software programs.
That’s right – the Ethereum blockchain does much, much more than just record Ether transactions. It was designed, from day one, to be a software platform that would allow individuals to develop complex applications that make use of the blockchain’s transparency, immutability, and resistance to tampering. This is something that the Bitcoin blockchain can’t do – and that’s what makes Ethereum intrinsically different from the Bitcoin blockchain.
A Blockchain for All Seasons
Before Ethereum came along, if you wanted to harness the power of the blockchain to do something other than simply mine and manage a cryptocurrency, you needed to develop it by hand. Not only that, but you had to develop your blockchain towards a specific goal; if there wasn’t a blockchain out there that was specifically devoted to what you wanted to accomplish, you needed to create one yourself. However, Ethereum is designed to be modular and interchangeable – in other words, developers can use the Ethereum environment for all sorts of projects and endeavors.
This is another facet of Ethereum that makes it such an interesting adaptation of blockchain technology. Developers can create software, designed to run on the blockchain, to accomplish specific needs, all without having to start from scratch. These decentralized applications, or DApps, are proliferating thanks to Ethereum’s unique ability to support multiple uses; developers are creating DApps to handle asset management, resource planning, or even the creation of e-commerce consumer platforms. All of this is simply impossible to accomplish on a more simplified blockchain like Bitcoin, which is completely devoted to managing cryptocurrency.
Putting the “Smart” in Smart Contracts
So how does Ethereum manage to support an environment where developers can create these decentralized apps that are then being used to power all sorts of activities? Without getting too technical, the blockchain supports the use of something called “smart contracts,” which are self-executing contracts that are hard-coded into the Ethereum blockchain itself. Smart contracts, in their most simplified form, contain terms of an agreement between a buyer and a seller. Having these terms codified and implemented into a blockchain essentially means they’re written in stone; it’s nearly impossible to alter a blockchain, after all.
Embedding smart contracts in a blockchain means that you can create an entire transaction ecosystem that doesn’t require human interaction and doesn’t run the risk of being corrupted by human influence. This paves the way for decentralized autonomous organizations (DAOs) that are self-governing and – usually – impervious to any sort of tampering. Users participating in a DAO are bound by its hard-coded rules, after all, creating opportunities for democratizing whatever it is that a particular DAO has been built to accomplish – such as managing an investment fund or portfolio.
The One Weak Point
While Ethereum has many advantages over less advanced blockchains, there is one point of failure: human error. While once a series of smart contracts have been enshrined in the blockchain as a DApp or a DAO they’re practically inviolate, if there are any flaws in those smart contracts they can be exploited. Such an occurrence is exceedingly rare, but when it does happen it’s usually a massive event, such as when one of the first DAOs – appropriately named The DAO – was found to be susceptible to hacking due to poorly-written code.
The DAO hack resulted in investors losing $60 million in value. The 2016 event had far-reaching consequences that included rewriting the Ethereum blockchain to recover the lost value. This decision was highly controversial, with a contingent of Ethereum users rebelling against such an action by forcing a split, or hard fork, creating a version of Ethereum that was not rewritten. This version of the blockchain, known as Ethereum Classic, exists today, though it’s not nearly as popular as Ethereum when it comes to value or market capitalization.
Innovation at the Cost of Valuation
Ethereum as a blockchain is certainly innovative. Its implementation of smart contracts has paved the way for DApps and DAOs, showcasing what blockchain technology is truly capable of, and this makes Ethereum an excellent choice for any programmer or developer who seeks to create applications that benefit from the decentralized, transparent, and secure nature of blockchain ledgers.
That being said, the valuation of Ether as a cryptocurrency certainly lags well behind Bitcoin. With ETH being utilized as more of a utility token than a purely digital currency, it’s unlikely to ever catch up to the rarefied highs of BTC, but this also means it’s less susceptible to Bitcoin’s legendary volatility. This makes Ether, and the Ethereum blockchain, a force to be reckoned with – and an alternative to Bitcoin that will likely persist and flourish for years to come.
Author: A professional author, editor, and freelance writer for NoStop Blog Writing Service, David DeMar became involved in cryptocurrency in 2016 shortly before the infamous hack of The DAO. He claims it’s a coincidence.