As if the words blockchain’ and ‘cryptocurrency’ didn’t already sound complicated enough, newcomers to the crypto space also have to contend with a lot of similarly-sounding concepts. Take Ethereum, for example. As the second crypto coin by market cap, it’s arguably as famous as Bitcoin. But traders and investors might also run into terms such as ‘ether,’ ‘Ethereum Classic,’ and ‘Ethereum 2.0.’
Do they all refer to the same thing? Not really. So, to prevent any confusion, we figured a short guide on all Ethereum-related concepts might be in order. Get familiar with this essential crypto terminology, and you’ll never feel lost when reading crypto news again.
Ready to learn about Ethereum? Let’s dive right in!
Ethereum is a blockchain network that launched in 2015. The brainchild of developer Vitalik Buterin, who looked to its predecessor, Bitcoin, and saw blockchain technology’s potential to do so much more than serving as a digital ledger.
Essentially, Ethereum is Bitcoin’s greatest rival. It is the second most successful blockchain network. It is also second in terms of market capitalization, which is currently about $188.9 billion, according to CoinMarketCap.
Ethereum, like Bitcoin, also serves as a digital ledger, i.e., it offers a direct method of exchange through its native cryptocurrency and keeps an encrypted record of all transactions on its blockchain. But it’s also so much more than that.
Vitalik Buterin wanted to build an extensive ecosystem of related applications running on the Ethereum network. That’s why Ethereum is capable of executing smart contracts. In other words, developers can add new programs that run on the Ethereum network. These dApps bring new functions and utilities to enrich the crypto space. In fact, some other cryptocurrencies run on top of the Ethereum network.
As a result, Ethereum is seen as a more versatile blockchain network. Today, it is the leading choice for decentralized finance (DeFi) solutions. The wide selection of dApps and their demand have kept interest in Ethereum strong through the years.
Ether is the native cryptocurrency of the Ethereum network. It uses the currency code ETH.
So, while many people might be tempted to say ‘Ethereum’ when talking about the cryptocurrency of this blockchain, what they really should be using is the term’ ether.’ But colloquially, you can expect to see ether and Ethereum (incorrectly) used interchangeably.
Ether is given to users as a reward when they successfully perform block validations in the Ethereum network. The validation itself is a highly complex process that computed nodes in the network can eblock validationsxecute. The blockchain awards validators with tokens to repay them for their efforts to keep it safe.
For most of Ethereum’s history, the network ran on a proof-of-work protocol like Bitcoin. Thus, people with the most powerful computers could mine the most ether.
But if mining is not your thing, rest assured that there are other ways to gain ETH. The easiest is purchasing it on a cryptocurrency exchange or via a broker hub like Bitcoin Profit.
To add further confusion for crypto novices, there actually exists a ‘second’ Ethereum blockchain platform called Ethereum Classic. It is a fork of Ethereum and, as such, is considered a whole separate network in its own right.
Ethereum Classic separated due to a difference of opinions as to whether the network should allow changes to the transaction history or not.
After one of the first major hacks occurred on the Ethereum network, it was decided that the blockchain would be altered to remove the fraudulent transaction. As a result, Ethereum gained a new quality, allowing transactions to be modified.
Because some people disagreed with this stance, Ethereum Classic was born. This network retains Ethereum’s original immutability, i.e., the principle that transactions cannot be changed after they occur.
From that point, Ethereum and Ethereum Classic have been two separate blockchain networks that work according to different rules. Ethereum Classic has its own cryptocurrency under the code ETC.
Ethereum 2.0 is the name crypto enthusiasts, and developers use to refer to the biggest-ever upgrade coming to the Ethereum network. After years of anticipation, the upgrade is finally here, beginning on September 6.
Without boring you with too many technicalities, the main issue here is Ethereum changing its consensus mechanism. Like Bitcoin, this blockchain network relied on a proof-of-work protocol all these years. In fact, Ethereum Classic still continues to rely on it too.
The PoW consensus mechanism essentially distributes the rewards for mining to the users with the most powerful equipment, i.e., the hardware that works the most. Naturally, this causes users to compete and try to outdo each other, each node using enormous amounts of power. This has ramifications for miners, who have huge bills to pay, and for the planet, as most electricity is not produced sustainably.
How Is Proof-of-Stake Different?
After the upgrade, the Ethereum mainnet will use proof-of-stake instead. This consensus method is the preferred choice of newer blockchain networks as it offers high security while having a much smaller negative impact on the environment. It gives validation rights to users who stake large amounts of tokens without accounting for hardware specifications.
In addition, proof-of-stake will likely make the Ethereum mining process much fairer. It will allow more people to join the validation process. Users won’t need a supercomputer anymore or compete with mining farms. In addition, validators will change at intervals, so more people will have a chance to earn a slice of the pie.
The upgrade of Ethereum to Ethereum 2.0 has already started. The network is expected to undergo heightened volatility in September as users adapt to the changes. There may be additional, smaller updates to keep the network running smoothly.
As a result of the ongoing disturbances with the upgrade, Ethereum’s value has decreased. However, Vitalik Buterin suggested that he expects ETH will rise once the dust settles and the benefits of proof-of-stake become more apparent for Ethereum users.