For many people, cryptocurrencies are synonymous with Bitcoin, so it goes that many lump Bitcoin and Ethereum together. Although they are both cryptocurrencies, their working is markedly different. In fact, the cryptocurrency based on Ethereum is referred to as Ether. Some refer to Ethereum as Bitcoin 2.0. This is because Ethereum goes beyond the simple concept of a cryptocurrency based on the blockchain technology. It is a further concept of building computing applications and storing data on a decentralized network. As a cryptocurrency, Ether moves the second largest traded volumes.
It is important to understand how the blockchain technology works to understand how Ethereum works better. This is a large network of decentralized computers working together to confirm computing processes, transactions, and data. The best illustration is a cryptocurrency. When one makes a payment using a cryptocurrency, this information is distributed to all computers in the network. This means that the transaction is unchangeable and irreversible. When one computer crashes, the information can still be accessed from other computers. This is why cryptocurrencies do not need a central bank, visit Top Crypto Brokers for more information about Ethereum and its opportunities.
How Ethereum works
It is easy to understand Ethereum as a large computer decentralized to all parts of the world. While giant tech companies like Google run decentralized computers, they are third parties. They store data and offer services from their proprietary third-party applications like Gmail. Ethereum replaces these third party services and distributes them to millions of ‘nodes’ around the world. For these nodes to communicate and transact, there is in place the Ethereum Virtual Machine (EVM) that controls what goes on in the network, much like your local Windows operating system.
But transactions and communication between these nodes is enabled by a token system, which is the cryptocurrency called Ether. It enables the making of smart contracts, which are open and distributed pieces of computer code that are open for inspection by all on the network. The major difference between Ether and Bitcoin is that while Bitcoin stores value because it is limited to 21 million units, Ether is enabled transaction of services on the Ethereum network and is unlimited.
How does Ether gain value?
The applications of a decentralized network are limitless, and there are many entities, public and personal alike that want access to this network. Following laws of demand and control, higher demand for smart contracts means a higher demand for Ether and an increase of its value. But just like other currencies are traded, people have found a way of trading the Ether currency which has become a major determinant of its value.
Arnold Webb received a Masters Degree in Computer Science from Harvard University. Arnold currently is a full-time researcher and trader in the cryptocurrency industry. Arnold contributes content to CryptoCelebrities.co, The Bitcoin Magazine and several other publications.