What is Ethereum and how is it different from Bitcoin?

Ethereum is often described as the ‘world computer’. Ethereum is a platform on which anyone can build decentralized applications, where every program and action is universally accessible and verifiable because everything happens on the global Ethereum blockchain. The feature of Ethereum that makes it so extensible is that it is a programmable blockchain. It is similar to a programmable distributed ledger, where everyone agrees to run the same applications with the same data. However, it is not just a ledger, but a global shared data processing protocol.

The main Ethereum blockchain is permissionless, meaning anyone can join the network. There are a few caveats to this, but basically, as long as you have an internet connection and follow the protocol, you can participate. Every participant running the protocol is a node in the network and executes and records the same activity. Action on the network is called a transaction. Transactions are grouped into blocks. Only one block can be added at a time and mathematical proofs verify the order of the blocks. This keeps the ‘distributed spreadsheet' in sync.

Every participant in the network processing every transaction results in a system that is expensive to maintain and change. To reduce spam and disincentivize valueless transactions, every operation on the network costs gas. Gas is the fuel of the Ethereum network. It is required to cause any modification to the blockchain. Users can choose how much to pay for gas for each transaction - the more they are willing to pay, the faster their transaction is likely to be processed by the network. 

Operating on the Ethereum main net, the public Ethereum blockchain means that a user will be exchanging value for the services provided by miners. For those who do not want to spend any money, there are several public test networks that essentially follow the same protocol as the main network, but are free to use. These test networks are useful for developing and testing applications for Ethereum but do not have the same reliability or security as the main network so they should not be trusted to handle real value.

Bitcoin can be described as digital money. Bitcoin has been around for twelve years and is used to transfer money from one person to another. It is commonly used as a store of value and has been a critical way for the public to understand the concept of a decentralized digital currency. Ethereum is different from Bitcoin in that it allows for smart contracts which can be described as highly programmable digital money. Imagine automatically sending money from one person to another but only when a certain set of conditions are met. For example, an individual wants to purchase a home from another person. Traditionally there are multiple third parties involved in the exchange including lawyers and escrow agents which makes the process unnecessarily slow and expensive.  Ethereum is a piece of code that could automatically transfer the homeownership to the buyer and the funds to the seller after a deal is agreed upon without needing a third party to execute on their behalf. The potential for this is huge! Think of the numerous applications that act as a third party to connect you with others based on some set logic . Many of the centralized systems we use today could be built in a decentralized manner on Ethereum. With Ethereum you can make these transactions trustless which opens up an entire world of decentralized applications. Decentralization is important because it eliminates single points of failure or control. This makes internal collusion and external attacks impractical. Decentralized platforms cut out the middlemen which ultimately leads to lower costs for the user.