Just when you thought you had your head around bitcoin, along comes Ethereum. The word has been in a lot of headlines lately — as the cryptocurrency world’s new favourite thing soared in value. To be more specific, the price of something called an ether token is up over 3000 per cent.
Bitcoin, which is far more widely known as an alternative ‘currency’, is up about 141% so far this year. But what exactly are ether tokens and Ethereum? And how is it different than bitcoin? We’ve broken it down for you.
Is it just like Bitcoin?
The reason you’ve been hearing about bitcoin for years, but Ethereum only recently is that the latter was only developed two years ago while bitcoin’s been around for almost eight years. Ethereum was created by Vitalik Buterin, a young programmer who was told about bitcoin by his father and decided to create a platform for smart contracts; which bitcoin is not designed to do. The Moscow native began working on Ethereum after he dropped out of college, according to CNBC.
Ether tokens and bitcoin are called cryptocurrencies because they can be only be bought and sold digitally, are used to pay for things (including pre-school tuition), and because they fall outside of the control of central banks and other government entities that might control a national currency.
They’re built on a technology called blockchain. That’s a kind of ledger that records and verifies transactions made on it. All transactions made on these so-called decentralized networks are public and not controlled by one governing entity. Lately, the idea that both sides of a party — say two banks that buy and sell shares from each other — can get an accurate and verifiable record of the transaction instantly, has gripped Wall Street and other institutions as something at can be used in lots of ways.
There are multiple ways you can acquire ether tokens. You can buy them on an exchange just like you would any investment. Or you can use a computer to “mine” for them by solving complex maths problems using computer software. These maths problems get more complex as more coins are mined, in order to control the supply.
There’s a key difference between ethereum and bitcoin. Bitcoin was designed to be a currency from the start.
But Buterin conceived of Ethereum as a platform on which two parties could enter into a contract without a third party, according to Paul McNeal, a Bitcoin Evangelist and long-time cryptocurrency investor.
These so-called smart contracts create trust between two parties. The Ethereum platform is powered by ether tokens, according to The Huffington Post, and can be used as both a currency and can “represent virtual shares, assets, proof of membership, and more.” Its numerous applications are partially responsible for its popularity and recent rise.
In June, Ethereum was positioned to surpass bitcoin as the world’s largest cryptocurrency by market cap, according to Coindesk. Ether currently trades at $US233, but in mid-June it was trading at nearly $US400. It’s market value got close to 82% of bitcoin’s. That number has since shrunk to less than 70%.
Its upward march was underpinned by a spike in interest by big Wall Street and tech firms into the cryptocurrency. According to Coindesk, JPMorgan Chase, Microsoft, and a number of other firms joined forces in February to create the Enterprise Ethereum Alliance. The collaborative venture aims to use the Ethereum platform to integrate blockchain solutions into their infrastructures.
A survey recently cited by Nathaniel Popper in The New York Times indicates that business are far more bullish on Ether, and the future usage of ethereum, than bitcoin. Almost 94% of surveyed firms said they feel positive about the state of Ether tokens. Only 49% of firms surveyed had a positive feeling about bitcoin.
MGT Capital, the company run by John McAfee, is one such firm. It said it would start to mine Ethereum in its latest bid to turn a profit. “We are more convinced each day of the growth and value of digital currencies, and our company is uniquely positioned to be a leading provider of processing power to relevant blockchains,” McAfee said in a statement.
Get the latest Bitcoin price here.
This story originally appeared on Business Insider.