What is Ethereum? Ethereum for Beginners

Last Updated September 5, 2018
Posted By Luke      3 Comments

Ethereum is the second largest cryptocurrency by market cap; second only to the mammoth that is Bitcoin. Founded by Vitalik Buterin in 2014, Ethereum allows individuals, businesses and organisations to create decentralised applications on the blockchain.

Just like Bitcoin has a blockchain, Ethereum has one of its own.

And just like Bitcoin has — or is — a currency, so does Ethereum. Their currency is known as Ether (pronounced ee-thur), and is abbreviated to ETH.

1 ETH cost just $7.97 at the start of 2017, but exploded in popularity and saw more than a 15,000% price increase throughout the year, reaching a high of over $1,400.

On the Bitcoin blockchain, all transactions are recorded in a public record known as a ledger. Ethereum does this too, but the two are far from being like-for-like competitors.

Bitcoin is mainly a system of money. Sending it, storing it, tracking it.

Ethereum takes things several steps further than just money.

A new version of the internet, and the world as we know it, could be just a few years away.



Who Created Ethereum?

Vitalik Buterin founded Ethereum when he was just 19, along with co-founders Dr Gavin Wood and Joseph Lubin.

Vitalik is undoubtedly the most famous of the co-founders.

Thinking up the idea for a technology and cryptocurrency that is now worth over $35bn in market cap — and at such a young age — unsurprisingly put the spotlight on him, but he had the pedigree and industry experience that belied his young age.

Aged 17, Vitalik discovered bitcoin and his fascination with it quickly grew.

It didn’t take long before he was writing for an online magazine about Bitcoin, blockchain and cryptocurrency. For his work, he was being paid 5 BTC per article, which was only worth $4 at the time.

He then went on to found his own magazine about bitcoin, the creatively named bitcoinmagazine.com.

In 2013, now aged 19, he released his plans for Ethereum in the form of a whitepaper. Originally, he wanted to make his system for decentralised applications on the bitcoin blockchain, but he did not achieve consensus — a majority agreement in the community.

Co-founder Dr Gavin Wood holds a masters degree and a doctorate in computer science. He consulted for Microsoft Research, amongst other impressive accomplishments on his track record before joining the Ethereum project.

Joseph Lubin, the third co-founder, went on to become the founder of ConsenSys, a production company that builds decentralised apps on…you guessed it, Ethereum.


How to Buy Ethereum

There are a number of different ways that you can buy Ethereum online and these methods can vary depending on the country you are in. You can typically get your hands on Ether from any site that you can also buy bitcoin from.

Our most recommended method for you to buy Ethereum is via Coinbase.

Sign up to Coinbase Here

The reason that we recommend Coinbase is that they are currently the site that makes it easiest for beginners that are looking to buy in small-to-medium quantities.

Their fees are a little on the large side, but currently your options are severely limited to purchase Ethereum by debit or credit card, using FIAT currency like pounds, euros or dollars. This is because of heavy regulation.

The benefit of using Coinbase is that you truly own and control your Ether; you can send it to exchanges or your own private wallets.



Ethereum is almost like the ‘iOS’ of the blockchain world, or like Windows, or Android. Other companies use the platform to build apps on top of.

Until Ethereum came around, businesses would need extraordinarily talented coders and developers to make a decentralised app.

Now, developers still need to be smart, but Ethereum have decreased the level of knowledge needed by an order of magnitude.

Businesses build their decentralised app — also known as a dApp — on the Ethereum platform with relative ease.

The decentralisation of apps makes them resistant to attacks. The apps can’t be targeted in order to take them down — 100% uptime is assured. In comparison, a centralised website, or website hosting company, can never guarantee 100% uptime because it is a realistic improbability.

It also makes the platform censorship-proof; the makers of dApps can’t have their apps removed because they break terms and conditions of those who decides to set the rules. No single party is in charge.

By removing centralised middle parties — often seen in the so-called ‘sharing industry’ with companies like Uber, Upwork and Kickstarter — the joining of two parties together can be made much cheaper and fairer.

It can be argued that the first dApp was Bitcoin itself.

Now, businesses no longer need to create an entirely new blockchain in order to create a decentralised application. Ethereum is not the only platform for dApps; NEO is arguably the largest similar competitor, but there are a growing number of other options too. Even Bitcoin can have dApps built on top of it.


What Are Smart Contracts?

Smart contracts are agreements that are written and enforced entirely in code. These smart contracts can potentially allow us to transact and do business in a way that is more efficient and autonomous than ever before.

Ethereum allows developers to write smart contracts that run and execute automatically.

The most simplified example of a smart contract looks at a vending machine:

If you put the correct amount of money in and press a button, the vending machine will dispense your desired snack. If you don’t put the right amount of money in, you won’t get your snack. If you press the correct buttons, the vending machine won’t dispense the wrong product.

A simple example that looks at future potential could be a smart contract whereby a renter of a property pays their landlord on a set date each month.

There would be no bank and no property agents, just a tiny fee paid in Ethereum ‘gas’ — the fuel (currency) used to power the platform. Removing the middle parties could simultaneously make property renting cheaper for tenants and more profitable for landlords.

With smart contracts, code is law.

Rules can be coded so that they enforce things automatically, meaning middle parties can be eliminated entirely because trust is guaranteed — there is no way to cheat the system. They are transparent-yet-anonymous, private-yet-traceable, and they are both verifiable and irreversible.

The future potential for smart contracts is huge. Let’s look at one example here of charity work:

The world of charity, sadly, is full of corruption.

Whilst it is undoubtedly an extremely small minority of charities, it still accounts for millions, or even billions, in lost donations every year.

With smart contracts, there may be possibilities that your own donations can be held until a purchase is made that you were promised.

Let’s say that you agree to pledge £10 to go towards materials for a new school.

Your donation is taken from your funds, but it does not reach the charity immediately. Your funds will be held in escrow, and not released until the purchase is made, or even until the school is built.

When the charity has fulfilled their end of the deal — and this can be verified via blockchain technology — your funds can be released.

In a scenario like this, the chance for corruption is minimised to close to impossibility.

Whilst this could revolutionise the charity industry, this is just an example of something relatively small that Ethereum could help achieve, with charity dApps building on the platform.

A far cry from simple smart contracts is the world of DAOs — Decentralised Autonomous Organisations.

DAOs are entire businesses that run autonomously via smart contracts. This includes not just simple agreements, but can even automate the entire decision making process (by finding consensus, or a majority vote) within a company. A DAO could hire people, fire people and more — all without human input.

Whilst smart contracts were certainly not invented by Vitalik or his co-founders — they were first devised way back in 1994 by Nick Szabo, a man many suspect to be Satoshi Nakamoto (the anonymous founder of Bitcoin) — Ethereum have certainly been pioneers in taking what is possible with them to a whole new dimension.



Currently, the Ethereum platform is most widely-used for ICOs; Initial Coin Offerings.

When a cryptocurrency — typically a new project — wants to raise funds for building and improving their business, they most commonly look to the route of an ICO.

ICOs are like Kickstarter campaigns — average people, and not just hotshot investors, get the chance to invest early and take a risk on investing in a company they like the look of at the first opportunity.

There is a bit of a bad reputation in the ICO world because of a number of shady deals and outright scams.

If you ever want to look to take part in one then you need to ensure you’ve done your due diligence — scout a company out thoroughly before you ever think about looking to invest in them. This goes for any cryptocurrency purchase, but especially with ICOs.

To create an ICO, companies don’t have to use a middle party like Kickstarter to provide them with a platform, and therefore they don’t lose 5% of their funding fee should they hit their target.

Developers can build a crowdfunding smart contract on Ethereum that promises investors a set amount of cryptocurrency in exchange for investments.

When an ICO investment target is reached, the cryptocurrencies are distributed to investors. If the targets are not reached, investors are refunded. This is all done automatically in a way that cannot be tampered with.


The Future of Ethereum

Predicting the future is an extremely tough thing to do in any industry, let alone one that is progressing at 100 miles per hour.

Even Vitalik Buterin, the founder, isn’t exactly sure what the future will bring for the company.

In many industries, that would sound like a potential warning sign.

In the world of blockchain, it is simply a reminder that new things are created and achieved on a daily basis that would never have been thought possible.


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