What is Ethereum?

Ethereum, which launched in 2015, is the second-biggest cryptocurrency by market cap after Bitcoin. But unlike Bitcoin, it wasn’t created to be digital money. Instead, Ethereum’s founders set out to build a new kind of global, decentralized computing platform that takes the security and openness of blockchains and extends those attributes to a vast range of applications.

Everything from financial tools and games to complex databases are already running on the Ethereum blockchain. And its future potential is only limited by developers’ imaginations. As the nonprofit Ethereum Foundation puts it: “Ethereum can be used to codify, decentralize, secure and trade just about anything.”

You can check the latest prices on Coinspot’s Ethereum asset page.
Ethereum has become a popular investment vehicle and store of wealth (and can be used, like Bitcoin, to send or receive value without an intermediary).
The Ethereum blockchain allows developers to build and run a huge variety of applications: everything from games and advanced databases to complex decentralized financial instruments — meaning that they don’t require a bank or any other institution in the middle. (Read more: What is a blockchain?)
Ethereum-based apps are built using “smart contracts.” Smart contracts, like regular paper contracts, establish the terms of an arrangement between parties. But unlike an old-fashioned contract, smart contracts automatically execute when the terms are met without the need for either participating party to know who is on the other side of the deal — and without the need for any kind of intermediary.
Ethereum, like Bitcoin, is an open source project that is not owned or operated by a single individual. Anyone with an internet connection can run an Ethereum node or interact with the network.
Much like Bitcoin’s decentralized blockchain allows any two strangers, anywhere in the world, to send or receive money without a bank in the middle, smart contracts running on Ethereum’s decentralized blockchain allow developers to build complex applications that should run exactly as programmed without downtime, censorship, fraud, or third-party interference.

Is Ethereum secure?

ETH is currently secured by the Ethereum blockchain in much the same way Bitcoin is secured by its blockchain. A huge amount of computing power — contributed by all the computers on the network — verifies and secures every transaction, making it virtually impossible for any third party to interfere.

The fundamental ideas behind cryptocurrencies help make them safe: the systems are permissionless and the core software is open-source, meaning countless computer scientists and cryptographers have been able to examine all aspects of the networks and their security.

Apps running on the Ethereum blockchain, however, are only guaranteed to be as secure as their developers have made them. For example, code can sometimes contain bugs that could result in loss of funds. While their source code is also visible to all, the user bases of each individual app are much smaller than Ethereum’s as a whole, and so fewer eyes are on them. It’s important to do research on any decentralized app you plan to use.

The Ethereum protocol is currently being updated in ways that are intended to make it faster and even more secure. See the Ethereum 2.0 section below for more.

How does Ethereum work?

You might have heard that the Bitcoin blockchain is a lot like a bank’s ledger, or even a checkbook. It’s a running tally of every transaction made on the network going back to the very beginning — and all the computers on the network contribute their computing power towards the work of ensuring that the tally is accurate and secure.

The Ethereum blockchain, on the other hand, is more like a computer: while it also does the work of documenting and securing transactions, it’s much more flexible than the Bitcoin blockchain. Developers can use the Ethereum blockchain to build a huge variety of tools — everything from logistics management software to games to the entire universe of DeFi applications (which span lending, borrowing, trading, and more).

Ethereum uses a ‘virtual machine’ to achieve all this, which is like a giant, global computer made up of many individual computers running the Ethereum software. Keeping all of those computers running involves investment in both hardware and electricity by participants. To cover those costs, the network uses its own Bitcoin-like cryptocurrency called Ether (or, more commonly, ETH).
ETH keeps the whole thing running. You interact with the Ethereum network by using ETH to pay the network to execute smart contracts. As a result, the fees paid in ETH are called “gas.”
Gas rates vary depending on how busy the network is. A new version of the Ethereum blockchain called Ethereum 2.0, which aims to increase efficiency, began rolling out in December 2020. (The transition to the new blockchain is scheduled to happen over the next two years.)

What is Ethereum 2.0?

Ethereum 2.0 (often referred to as ETH2) is a major upgrade to the Ethereum network. It’s designed to allow the Ethereum network to grow while increasing security, speed, and efficiency.

As of early 2021, Ethereum 2.0 and Ethereum 1.0 exist side by side — but the original blockchain will eventually merge with ETH2 blockchain. (If you’re an ETH holder you won’t have to do anything — your holdings on the ETH 1.0 blockchain will automatically migrate to the ETH2 blockchain.) The transition to ETH2 began in December of 2020, and is scheduled to take two years.

Why is Ethereum 2.0 necessary? Moving a popular cryptoasset to a new platform is a complex endeavor, but for Ethereum to scale and evolve, it needs to happen. That’s because the “Proof of Work” method used by the ETH 1.0 blockchain to verify transactions causes bottlenecks, increases fees, and consumes substantial resources (particularly electricity). (Read about Satellite’s commitment to sustainability)

What is Proof of Work? How do cryptocurrency networks make sure that nobody spends the same money twice without a central authority like Visa or Paypal in the middle? They use a consensus mechanism. When ETH 1.0 launched, it adopted the consensus mechanism pioneered by Bitcoin: the aptly named Proof of Work.

Proof of Work requires a huge amount of processing power, which is contributed by virtual “miners” around the world who compete to be the first to solve a time-consuming math puzzle.
The winner gets to update the blockchain with the latest verified transactions, and is rewarded with a predetermined amount of ETH.
This process happens every 30 seconds (compared to Bitcoin’s approximately 10-minute cadence). As traffic on the network has increased, the limitations of Proof of Work have caused bottlenecks during which fees spike unpredictably.

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