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What Is Ethereum Cryptocurrency – History, Uses & Differences vs. Bitcoin


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Crypto newcomers will quickly notice that apart from Bitcoin, the household name, Ethereum is the next coolest kid on the cryptocurrency block. It reconceptualized blockchain, showing the world that the curious technology could find more applications beyond just money.

Since its entry five years ago, Ethereum has forced the world to look at money through an entirely new eye.

Decentralized finance (DeFi) promises a new dawn for those disadvantaged by today’s financial system. Smart contracts enforce radical transparency in negotiations in a way not seen before. And people can sell their work or valuables digitally and walk away with a paycheck for the ages.

But Ethereum’s run has not been without mishaps. The very properties that gave it an edge over other altcoins are the same that have threatened to topple it. However, the ending seems a happy one.

What Is Ethereum?

Ethereum is a global and open-source cryptocurrency and decentralized applications (DApps) platform. It was launched in 2015 and quickly shot to the upper echelons of the cryptocurrency market.

Today, with a market capitalization north of $460 billion and commanding more than 10% of the cryptocurrency market, according to CoinMarketCap, Ethereum is rivaled only by Bitcoin in its popularity.

Ethereum is the brainchild of Russian-Canadian computer programmer and co-founder of Bitcoin Magazine Vitalik Buterin. He envisioned a platform that could facilitate the peer-to-peer transfer of money, just like Bitcoin, but could also support “decentralized” applications — apps that operate independent of anyone’s authority.

The price of Ethereum broke above $1,000 in January 2021 and has been on an unstoppable rally since, powered by the cryptocurrency market’s own bullish behavior and long-expected upgrades on the network.

At the time of writing, Ethereum is the undisputed king of altcoins — the name for all other cryptocurrencies other than Bitcoin — commanding more than 90% of the altcoin market.

Pro tip: If you’re planning to invest in Ethereum, open an account with Coinbase. You’ll receive a $5 bonus after opening your account, plus you can receive up to $25 more when you learn about other cryptocurrencies.

Why the Name “Ethereum”?

Ethereum’s creator, Vitalik Buterin, explained on the Ethereum Community Forum that the name “Ethereum” was inspired by science fiction. While browsing a list of sci-fi elements on Wikipedia, he came across the name and was immediately enamored.

He especially liked that it contained the word “ether,” a hypothetical medium scientists formerly believed occupied the outer limits of space and allowed light to travel. Similarly, Buterin envisioned Ethereum as a medium for other applications.

History of Ethereum

Buterin first described Ethereum in a white paper in 2013 after what he called months of frustrating work toward “cryptocurrency 2.0” (or the so-called “second generation of blockchain”). This concept means using the blockchain for more than digital money.

Origin of the Concept

Ethereum came to be for a couple of reasons. One was Buterin’s utter distaste for centralized systems. The other was his desire to deploy the flashy and exciting blockchain technology for more than just a money conduit.

Instead of capitalizing on blockchain to create innovative solutions, cryptocurrency 2.0 folks were on a mission to improve Bitcoin. Some of these improvements were enhancing Bitcoin’s anonymity, security, or speed.

As Buterin told Wired, the Bitcoin community employed a “Swiss army knife” approach of using blockchain to support all manner of features — and trying to reinvent the Bitcoin wheel while they were at it. He believed blockchain could be tapped to support a whole range of exciting applications, and the concept of Ethereum was born.

Creating Ethereum

After that epiphany, Buterin set to sketching the project’s white paper. He sent it to several of his friends, who sent it to other friends. This little network had overwhelmingly positive feedback for the idea.

The concept solidified when Buterin attended a Bitcoin conference and described the idea to attendees. After his speech, developers and investors were lining up to offer ways to help kick the project off the ground.

Some of these developers are known today as the earliest contributors to Ethereum — people like Anthony Di Iorio, Charles Hoskinson, and Gavin Wood. The team raised funds for the project via an Ether crowd sale, raising the Bitcoin equivalent of $18 million at the time. This money enabled them to set up the Ethereum Foundation, which oversees Ethereum’s development to this day.

Ethereum went live in July 2015. Before the launch, the team set up a bug bounty program that would stress-test the network and identify any vulnerabilities. They arrived at the final prototype, “Olympic,” after several prototypes were tested.

The DAO Event

It would be remiss to talk about Ethereum’s history and not touch on the infamous DAO attack that shook not just Ethereum but the entire crypto industry to its core.

The DAO was a decentralized autonomous organization that ran on the Ethereum blockchain. A DAO is an organization whose processes are governed by smart contracts and decisions are made in a decentralized fashion.

Unlike a conventional organization whose structure is hierarchical, a DAO is run by equal-stake participants where the rules — encoded on the blockchain — are transparent for all to see. The DAO concept was first described by Dan Larimer, founder of blockchain project Bitshares.

The DAO was the first such organization to be deployed on Ethereum’s blockchain. Simply called “The DAO,” the entity was a venture capital fund of sorts that was going to fund Ethereum-based initiatives. The DAO was conceived and brought to life by a blockchain venture then called

The DAO was a hit in the Ethereum community, attracting funding of over $100 million less than two weeks after its launch on April 30, 2016.

But the DAO dream was cut short when a hacker exploited the project by siphoning off $50 million worth of DAO tokens. The event sparked a contentious debate in the Ethereum community. What would be the way forward in regards to mitigating the fallout and reappropriating the stolen funds?

In the end, the vast majority of the community voted for a hard fork, a significant change in protocol that meant the Ethereum blockchain would have to split permanently.

The split resulted in two cryptocurrencies: Ethereum Classic (which maintained the original blockchain), and Ethereum, the one everyone knows.

Ethereum Classic (ETC) has since been upgraded and improved and can still be traded as a digital asset. However, many investors consider Ethereum (ETH) more legitimate and secure. Today the latter is far more widely traded and most frequently used for smart contracts.

The Ethereum blockchain’s split was one of the most pivotal moments in cryptocurrency history. Remember, Ethereum was the second-most popular blockchain project after Bitcoin.

Hard forks are mostly unwelcome events because they violate the spirit of consensus in blockchain processes. They also tend to cause division and strife within blockchain communities.

Those who stuck with Ethereum Classic believed a cryptocurrency project should withstand the pressures and whims of people. To them, initiating a hard fork was a cop-out — a betrayal of the decentralized, manipulation-proof idea of cryptocurrency. A split of the Ethereum blockchain put the entire idea that cryptocurrency is incorruptible into question.

Ethereum’s price tumbled from over $20 to under $13 during the saga.

Various Protocol Upgrades

Ethereum fans would’ve loved it if the project had just gotten off to a good start once and for all. But Ethereum has been famous for its growing pains, such as scalability issues.

For a long time, Ethereum could only muster roughly 15 transactions per second (TPS). That’s woefully short of the thousands of transactions per second it would need to handle to compete with payment networks like Visa. Because the Ethereum network can’t process transactions fast enough, users and developers often have to pay a considerable fee.

This problem has been a pain in the neck for the Ethereum Foundation. Buterin himself is on record saying his biggest regret is having launched Ethereum with the technical deficiencies that include high transaction fees (gas fees).

To fix these inefficiencies, Ethereum has undergone several protocol upgrades over the years. The first-ever protocol was dubbed “Frontier.” Since then, the protocol has undergone several upgrades. Some of these include Ice Age, Homestead, Spurious Dragon, Constantinople, and Muir Glacier.

The latest of these is Ethereum 2.0 (Eth2), which will be an entire overhaul of the network. Notable upgrades include moving from Proof of Work to Proof of Stake consensus protocol.

Proof of Work is a consensus mechanism that requires Ethereum miners to prove the work they’ve done qualifies them to confirm and validate new transactions on the blockchain.

This work involves having all the miners in the network make a random stream of guesses until one of them finds the correct “hash” that will unlock the next block of transactions. This guessing involves massive computational power, causing the Proof of Work mechanism to use extremely high amounts of energy.

By contrast, Proof of Stake grants block validation rights to network participants based on how many tokens they hold rather than requiring computing power to solve an algorithm. Since there is no computational power invested, Proof of Stake is not only faster (resulting in faster transactions), it’s also not as energy-intensive as Proof of Work.

Ethereum’s Uses Today

Ethereum has unleashed the power of blockchain like no other blockchain project has.

Ethereum initiated the radical experiment of decentralized applications, and it’s killing the game five years later. Ethereum features the Ethereum Virtual Machine, or EVM, which allows developers to create and execute apps using the Ethereum platform.

Here’s a look at the cool things Ethereum is achieving.

Decentralized Applications (DApps)

Ethereum introduced the concept of decentralized applications (DApps). These are applications that operate under no one’s authority.

By contrast, consider Facebook and Twitter, these are two centralized applications. Their operations are under the management and control of the companies’ founders and boards, who wield power over the applications’ operations.

Decentralized applications are the complete opposite of this. Here’s how:

  • No Ownership. Once a DApp goes on Ethereum, that’s it. The owner cannot decide to retract their app. That means your favorite DApp will remain available indefinitely.
  • Censorship-Resistant. DApps are free from censorship and restriction. Remember social platform Parler being kicked off Amazon and Apple? If the app was on Ethereum, this couldn’t have happened.
  • No Down Time. Unlike a regular app, a decentralized app is unlikely to go down. DApps are based on a distributed network of computers around the world. Even if a few computers or servers went down, the network would remain standing.
  • Frictionless Payments. Centralized app users often have to jump through hoops to be able to pay for services. If a user doesn’t have a bank account, they can forget about accessing some services altogether. DApps feature built-in payments via the Ethereum blockchain, making transactions seamless for everyone.
  • Secure. A bad actor would find it a tall order to bring down a DApp because they couldn’t possibly target all the computers running the network. Even if they could, it would be a colossal expense not worth the trouble.
  • Immutable. Blockchain systems are unalterable. They’re built so that once information goes on the network, that information cannot be hacked, deleted, or edited. For example, if Facebook was based on Ethereum, no one could delete your posts, including you or Facebook itself.

Smart Contracts

Smart contracts are another groundbreaking offering of Ethereum. A smart contract is a code or protocol based on the blockchain that allows you to enter an agreement with somebody else in a self-executing, safe, transparent, and undeniable way.

A smart contract contains all the information pertaining to a transaction. Once all the conditions have been met, the contract will self-verify and self-enforce.

Unlike a standard contract, smart contracts are purely Internet-native, based on code that delineates all the obligations expected of the participating parties. It also spells out the rules and the penalties applicable under the contract’s terms.

What’s really unique about smart contracts is that completely anonymous parties who have never even met can do business using this technology. Neither party has to trust the other to uphold their end of the bargain because the smart contract is self-executing and self-enforcing.

A big bonus is that there’s no central authority breathing down the participants’ necks. Nor is there the need for intermediaries, such as lawyers, who are expensive and add to the bloat of the whole experience.

Smart contracts were originally the idea of computer and legal scholar Nick Szabo. He first described the concept in 1996, defining smart contracts as “a set of promises, specified in digital form.” But it wasn’t until blockchain technology emerged and provided a suitable environment that smart contracts could be implemented.

And while Bitcoin may have broken the ground for the idea, it doesn’t have the capability for the function. Ethereum does.

Smart contracts differ from conventional contracts in several ways:

  • Undeniable. Smart contracts enforce undeniable proof. A party to a smart contract cannot dispute their involvement.
  • Distributed. Smart contracts are replicated across the network of computers (or “nodes”) running the Ethereum network. That helps keep them secure.
  • Trustless. Transacting parties don’t need to know or trust each other. That’s because the contract’s execution is entirely automatic.
  • Transparent. As a public blockchain, all Ethereum blockchain entries are there for all to see. As such, all parties to a transaction can log in anytime and verify the details.
  • Immutable. Once a smart contract is enforced, no one — even the transacting parties — can change the details.
  • Deterministic. A deterministic program always produces the same results. There is no variation. That means the outcome of a smart contract is the same across different nodes.

Decentralized Finance

Decentralized finance (DeFi) is the idea and belief that everyone, regardless of their origin, gender, or social status, should have access to the global financial system. Today, at least 1.7 billion people remain unbanked. That means no savings, no access to loans, and no protection from unforeseen crises.

DeFi aims to democratize finance by doing away with intermediaries and central authority. All you need to access DeFi is an Internet connection. It doesn’t matter whether you haven’t an ID or live in some far-flung place away from civilization.

DeFi is powered by smart contracts, meaning you not only save time and costs, but you also don’t have to participate in tedious identification and verification processes to unlock services.

And there’s no bank inspecting your source of money, scrutinizing your credit history, or using other bureaucratic maneuvers that exclude people from the finance system.

DeFi is a radical idea that puts financial autonomy and control where it should be — in the hands of users. It wrests economic power from centralized, rigid structures and gives it back to regular people. A high-flying corporate titan in New York has the same access to financial services as a local grocer in rural Uganda.

An astonishing $78 billion-plus is locked in DeFi as of May 2021. That’s a dramatic jump from roughly $2 billion in January. Compound, MakerDAO, Aave, Uniswap, Curve Finance, and Synthetix are just some of the DeFi platforms breaking the mold with bold and innovative DeFi products.

Examples of DeFi

From lending to borrowing, yield farming, and making money through clever bets, there’s a whole range of DeFi products that cater to all.

1. Crypto Lending

Instead of letting their idle crypto gather dust in their wallets, many crypto owners are making their crypto work for them through lending.

Crypto lending involves depositing your cryptocurrency, such as Bitcoin or Dash, into a lending platform. Crypto lending is superior to traditional lending in that:

  • It has favorable fees.
  • You don’t need identification — welcome news for the unbanked.
  • There are diversified loan products.
  • There are no unnecessary complex procedures to borrow or lend money.
  • You don’t need to have a perfect credit score.

2. Stablecoins

Stablecoins are assets designed to have the security, efficiency, and seamlessness of cryptocurrencies while simultaneously avoiding their wild volatility.

Stablecoins are backed by “real-life” assets, such as the U.S. dollar, to afford them an anchor or stability. This way, they don’t undergo the notoriously wild swings in value that other cryptocurrencies such as Bitcoin and Ethereum are known for.

A stablecoin removes the uncertainty associated with cryptocurrencies, making it a day-to-day currency you can use for everyday transactions. Tether (USDT), Maker (MKR), True USD (TUSD), and USD Coin (USDC) are some of the most successful stablecoins.

3. Decentralized Exchanges

Cryptocurrency exchanges are platforms where users can buy and sell crypto.

The vast majority of exchanges — such as Binance, Coinbase, and Kraken — are centralized, meaning they’re controlled or governed by a company or other entity. This goes against the decentralization and autonomous spirit of crypto.

Decentralized exchanges (DEXes) allow users to transact in a peer-to-peer fashion and maintain control over their money. Examples of DEXes include Bancor, Kyber Network, and IDEX.

4. Yield Farming

A particularly hot trend right now, yield farming involves lending a crypto asset such as Dai, USDT, or USDC via a platform such as Compound.

Investors lend to borrowers who want to use the asset to speculate in the market. The borrower returns the asset with interest, depending on market movements. If the platform’s tokens — COMP on the Compound platform, for example — increase in value, the investor gets an even bigger profit.

Other yield farming faves include Balancer, SushiSwap, Uniswap, Yearn.Finance, Aave, and Synthetix.

5. Flash Loans

Flash loans require the borrower to repay in the same transaction. This eliminates risk for both the borrower and the lender.

Flash loans can be useful for taking advantage of arbitrage opportunities when there are price discrepancies between markets or for collateral swaps.

They work this way: The lender and borrower enter into a smart contract. The network can detect whether the borrower is able to repay the loan or if the lender will incur a loss. If a transaction goes through, the borrower nets a profit, and the lender walks with a small interest. Everyone is happy.

Non-Fungible Tokens (NFTs)

Non-fungible tokens (NFTs) are another use case of Ethereum that’s garnered cryptoverse’s spotlight in 2021.

A fungible asset is one that can be swapped interchangeably for another of similar nature and value.

For instance, if Alice wants to give Bob $20, she can either give him a $20 bill or two $10 bills. Both have equal value, and any bills will do because paper money is fungible. Likewise, if Alice sends Bob 1 bitcoin, that bitcoin will have the same value as any other bitcoin Bob possesses.

A non-fungible token is a unique and distinct object. It cannot be exchanged or replaced for another. NFTs are blockchain-based versions of non-fungible digital assets. An NFT is rare, indivisible, unique, and verifiable thanks to the blockchain.

While NFTs have been around for years, they were thrust into the limelight when Twitter CEO Jack Dorsey sold his first-ever tweet for $2.9 million in March 2021. In the same month, digital artist Beeple added $55 million to his balance sheet after his NFT art piece raked in a whopping $69 million.

And who could forget CryptoKitties? This is the Ethereum-based “KittyVerse” game that lets people buy, sell, and trade virtual cats. The game was such a hit that it threatened to overload the Ethereum blockchain as users flooded in.

Those are just some of the high-profile NFT events. NFTs can be deployed to represent an eclectic nature of items, including:

  • Songs
  • Event tickets
  • Audio files
  • Physical and virtual real estate
  • Domain names
  • Digital collectibles
  • In-game items
  • Sports memorabilia

Decentralized Autonomous Organizations (DAOs)

The early DAO attacker gave decentralized autonomous organizations a lousy name. But DAOs are a welcome organizational phenomenon that’s not influenced by a hierarchy.

These organizations are run exclusively by smart contracts. A DAO’s operations are entirely autonomous of human input, although humans have made the code and rules that should run the organization. Thanks to blockchain technology, all processes are completely transparent, eliminating the incidence of fraud.

Here are some examples of DAOs:

  • Augur. Augur is an Ethereum-based prediction and betting platform. Betting fans can get paid when they predict winning outcomes on an array of events ranging from football to national events to elections.
  • Colony. Colony is an Ethereum-based infrastructure that aims to make it easier for organizations worldwide to implement DAO-like models. Instead of boring, paper trail-based organizational rules, “colonies” can encode their vision in smart contracts for safer and more transparent processes.
  • Aragon. Also based on Ethereum, Aragon allows organizations everywhere to collaborate via a decentralized, transparent, and cost-efficient model of governance. This eliminates the undesirable mix of delays, data silos, and intermediary fees.

How Ethereum Differs From Bitcoin and Other Cryptocurrencies

When talking about Ethereum vs. other cryptocurrencies, we’re essentially talking about Ethereum vs. Bitcoin because Bitcoin spawned the entire industry.

Ethereum came in and proposed a radical way of deploying the blockchain. Blockchain would no longer just be known as that snazzy, newfangled technology through which people can send and receive money. It could support bold concepts like decentralized applications and smart contracts.

Both Bitcoin and Ethereum are trailblazers in the field. That said, here are the key differences between Ethereum, Bitcoin, and other cryptocurrencies.


Bitcoin’s blockchain isn’t that flexible. Its focus is on security and a robust system to transfer value.

For its part, Ethereum is built to be programmable. It’s like a global computer that grants anyone the ability to experiment, code, and come up with their own creations.


Bitcoin is designed solely to establish an alternative system of money. Ethereum’s currency, Ether, is also traded and used as “gas” that users and application developers must pay to conduct transactions and execute contracts on the platform.

Ability to Launch Other Cryptocurrencies

Ethereum features a protocol called the ERC-20 token, which is a blueprint for developers worldwide to launch their own cryptocurrencies. Hundreds of cryptocurrencies out there, including big hitters like Tether, are based on the ERC-20 standard.

Uber-successful currencies like EOS, TRON, and Binance Coin all began their journey on Ethereum’s platform before their mainnet launch.

A “mainnet” is a blockchain that can independently support the broadcasting, verification, and recording of transactions — as opposed to a “testnet,” which is when a blockchain project is being hosted on a more established network such as Ethereum.

Block Time

Bitcoin’s block time — the time it takes to confirm transactions — is an average of 7 TPS, depending on how busy the network is. Ethereum’s average block time is slightly faster at 15 TPS.


Ethereum’s supply is not fixed, although that’s set to change when it introduces burning.

In cryptocurrency, burning is when developers permanently remove a particular percentage of coins from the supply. It involves sending these coins to crypto wallets that no one has access to. Burning is done to control a cryptocurrency’s supply and hence prevent inflation.

Bitcoin’s supply limit is hard-coded to be 21 million. That means there’ll only ever be 21 million coins that are “minted” in total.

Final Word

Without Ethereum, the cryptocurrency and blockchain space would be filled with a bunch of copycats, each trying to fix real or imagined Bitcoin flaws.

Ethereum has made the entire space more creative and inspired. It’s also brought some real solutions to real problems. Those left out by old-school finance have a chance at economic inclusion thanks to DeFi. Organizations everywhere can upgrade whatever they do with DAO-inspired tech and smart contracts.

And with Eth2, Ethereum is staging an even stronger comeback. The Ethereum community is excited for what the future holds.


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Hope Mutie is a freelance writer who is passionate about finance and emerging tech. She discovered and fell down the cryptocurrency rabbit hole in 2018, and she enjoys curating valuable, educational, and fun-to-read content for crypto audiences. You can find more of her work at CryptoVantage and her Medium blog.