Ethereum (ETH) is the second most popular cryptocurrency in the world, right after Bitcoin (BTC), the undisputed leader of the crypto world. These two currencies make the majority of the total crypto trading market capitalization and serve as a blueprint for other currencies  (altcoins) in terms of technological solutions and functionalities. Litecoin (LTC), Cardano (ADA), Ripple (XRP) and other popular cryptos have all been technologically based on either the BTC or ETH blockchain.

However, ETH and BTC are very different in terms of use cases, since BTC is primarily used as digital cash and storing value, while ETH offers much more functionalities, such as smart contracts and a network for decentralized apps to run on. 

Let’s take a look at the role of blockchain technology within the cryptocurrency ecosystem, how these two popular blockchains work, what the perks of Ether are, and how much ETH is actually in circulation.

Ethereum coin on top of small bricks on black background

Cryptocurrency and Blockchain Technology

The most popular cryptos use blockchain technology as the safest, fastest, and most efficient way for facilitating transactions of digital currency and data. Blockchain technology was first put into practice by Bitcoin in 2009, and it has since evolved into tech solutions that go way beyond cryptocurrencies. The healthcare industry, finance, and numerous other industries are all starting to utilize the advantages of blockchain technology in order to connect vast ecosystems and structuralize data flows, making them far more efficient, transparent, and reliable.

A blockchain is basically a form of data storage in blocks of data, which are set in a linear, chronological string from first to last block.

Proof-of-Work

Proof-of-work (PoW) is an algorithm that is used by the most popular cryptos such as BTC and ETH to validate transactions and make sure there are no scams or frauds coming from individual users. When a user sends a transaction, system nodes, that are actually miners and their computers, need to verify the validity of the transfer.

In order to make sure that a transaction is legit, several miners need to independently verify the validity of a transfer by solving mathematical tasks that contribute to the creation of new blockchain blocks and the processing of transactions. Once a miner reaches the solution to the mathematical problem at hand, their computer shows the proof-of-work to other miners in order to receive their approval and include the transaction in the next data block.

The Bitcoin (BTC) Blockchain

The BTC blockchain was the first such network when it was launched in 2009 and it quickly gained popularity among crypto enthusiasts that believed a decentralized, digital form of cash can truly replace fiat money such as USD or EUR.

Bitcoin enables really fast transactions of funds that take between 5 and 10 minutes, which is drastically faster compared to traditional bank transfers that take hours, days, or even more than a week in cases that include several intermediary banks. This swiftness was a huge step forward when it came to money transfers.

Another key characteristic of the BTC blockchain that made it popular was the top-notch security based on the already mentioned proof-of-work algorithm, which made crypto transactions totally secure.

These two characteristics paved the way for hundreds of altcoins in the following years which copied the best aspects of the BTC blockchain and brought various new functionalities of their own.

The Ethereum (ETH) Blockchain

Ethereum is the most famous altcoin on the market. It was developed and launched in 2015 by founder Vitalik Buterin and his developer team that included ETH co-founder Charles Hoskinson who would later launch Cardano. The idea behind ETH was to launch a cryptocurrency that provides users with more opportunities and functionalities than just digital cash and a method for storing value.

Ethereum transactions usually take less than a minute, but the real advantage of the ETH ecosystem is the data that can be processed through these transfers. Ethereum transactions can be used to facilitate smart contracts between users, power decentralized apps, and enable numerous services from the field of decentralized finance (DeFi).

Smart Contracts

Smart contracts are self-executing agreements between two parties that can be conducted far faster than traditional contracts. A classic, real-world contract requires paperwork, bureaucracy, and above all, intermediaries such as lawyers, government agencies, or banks. 

These contracts can be used to reach quick agreements between two parties in fields such as finance, services, or logistics. They can also be used to efficiently power decentralized applications and this is why smart contracts are very popular among developers and programmers. 

The core technology behind smart contracts is based on the ETH blockchain and it makes contracts fully reliable because they are designed to ensure that no party can cheat the other side. Smart contracts are agreements that are written directly into programming code, so when a smart contract is set into motion, neither party can pull back from the agreed-upon terms and trick the other side. 

The contract is irreversible and it can’t be interrupted. This makes smart contracts great for conducting business between parties that don’t know each other and don’t have mutual trust because trust isn’t an issue when you have a mechanism that makes scams literally impossible.

The smart contract concept was invented by mathematician and crypto enthusiast Nick Szabo back in 1994, but the real technologic implementation started with Ethereum in 2015. Since then, the usefulness of smart contracts has been widely recognized in various industry use cases. For example, salary payouts or inter-company payments can all be automated and programmed with smart contracts, making these processes run faster and smoother. 

This is one of the core characteristics that differentiate ETH from other cryptos that are focused on offering digital cash services to users.

Decentralized Apps

Smart contracts can be used to power so-called decentralized applications and run highly advanced web platforms and programs that won’t depend on the technology of centralized tech giants. It is common knowledge that when using the software solutions of major tech players such as Facebook, Google, or Microsoft, users don’t have total control over their personal information and the data they are giving these platforms while using them.

Apart from this, major tech companies retain a large portion of control over apps and programs that are based on their platforms. This is where the Ethereum blockchain and decentralized apps offer far more versatility and autonomy, without all the centralized control.

Decentralized apps (DApps) are open-source applications and web platforms based on ETH programming languages such as Solidity. Also, DApps can be created by special software known as the Ethereum Virtual Machine, which offers fully decentralized programming solutions. Developers can create autonomous apps with the help of smart contract automation while retaining user privacy and technological independence from big corporations.

This is a highly democratic technological feature of the ETH blockchain, since anyone can create DApps if they learn the basics of Ethereum programming. Some of the most well-known DApps include Uniswap, Bancor, or Fork Delta, all of which are decentralized, crypto-related platforms. CryptoKitties, on the other hand, is an example of how DApps can be used for fun and entertainment.

DeFi

DeFi (decentralized finance) is one of the most popular real-world use cases of the Ethereum blockchain. When you have a secure cryptocurrency that can facilitate transactions in just a couple of minutes, the possibilities of speeding up financial processes and increasing liquidity are huge.

Not only can slow bank transfers be fully avoided, but people and companies can also automate various other financial processes with the help of ETH smart contract functionalities. The usual hassle of complex payment procedures with banks that need to double check transfer documentation and approve transactions can be avoided and automated using the ETH blockchain. This means that valuable time can be saved with the decentralization of the financial system by relying on the ETH network to verify transactions and other financial services autonomously, unlike central bank procedures and slow government institutions.

Ethereum Tokens

Ethereum has introduced the possibility of creating custom tokens on its network. Crypto tokens are often mistakenly regarded as the same as crypto coins. The difference is that coins have their own blockchain network while tokens don’t have their own blockchain. Instead, they are built upon a popular blockchain network, using its technological solutions.

There are two types of popular tokens that are built using the ETH blockchain: ERC-20 tokens and non-fungible tokens.

ERC-20 Tokens

ERC-20 tokens are the most popular fungible tokens based on the ETH blockchain. Thanks to smart contract functionalities, anyone can create an ETH custom token and ERC-20 is the token standard that defines a set of rules for creating a token. These rules include transferability, how the token data can be accessed, what the method for approving token transactions is, and other rules that make ETH tokens highly functional.

The ETH blockchain is very user-friendly and anyone with a bit of programming knowledge can create a custom token on the Ethereum network. Some very popular cryptos on the market are actually ERC-20 tokens like Tether (USDT), Chainlink (LINK), and Binance Coin (BNB).

NFTs

ERC-20 tokens are also referred to as fungible tokens, which means that they are exchangeable and that numerous copies of each token exist. These copies are identical to each other and they have no specific characteristic that makes them stand out. 

NFTs (non-fungible tokens), on the other hand, are Ethereum-based tokens which are specific because each of them is unique and one of a kind. Basically, NFTs can tokenize any type of asset, such as valuable financial data, artwork, books, videos, etc. An NFT can be worth as much as someone is willing to pay for it. If a famous piece of art is tokenized as an NFT, it is possible that a collector would pay huge amounts of cash for that token. 

There are more and more NFT marketplaces popping up every few months, making it easier and easier for us to buy NFTs.

Ethereum enables users to create such unique tokens, thus creating an innovative method for storing valuable assets.

Ethereum 2.0

The Ethereum blockchain provides state-of-the-art tech solutions and functionalities the way it is, but Ethereum 2.0 will push the services and possibilities of the network even further. Ethereum 2.0 is the name for a set of upgrades that the developer team behind ETH has been working on for years, aiming to improve the network in terms of security, scalability, and sustainability – i.e. making the network more sustainable by consuming less electricity.

The computational power required to validate transactions and mine Ether is enormous and it could have a negative impact on the environment. This is why Ethereum 2.0 aims to drastically reduce that energy consumption by moving from proof-of-work to proof-of-stake transaction confirmation.

Proof-of-stake (PoS) confirmation doesn’t require large amounts of computational power because it grants mining and validation power to users based on the amount of their own coins that they have. Validators literally stake their funds as a guarantee that no fraud or scam will happen.

Current Ether Supply

The total Bitcoin supply is 21 million coins. However, this amount hasn’t been mined yet but is set as the maximum amount of BTC that can ever be in circulation. This hard cap number was decided by Satoshi Nakamoto when they launched BTC back in 2009. Ethereum, on the other hand, doesn’t have any limit on how many coins or tokens can be in circulation at a given time.

The number of Ether in circulation is constantly increasing and the best way to follow the increase in Ethereum is through websites such as Y charts or Coindesk that closely monitor the trading volume, market cap, and circulating supply of various assets, including ETH.

A Few Words Before You Go…

Ethereum may be the second-largest cryptocurrency in the world in terms of market cap and fiat money value, but in terms of technological functionalities, ETH is number one. Smart contracts, DApps, and the ability to create custom tokens are all characteristics that make Ethereum much more than just a cryptocurrency.