Ethereum explained with analogy of the Internet

Ethereum explained with analogy of the Internet

Ethereum explained with analogy of the Internet

Ethereum explained with analogy of the Internet

Ethereum(not Bitcoin) is the most dominant cryptocurrency. ETH Daily Active Addresses more than BTC. The development team of Ethereum makes daily routine submissions that make it the busiest cryptocurrency that ranks #2 based on market capitalization. 

However it is not fair to compare BTC with Ethereum. Although both are based upon blockchain technology but are created for different functions.  A small number of people understand what ETH can do for most it is no more different than Bitcoin. Those who use ETH as a product, or Dapps hosted on Ethereum do understand ETH with its purpose- which is a very small community in terms of number.
This limited awareness of ETH reasoned us to write this article to have awareness in the general public. Ethereum is not just about Hodl-ing or trading on exchanges .

Related Read : Sesterce Blog- Ethereum's Gas Fee Problem and EIP 1559

Let’s Understand Ethereum as accurately explained with all it’s technical glory

Here is Vitalik Buterin lucidly explaining in the simplest way possible.

Some of us might have understood it, some of us didn’t. Now Let’s try to understand it one more time:

Analogy of Internet to Understand Bitcoin, Blockchain and Ethereum

In the early days when the internet was new there were only a few websites. People were getting the hang of the concept of a website, learning and using it.

A chart showing total number of live websites with each year(Source: https://www.internetlivestats.com/total-number-of-websites/)

Later someone realized and got an idea that we should have a website where I should be able to buy stuff, (Jeff Bezos and Amazon) we call it ecommerce today. Then another person thought of having a website where I could chat with people online, so this led to creation of chat websites(messenger). 

Then somebody thought that there are so many websites, let's make something which enables us to search websites(Search engines like google, duckduckgo) and so on and so forth.

Basically what we are trying to explain above is that with time, with technological advancement, and with higher adoption by the people, new use cases of websites were thought of and were getting created over the internet.

Number of websites since inception

This is exactly what happened in Bitcoin or more accurately you can say in Cryptoworld. Initially we all considered it only as currency with all it’s glorious benefits. It is decentralized, nobody has control,  Immutable etc. Just like in websites new coins were being created with more or less similar use cases(privacy coins, meme coins etc.) you mine these coins, pay with it etc.

Total number of Dapps

Just like with the internet and website a need was felt that we can or we should do more with this decentralized technology. A decentralized marketplace to sell digital products(OpenSea), Applications, games, which are decentralized.

But there was an issue: Soon people realised although there is a need for Dapps but running all these application decentralized is not easy. Decentralized App(Dapp) means applications are simultaneously running on thousands of computers(miners) across the world. This is an unnecessary additional burden and challenge to convince others to run/mine your Dapp on their hardware with incentives which might not be as lucrative as Bitcoin mining. Basically a need was created, A easy way for Dapps to be hosted decentralized while providing proof of value(PoW, PoS).

Enter Vitalik Buterin who thought about building a decentralized supercomputer(Or a blockchain platform) supported by miners across the world who will be providing necessary computational resources for these Dapps:

  • This decentralized supercomputer Ethereum will have it’s own programming language, called Solidity. 
  • You/Developers can build your own application(dApps) using Solidity. Your application will run over the Ethereum network. You don’t need to worry about mining etc.
  • Ethereum has its own associated cryptocurrency/Token called Ether or ETH.
  • Ethereum users pay fees to use your dApps. The fees are called "gas" because they vary depending on the amount of computational power required.
  • Mining provides earning for mining operators when new ETH is minted. 
“Because [Ethereum] supports a programming language, developers have this unlimited creativity in what kinds of things that they actually create on Ethereum. So, you can use Ethereum to create cryptocurrencies, or NFTs, or many other kinds of things.” Vitalik Buterin

Now that’s a cool explanation.

While all these things unfold an impending question arises  is Ethereum a cryptocurrency?

Whether ETHEREUM is a TOKEN or a CURRENCY

Yes many of us do use Ethereum as a currency but it is intended to be a token. What Bitcoin does for money, Ethereum does for contracts. Ethereum’s innovation is that it allows you to write Smart Contracts: basically, any digital agreement where you can say “if this” happens, “then something else happens.” For example:

  • If I sign a contract on this document, then I own the painting, and no one else(does this ring any bells….NFT may be)  and no one else can temper the ownership.
  • Conventionally, these agreements were executed with a signature at the bottom of a paper document. Ethereum dramatically improves this model because it is digital, and proof of the transaction can never be deleted.

Here is a small comparison between Bitcoin and ETH for further clarity.

Comparison chart: Bitcoin vs. Ether

Description Bitcoin (BTC) Ether (ETH)
DescriptionWhat is it? Bitcoin (BTC)A currency Ether (ETH)A token, and currency too
DescriptionInventor Bitcoin (BTC)Satoshi Nakamoto Ether (ETH)Vitalik Buterin, Joseph Lubin, Gavin Wood, etc
DescriptionWent live on Bitcoin (BTC)January 2009 Ether (ETH)July 2015
DescriptionSupply Style Bitcoin (BTC)Deflationary (a finite # of bitcoin will be made) Ether (ETH)Inflationary (much like fiat currency, where more tokens can be made over time)
DescriptionSupply Cap Bitcoin (BTC)21 million in total Ether (ETH)18 million every year
DescriptionSmallest Unit Bitcoin (BTC)1 Satoshi = 0.00000001 BTC Ether (ETH)1 Wei = 0.000000000000000001 ETH
DescriptionNew token issuance time Bitcoin (BTC)Every 10 minutes approximately Ether (ETH)Every 10 to 20 seconds
DescriptionAmount of new token at issuance Bitcoin (BTC)6.25 at the moment. Half at every 210,000 blocks. next halving @ block 840000 Ether (ETH)5 per every new block
DescriptionUtility Bitcoin (BTC)Used for purchasing goods and services, as well as storing value (much like how we currently use gold). Ether (ETH)Used for making dApps (decentralized apps) on the Ethereum blockchain.
DescriptionConsensus mechanism Bitcoin (BTC)Proof of Work(PoW) Ether (ETH)PoW, eventually moving to Proof of Stake
DescriptionPurpose Bitcoin (BTC)Bitcoin is a new currency created to compete against the gold standard and fiat currencies Ether (ETH)Ethereum is a token capable of facilitating Smart Contracts (For example a lawyer’s contract, an exchange of ownership of property, and voting)