Even close observers of the tech world will sometimes be surprised by the speed with which a new term or concept can become the next big thing. Such was the case with Ethereum, which went from something that sounds like a forgotten element of the periodic table to a trending buzzword at lightning-fast speed.
If you’ve heard the word “Ethereum” but have no idea what it means, you’re not alone. The TL;DR (or “too long; didn’t read”) description is that “Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications.” This form of decentralized computing was formed in response to the concern around the centralized nature of computing, which puts applications and programs at great risk of getting hacked. Decentralization is key because it means apps can operate uncontrolled by any individual or central entity, and more like a “consensus-based globally executed virtual machine.”
You may have heard of blockchain as it relates to Bitcoin, and Ether is simply a different kind of cryptocurrency like Bitcoin that Ethereum runs on. As one step-by-step guide put it, “In the Ethereum blockchain, instead of mining for bitcoin, miners work to earn Ether, a type of crypto token that fuels the network. Beyond a tradeable cryptocurrency, Ether is also used by application developers to pay for transaction fees and services on the Ethereum network.”
Essentially, Ethereum uses the fundamentals of peer-to-peer networks and the blockchain to allow developers to use these technologies for a wider range of purposes, such as executing contracts and building apps. The overall goal is a safer, less vulnerable and more transparent internet for both developers and users. Now that you understand that, you may be wondering why Ethereum gathered steam so quickly. There are two causes of this: hype and speculative investment.
There is a lot of hype around Ethereum because it addresses one of the fundamental problems of the internet: trust. By giving developers a way to decentralize virtually anything they create—and to rely on the self-policing power of blockchain to enforce standards—there is a chance to revolutionize how we carry out various transactions online. The benefits of decentralizing these kinds of transactions include the fact that a third party can’t make changes to data, and that the absence of a “central point of failure” means that hacking is much less of a threat. In addition, the principle of consensus based decision making around changes to Ethereum takes away issues around government censorship or shutdown.
The second reason for Ethereum’s precipitous rise is speculative investing. This was certainly driven by hype to some extent. But the more people who believe in the Ethereum concept—and thus buy Ether currency on what’s called an “exchange—the more that the supply of Ether goes down and the price goes up. This in turn has created more headlines and more hype around the soaring price of Ether. However, there’s no guarantee that this surge isn’t just a temporary moment. As one expert wrote, “like buying stocks in the stock market where companies can have ups and downs, Ethereum could experience this too, and the Ether people buy could lose value very rapidly.”
So now that you have a basic understanding of what ethereum is, what’s the take-away? Unless you’re particularly interested in blockchain technology or an investor that’s looking to speculate on the next big thing, ethereum is likely to be that relevant to your life. But who knows, in ten years, it may just be the technology that the entirety of our online lives is built upon.