Table of Contents
What is Ethereum?
How does Ethereum work?
Ethereum vs. Bitcoin
What’s next for Ethereum?
The bottom line
Jul 8, 2022
6 min read
The Ethereum network is community-run technology that powers its crypto, called Ether (ETH), and decentralized applications (DApps).
Few investments have drawn as much notice as cryptocurrencies in the past decade, thanks largely to the meteoric rise of Bitcoin that made millions and even billions of dollars for some early investors. But that’s hardly the only crypto on the block.
The No. 2 crypto by market capitalization is the platform Ethereum. It’s much larger than the thousands of other cryptos, boasts high daily trading volume, and offers important features like smart contracts. It’s also the crypto of choice for trading non-fungible tokens (NFTs).
The Ethereum network is community-run technology that powers its crypto, called Ether (ETH), and decentralized applications (DApps). Ethereum was created largely to give app developers more freedom: It’s the brainchild of Vitalik Buterin, who in 2013 imagined the platform as a way for developers to build their apps there—and wrest control from major tech platforms like Apple and Google, which take a large cut off the top for purchases made on their app stores. Buterin, a Russian-Canadian programmer, created Ethereum and the Ethereum Foundation with seven co-founders.
The Ethereum community launched in 2015, and it calls itself “the world's programmable blockchain.” Users can send Ether and other cryptocurrencies, as well as digital assets, and pay transaction fees. Its platform includes a marketplace of financial services, games, and apps that “can't steal your data or censor you,” as the Ethereum website puts it.
Ethereum also launched the concept of smart contracts: programs that execute automatically, without human intervention, when predetermined conditions are met. This makes transactions and programs faster and cheaper because there’s no time spent processing paperwork and no need to pay an intermediary to help make the deal happen. They can be used for decentralized finance (DeFi), apps, and games. Smart contracts also have advantages in business contexts like supply-chain processes, signaling the next action to begin automatically when the previous step’s conditions are met.
In 2021, Ether soared to all-time highs, partly because of its wide use to buy NFTs: digital art, trading cards, and other collectibles that have become white-hot in the art, sports, and media worlds. In March 2021, for example, a piece created by digital artist Beeple sold for a record-setting equivalent of $69.3 million—paid for in Ether. But in yet another example of the extreme volatility in the crypto market, Ether lost almost half its value from its 2021 peak to early 2022.
Ethereum and Bitcoin share a number of features, including their underlying technology. Like many crypto platforms, Bitcoin and Ethereum use blockchain technology—an open-source public ledger that relies on complex cryptography to record every transaction. It’s a decentralized system spread across thousands of computers around the world, and users are identified not by name but by the ID numbers of their digital wallets. Transparency and security are high, as every user can see the transactions and they’re nearly impossible to alter once they become part of the blockchain.
However, the two differ in several key ways. Bitcoin was created primarily as an alternative currency to fiat currencies, such as the dollar and yen, that are backed by a government and typically involve banks or other intermediaries. The Bitcoin blockchain was built to trade only Bitcoin, and a rule states there can never be more than 21 million Bitcoin.
Ethereum, by contrast, defines itself around its status as a programmable blockchain. Though Ether can also be used as a store of value and Ethereum powers financial transactions, Ethereum is mainly a marketplace of apps that also offers the ability to trade all types of cryptocurrencies without going to other cryptocurrency exchanges. And Ethereum doesn’t have a limit on the amount of Ether that can be created.
Ethereum is evolving in a different direction than Bitcoin in another important way: the algorithm underlying its blockchain. Both Ethereum and Bitcoin were built around proof of work (PoW), a consensus protocol that’s used to create, or mine, new tokens by requiring computers to solve arbitrary, complex math puzzles. It essentially means people can’t copy and paste tokens, confirming that every transaction and newly minted token is neither a duplicate nor a forgery.
But PoW’s benefits come with significant costs: The computers used to solve these complicated math puzzles consume vast amounts of energy. That drives up electricity bills for the miners, and it leaves a large carbon footprint. According to Cambridge University's Bitcoin Electricity Consumption Index, Bitcoin mining alone uses more than 100 terawatt hours of electricity a year as of October 2021. That’s more than the Philippines’ energy consumption in 2019, and about a third as much as the U.K. used that year.
So Ethereum planned to move past proof of work in favor of a newer technology called proof of stake (PoS). In the simplest terms, Ether owners are incentivized with a reward, paid in Ether, to stay on the network.
Here’s how it works: Unlike PoW blockchain, PoS chains don’t rely on the scale and speed of mining in order to expand. Instead, PoS aligns the creation of new blocks with the number of tokens that miners hold. That means miners don’t have to add more computing power, ad infinitum—they can simply mine new tokens in proportion to their ownership stake in the given cryptocurrency.
The Ethereum Foundation cites a recent estimate that says PoS could cut Ethereum’s total energy consumption by 99.95%. “The energy expenditure of Ethereum will be roughly equal to the cost of running a home computer for each node on the network,” they explained.
Ethereum is community-run technology that powers a cryptocurrency called Ether (ETH), as well as a marketplace of decentralized applications (dApps). It was created to give developers an environment to release apps without intermediaries like Apple and Google that take a large cut for payments made in their app stores, but users can also send Ether and other digital assets, including alternative cryptocurrencies. Ethereum also launched the concept of smart contracts, which are programs that self-execute when predetermined conditions are met, while also serving in many transactions involving NFTs.
Like Bitcoin, Ethereum is underpinned by blockchain technology. But Ethereum focuses on having more uses than Bitcoin, and unlike Bitcoin there is no limit to the amount of Ether that can be created. Ethereum also planned to transition from the traditional PoW protocol, which requires heavy computing power, to the much more energy-efficient PoS to expand its network in the future.
At Titan, we are value investors: we aim to manage our portfolios with a steady focus on fundamentals and an eye on massive long-term growth potential. Investing with Titan is easy, transparent, and effective.
Get started today.
Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.
Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Titan’s Legal Page for additional important information.
You might also like
Understanding the Different Types of Cryptocurrency
How many cryptocurrencies are there? Answers vary but in short: a lot. As many as 70,000, by one estimate.
What Is Digital Currency? Types, Advantages, and Examples
Digital money isn’t necessarily new. Today, thanks to the rise of digital payments and cryptos, individuals may be more likely to buy and spend virtual currencies.
What Is a Crypto Token and How is it Different From a Coin?
Developers can launch a crypto token to build on top of an existing blockchain’s features and popularity. Learn how they also can focus on creating, promoting, and updating it.
Can You Short Crypto?
There are many ways for investors to bet against Bitcoin and Ether and sell them short. Learn how these often involve derivatives such as futures contracts.
© Copyright 2023 Titan Global Capital Management USA LLC. All Rights Reserved.
Please refer to Titan's Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives and any fees charged by Titan. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal. Brokerage services are provided to Titan Clients by Titan Global Technologies LLC and Apex Clearing Corporation, both registered broker-dealers and members of FINRA/SIPC. For more information, visit our disclosures page. You may check the background of these firms by visiting FINRA's BrokerCheck.
Various Registered Investment Company products (“Third Party Funds”) offered by third party fund families and investment companies are made available on the platform. Some of these Third Party Funds are offered through Titan Global Technologies LLC. Other Third Party Funds are offered to advisory clients by Titan. Before investing in such Third Party Funds you should consult the specific supplemental information available for each product. Please refer to Titan's Program Brochure for important additional information. Certain Third Party Funds that are available on Titan’s platform are interval funds. Investments in interval funds are highly speculative and subject to a lack of liquidity that is generally available in other types of investments. Actual investment return and principal value is likely to fluctuate and may depreciate in value when redeemed. Liquidity and distributions are not guaranteed, and are subject to availability at the discretion of the Third Party Fund.
The cash sweep program is made available in coordination with Apex Clearing Corporation through Titan Global Technologies LLC. Please visit www.titan.com/legal for applicable terms and conditions and important disclosures.
Cryptocurrency advisory services are provided by Titan. Cryptocurrency trading is provided by Bakkt Crypto Solutions LLC ("Bakkt Crypto"). Bakkt Crypto is not a registered broker-dealer or a member of SIPC or FINRA. Cryptocurrencies are not securities and are not FDIC or SIPC insured. Bakkt Crypto is licensed to engage in virtual currency business activity by the New York State Department of Financial Services. Cryptocurrency execution services are provided by Bakkt Crypto (NMLS ID 1828849) through a software licensing agreement between Bakkt Crypto and Titan. Please ensure that you fully understand the risks involved before trading: bakkt.com/disclosures.
Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.
Contact Titan at firstname.lastname@example.org. 508 LaGuardia Place NY, NY 10012.