The media seems to be enjoying headlines announcing the triumph of a bitcoin rival. And that’s not surprising. Since the dawn of theater in ancient Greece, we have been fascinated by the inevitable fall of the great and successful, especially when it comes to a young competitor. It is a very good story in which we acknowledge the fragility of existence and comfort ourselves with the knowledge that everything is changing. The recent headlines of Ethereum versus Bitcoin will undoubtedly sound like a compelling battle to the death with only one virtual currency coming out victorious.
But it is not like that. I love a good headline as much as anyone, but positioning the two as competitors does everyone a disservice. Bitcoin will end up suffering even more misunderstandings and misguided skepticism. And the potential of Ethereum is clouded by the flimsy brush of “just another virtual currency”. The reality is that both can and should coexist as each is aimed at a different functionality.
What is Ethereum and how is it different from Bitcoin?
It is often referred to as “altcoin” (alternative cryptocurrency), and while this is not inaccurate, it is only a small part of a very big picture. Ethereum has its own cryptocurrency: Ether. But ether is not meant to be a currency as much as it is meant to be used to facilitate Ethereum transactions. It’s complicated, but stay with me.
The most useful and novel feature is Ethereum’s ability to give complicated instructions when glossing over Ethereum’s interesting history and parallels to early computers (which can lead to premature conclusions about its future. Bitcoin is called a “stack” script, which means it does jobs top-down, but can’t go back a few steps. It can’t be repeated. Ethereum can contain loops and conditions, as well as all kinds of cool computing functions that make it flexible and capable of relatively complex ones Looping is particularly useful for “while this, then that” and “if … then … else” instructions that take different results into account and therefore produce different results. Bitcoin may contain “if … then” instructions. If the However, the condition is not met, the system continues with the next statement or simply hits ppt.
Bitcoin chose not to include “Turing completeness” (the ability to run relatively complicated programs) in order to avoid the possibility of infinite loops. Ethereum circumvents this problem by requiring the attachment of a certain amount of “gas”, units of the transaction currency that can be exchanged for Ether, the official Ethereum currency. Each step in the code package “uses” one unit of gas. This eliminates the problem of infinite loops. Each transaction is assigned a certain amount of gas, each step (including loops) is subtracted from the available gas, and when the attached funds are used up, the program crashes. End of the problem.
Why not just use Ether, the official Ethereum currency, to pay for program execution? Because every function has a fixed cost in units of gas while the ether exchange rate fluctuates with the market. By separating the Ethereum currency from the cost of the execution functions, it reduces cost volatility, which makes life much easier for developers. The costs for an application in gas can remain constant and do not have to be updated regularly. What varies is how much gas (or should I say “how much gas”?) An ether can buy.
The same system keeps Ethereum light. Running complex code becomes expensive, not only in terms of processing power and memory, but also in terms of money. With every step that creates a cost, developers have a powerful incentive to write tight code.
This complexity makes Ethereum ideal for blockchain-based smart contracts. You can issue currencies, manage domain registrations, create an identity management system, set up a decentralized social network, program blockchain gambling, create decentralized autonomous organizations, submit crop insurance, generate financial derivatives, create a blockchain dropbox and do a P2P crowdfunding campaigns, set up forecasting markets , Manage escrow payments, run decentralized auctions, play around with the Internet of Things and much more.
Much of this can be done with Bitcoin as well. In theory, it’s possible to do pretty much anything with Bitcoin that you can with Ethereum (note that with Bitcoin, not Bitcoin). However, programming complicated smart contracts in Ethereum is easier. If Bitcoin can be described as “programmable money”, this is even more true of Ethereum.
Only Ethereum is not about “money”. Bitcoin is. And therein lies the main difference. In contrast to Bitcoin, ether is not intended to be a universal currency. It’s supposed to make transactions easier. Even the Ethereum blog recognizes the difference: “What Bitcoin does for payments, Ethereum does for anything that can be programmed.”
Ethereum is still new: it only officially launched its development platform last July. The update was released a little over a month ago in February 2016. And as such, it’s still relatively untested. However, this doesn’t seem to dampen enthusiasm. The ecosystem is growing and includes not only tech geeks, but also musicians, artists, politicians, lawyers, sports fans … I recently attended an Ethereum event in Madrid that had standing room only.
The potential of Ethereum as a platform is in the hands of its developers, very smart people who find breathtaking ways to improve efficiency and add functionality to information transfer. It’s also in the hands of non-developers who want to push the boundaries of what is possible and see how far we can reconfigure established practices. It is exciting. Both Bitcoin and Ethereum are disruptive and revolutionary. Bitcoin has a longer history (every six years!) And, as a result, a longer list of problems and obstacles. Ethereum learns from Bitcoin’s mistakes and focuses on a different path, both technical and philosophical. Both will contribute to a new level of innovation that will have a significant and lasting impact on the way our society and economy function. It’s not a competition. It is a joint project with the express goal of crossing borders. As the captain said, “Brave to go where no one has been before.”
(I also published this article on fintechblue.com, where I write about cryptocurrencies and fintech.)