In the world of cryptocurrencies, bitcoin and Ethereum do
not need much of an introduction. While institutional investors around the
globe have increasingly allocated funds to certain cryptocurrencies such as
bitcoin or Ethereum throughout 2020, the world-renowned digital payment
service PayPal (PYPL) launched a new service that allows users to
buy, hold and sell cryptocurrencies within its digital wallet. This is proof of
a faster than ever developing and increasing maturity of the cryptocurrency
market as a whole.
Bitcoin, founded in
2009 by an unknown individual or group of people operating under the acronym of
Satoshi Nakamoto, is currently the biggest cryptocurrency, standing at a market
capitalization of nearly $900 billion. It was the first successful such currency at
the time of its launch, gaining significant traction and adoption. Following
bitcoin’s success, the foundation was laid to inspire development of additional
Enter Ethereum, with its cryptocurrency called Ether (more
commonly known and herewith referred to as “Ethereum” or “ETH”), after bitcoin
the most significant cryptocurrency project today, with Ethereum occupying the
second place of all cryptocurrencies in terms of market capitalization,
amounting to a total of over $175 billion with the current supply of around 115,000,000
ETH in circulation.
The Ethereum project went live in 2015, and Ethereum took one of
the key innovations behind bitcoin, the blockchain, and repurposed it to
support a broader range of functions.
ETC Group (www.etc-group.com) is the issuer behind 2020’s
most successful Bitcoin exchange traded product launch in Europe,
namely the Bitcoin Exchange Traded Crypto (“BTCetc” or
commonly known under its primary ticker “BTCE”).
Through the recent launch of the ETHetc - ETC Group Physical Ethereum ETC (Ticker
symbol: ZETH) with primary listing on Deutsche Börse XETRA, ETC Group decided to
provide investors now with the opportunity to gain exposure to increasingly
important cryptocurrency Ethereum.
Investors Guide to Ethereum
What is Ethereum?
Ethereum is a platform for creating decentralized applications
based on the blockchain and smart contract technology. The so called Ethereum
network consists of software running on a network of computers that ensures
that data and smart contracts (which technically are small computer programs)
are replicated and processed on all the computers on the network, without a
central coordinator. It extends the blockchain concepts from Bitcoin which
validates, stores, and replicates transaction data on many computers around the
world (hence the term ‘distributed ledger’). The official website is https://www.ethereum.org.
Blockchains are digital ledgers that keep permanent incorruptible
records of information. These records are continually verified by a network of
computer nodes similar to servers, which are not centrally controlled by
anyone. Ether is just one of many cryptocurrencies that use some form of blockchain
technology, which was invented by above mentioned “Satoshi Nakamoto” when the
bitcoin blockchain was released over a decade ago.
While several cryptocurrencies may rely on similar core
concepts of blockchain technology, their use cases are different. Bitcoin - the
cryptocurrency investors usually discover first - is optimized for security and
anti-seizure, which enhances its use case to serve as digital gold.
Ethereum on the other hand today is the largest blockchain
optimized for programmability (or digital “contracts”).
Importantly, this may be one of the most exciting applications of blockchain
How is Ethereum similar to
While Ethereum is a network or platform, Ethereum’s cryptocurrency
fuelling the network is called Ether, shortened to ETH. It is cryptocurrency
that can be traded for other cryptocurrencies or other sovereign
currencies, just like bitcoin. Ownership is tracked on the Ethereum blockchain,
just like BTC ownership is tracked on Bitcoin’s blockchain.
Like Bitcoin, the main Ethereum network is a public,
permission less network – ie anyone can download or write some software to
connect to the network and start creating transactions and smart contracts.
Like Bitcoin, mining participants create valid blocks by
spending electricity to find solutions to a mathematical puzzle. Ethereum’s
challenge called Ethash works slightly differently to Bitcoin’s, and this
allows common hardware to be used for mining. This reduces the efficiency edge
of task-specific hardware known as ASICs, which are common in Bitcoin mining. On
Ethereum’s roadmap there is a plan to move from electricity-expensive
Proof-of-Work mining to a more energy-efficient Proof-of-Stake protocol, the
first step already being achieved in December 2020 with the launch of Ethereum
2.0 (“Eth2”). Eth2 refers to a set of interconnected upgrades that will make
Ethereum more scalable, more secure, and more sustainable.
How is Ethereum different
In Ethereum the time between blocks is around 14 seconds,
compared with Bitcoin’s ~10 minutes. This means that on average if you made a
Bitcoin transaction and an Ethereum transaction, the Ethereum transaction would
be recorded into Ethereum’s blockchain faster than the Bitcoin transaction
getting into Bitcoin’s blockchain. You could say Bitcoin writes to its database
roughly every 10 minutes, whereas Ethereum writes to its database roughly every
In Bitcoin, the maximum block size is specified in bytes
(currently 1 MB) whereas Ethereum’s block size is based on complexity of
contracts being run – it’s known as a Gas limit per block, and the maximum can
vary slightly from block to block.
Currently the maximum block size in Ethereum is around
1,500,000 Gas. Basic transactions or payments of ETH from one account to
another (ie not a smart contract) have a complexity of 21,000 Gas so you can
fit around 70 transactions into a block (1,500,000 / 21,000). In Bitcoin you
currently get around 1,500-2,000 transactions in a block.
Compared with Bitcoin’s primitive scripting language, the
code that can be deployed in Ethereum and run as smart contracts is more
advanced and familiar to developers. Smart contract code is run by
something called the Ethereum Virtual Machine, which runs on the computers of
all participants on the network.
In many descriptions,
Ethereum smart contracts are called “Turing complete”. This means that they are
fully functional and can perform any computation that you can do in any other
programming language. It is worth mentioning that Ethereum even developed its
own programming language, namely Solidity in order to implement smart contracts on the
Ethereum platform through a statically typed, contract-oriented, high-level
What is a smart contract
and why is it useful?
contracts are self-executing contracts with the terms of the agreement between e.g.
buyer and seller being directly written into lines of code. The code and the
agreements contained therein exist across a distributed, decentralized blockchain network. The code controls the execution, and
transactions are trackable and irreversible.
Smart contracts are useful as they permit trusted
transactions and agreements to be carried out among disparate, anonymous
parties without the need for a central authority, legal system, or external
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