Bitcoin started it all. It carries the burden of being the most attacked network, the one with the worst marketing (perhaps because it does not have a department that is in charge of it), and the most decentralized. It is, without a doubt, the largest and most powerful encrypted network in history. However, the Ethereum currency (Ether) is gaining more and more relevance.
In the same way that the Bitcoin network uses a currency to function, the Bitcoin, next to it there is another network that is based on the same principles to function. This network has another currency that is the second most important according to market capitalization, the currency of the Ethereum network, Ether.
The development of Ethereum is more than just a monetary network. Described in 2013 in the Whitepaper by Vitalik Buterin, a Canadian of Russian descent, its purpose is very different from bitcoin.
It is a cryptocurrency, in the same way as bitcoin, but its main use is not as a means of payment. Your goal is not to be "money." Ether is fuel for a world computer.
Ethereum Currency: What Was It Designed For?
In essence, the Ethereum network development is designed to provide a place for the creation and management of so-called Smart Contracts: code that moves money based on a condition. For this, a world computer, giant, without an owner, without a central control point, is designed that executes these Smart Contracts.
In other words, for these programs to work, thousands of computers are coordinated throughout the world that executes the code and shape this super-computer. Code that, like everything else that has more value on the blockchain, is decentralized.
Let's think about an app. WhatsApp, for example. This app works on each of the phones that have it installed, and needs a central computer, owned by Facebook, which stores, manages, and operates the entire service. A network where millions of people connect to a central point. This is NOT blockchain.
An app like WhatsApp based entirely on Ethereum would not have a central point: it would be run by all the computers connected to that network, (almost) simultaneously.
Ethereum coin: the means to sustain the network
The service would not have a central server, but then how is the system sustained? How is it possible that what Facebook costs so many millions of euros to maintain, works on other people's computers? Who pays for all this?
It is thanks to the currency that exists within the Ethereum network, Ether (ETH). This is the currency that is used to 'pay' the owners of these decentralized computers, who care very little about the service they are supporting.
They are there to sustain the whole system and reap benefits for it; profits they collect in the form of Ethers.
How do they collect them? As in Bitcoin, each time one of these decentralized computers solves a problem cryptographic, the network rewards them with a certain amount of Ethers, currently 5 ETH.
This 'prize' is awarded each time a block is solved, approximately every 15s to one of these computers. This is the system's way of increasing the number of Ethers in circulation.
Ethereum Coin: How Is It Managed?
This monetary policy was implemented in Ethereum's initial coin offering (or ICO) in 2014, where:
60 million Ethers were created
12 million were distributed between the Ethereum Foundation and different contributors to development.
5 Ethers are created by closing a valid block.
3 Ethers are created by closing an "uncle" block (a valid block but not in the main chain).
Therefore, these computers solving (or closing) blocks of transactions would receive 5 ETH as a reward for sustaining the system.
The design of monetary policy, the incentives for behaving correctly, and the penalties for not doing so is what a new branch of knowledge called cryptoeconomics is in charge of.
As a result, what is achieved is that thanks to the pure economic interest of these actors, the owners of those computers distributed throughout the world, a network is maintained without a central point of control.
A network that uses Ethereum's currency, Ether, to function. A network that allows anyone to participate in it. A network that is resistant to censorship and controls by entities outside it.
And finally, a network that allows anyone to design applications that, like bitcoin, cannot be stopped.