To be clear, cryptocurrencies have been associated with investment bubbles, “boom and bust” cycles, aggressive marketing, scams, loss and failure on a massive scale. Here, we are not interested in speculative investment, nor are we trying to sell anything specific. There are no offers, no contracts to sign and no commitments to be made. Equally, we do not provide financial or investment advice. We offer only information and education about Ethereum, and hope that by the time you have read this guidance, you understand and appreciate more about this revolutionary technology. Important points are highlighted in yellow or italicized, and we also use links to external resources (this one points to the main technical resource for Ethereum, ethhub.io).
Perhaps it is easier to start by explaining what Ethereum is not. Ethereum is not a company or a bank, nor is it backed by any state government. In a sense, it does have shareholders, although “stakeholders” is probably more appropriate terminology. Put simply, it is a global economic system based upon principles of value, supply and demand, made possible by electronic communication between computers through the Internet. We will not go into details of the underlying theory here, but provide you with links to resources that explain these principles, if you're interested. We certainly encourage you to do so, although don't be alarmed if you find it challenging to understand - like many important aspects of life, details can be complex. Fortunately it is not necessary to understand the technical details to take part, in the same way that many people drive a car without understanding the engine.
At this point we acknowledge that there is a lot of jargon surrounding Ethereum. You may, for example, have heard of “blockchain technology”, and this is certainly a key concept. We will do our best to break down this language into simple terms and ideas with which you are already likely familiar. You have probably already heard of “Bitcoin”. Like Bitcoin, Ethereum is based on blockchain technology. This technology makes it possible to maintain a consistent and up-to-date record of transactions - or a ledger - that occur within the Ethereum system. For Bitcoin, the use of such a ledger based on a blockchain facilitates the exchange of the Bitcoin currency (labelled as “BTC”, symbol "₿"). Ethereum is similar. One of its most basic features is that you can maintain one or more accounts of its currency, Ether (labelled as “ETH”, symbol "Ξ"), just as you would with U.S. Dollars, Euro's or Yuan in a conventional bank. You might be thinking that this does not sound very sophisticated or even new - we're just describing another kind of bank, right? Not exactly. You have to remember that Ethereum is not a company, a bank or state sponsored - it is decentralized. This is a very important concept. What this means is that no single owner or authority manages or runs it. As a result, you do not need permission from anyone to use it, there are no application forms, you do not need a certain credit rating, there are no personal private details that can be hacked and it cannot be modified or “turned off” by a board of directors or dictatorial government. In fact, you do not even have to provide your name. Another remarkable benefit of systems built on a decentralized blockchain is that the ledger is extremely secure, and typically your records, such as balances of wealth, cannot be modified without your, and only your, explicit permission. We discuss the implications of this in the Security and Risks section.
The magic of Ethereum, and some other blockchain-based systems, is that the participants themselves are motivated to maintain the integrity of the system through rewards. To put this another way, it is a self-sustaining system, maintained by the natural actions of all the participants. We will explain more about the participants, how you can get involved and use financial services to your benefit, shortly. Again, don't worry if you find some of these ideas difficult to grasp. We have provided links in the resources section to help you learn more about this if you wish.
Finally, you might be wondering what the difference is between Ethereum and Bitcoin, and also why we have avoided the term cryptocurrency. These are good questions and require some explanation. Bitcoin and Ether are cryptocurrencies. In fact there are hundreds of cryptocurrencies. The name derives from the fact that the blockchain system, in both cases, relies heavily on the use of cryptographic techniques to maintain its integrity. To securely and responsibly use cryptocurrency, it is necessary for you to understand some basic principles of cryptography, but don't let this discourage you, we will go through the basics shortly.
So, while Bitcoin and Ethereum (Ether) are both cryptocurrencies, they are different in some very important ways. Principally, the concept of Ethereum goes far beyond that of a basic distributed ledger - that is, far beyond a simple cryptocurrency used for basic transactions. It is a platform for the development and execution of “smart contracts”. Clearly, a basic transaction (i.e. I pay someone by transferring wealth, in the form of a currency, to another person) is a kind of contract. However, on Ethereum, unlike Bitcoin, one can develop much more sophisticated financial contracts, and have them secured by the blockchain (a bit like asking the trading service at your bank to execute a series of stock market trades under certain conditions). We won't say more about this for now, but perhaps you can imagine that having access to a global system of wealth, upon which you can develop contracting solutions, that cannot be interfered with by central authorities and people other than those who are authorized, is potentially a very powerful and revolutionary tool.