You may have the heard the news about the price of some metal commodity-sounding thing called Ethereum rising over 4,500 percent since the beginning of the year.
Economists aren’t quite sure what to make of cryptocurrencies like Ethereum and Bitcoin which are not backed by any government currency.
Sometimes they seem to be increasing in value only to dramatically decline.
But this year Bitcoin’s value jumped 141 percent, and cryptocurrencies have a combined market cap of $25 billion.
How does a cryptocurrency work?
Both Ethereum and Bitcoin are built on what’s called a blockchain which verifies and records transactions on a decentralized network.
These currencies are purchased online like any other investment or “mined” by solving very complicated math problems.
Ethereum was developed in 2015, six years after Bitcoin, by Vitalik Buterin, a 21-year-old college dropout born in Russia and raised in Canada.
He had originally intended Ethereum to be merely a way for two parties to enter into a contract without a third party.
One of the first users of the currency was a hedge fund known as the Decentralized Autonomous Organization.
When hackers stole $50 million worth of ether from the company, Buterin was able to return it all to the users, earning him respect within the financial community.
Other cryptocurrencies include:
- Litecoin which has a faster block generation rate resulting in faster transaction confirmations
- Dash which is less traceable on a more decentralized network
- Zcash which claims be more private, having stated “If Bitcoin is like http for money, Zcash is https.”
- Monero which enables complete anonymity using “ring signatures” which are sets of multiple signatures in which at least one is real
- Ripple which costs less to use and does not involve mining
How stable is cryptocurrency?
Concern over a centralization of Bitcoin mining has investors preferring Ethereum as the more stable option.
A recent survey by the cryptocurrency news site CoinDesk found that out of 1,100 cryptocurrency users, 94 percent were positive about the future of Ethereum while only 49 percent were positive about Bitcoin.
Currently Bitcoin is very slow to use with transaction times averaging 42 hours.
The slowness of Bitcoin has led experts to forecast that it will not be replacing public currencies any time soon.
But Ethereum has really shocked the business world.
In the last few months, over 100 companies, including Samsung and Toyota, have joined the Enterprise Ethereum Alliance which seeks to facilitate Ethereum use in business.
However this experiment goes, companies will no doubt try to create their own decentralized networks that are next to impossible for hackers to access.