The Future of Programable Money
What is Ethereum and how is it different from Bitcoin?
Bitcoin was the first cryptocurrency. For the first time people could send money around the world via the Internet without going through a bank or other intermediary. Sending a Bitcoin to friend or family member overseas just requires you to plug in, or scan, the address to their Bitcoin wallet and the currency is on it's way. This cuts out the fees of banks and transfer agents potentially reducing the cost of the financial exchange between two people faster and less expensive.
The unique aspect of Bitcoins is that the potential supply is limited. There can NEVER be more than 21 million Bitcoins. This is programmed into the system and can't be altered. The limited supply is one of the features that makes Bitcoins compelling as a potential store of value. Ethereum is actually a platform on which a cryptocurrency called Ether (ETH) runs. However, most people mistakenly refer to the currency as Ethereum. ETH is similar to Bitcoin in that it functions using a distributed online ledger and uses cryptography. However, there are key differences between the two. Bitcoin is great for transferring value from one person to another. However, ETH has the added benefit of being programmable with something called smart contracts. That is why people refer to Ethereum as "programable digital currency".
What are smart contracts and how can they be used?
Smart contracts allows the users to set conditions under which the currency is transferred. Traditionally when you sell a house you need third parties to verify that certain conditions have been met (i.e. lawyers, escrow agents, banks). A smart contract programmed into the digital currency could be designed so that the funds would only be transferred if certain conditions were met. This could obviate the need for many of the third parties and reduce the costs for the buyer and seller. Another example of where smart contracts could be used is online gambling. Let's say you make a bet with someone anywhere in the world regarding who is going to win the World Cup in a particular sport. You don't even know this person. Traditionally you could place bets via a online casino, but with smart contracts the digital currency could be programmed to state, "If X happens, then the payment goes to person A, but if Y happens, then person B wins and gets the funds". This eliminates the need for trust between the two parties as the winner is determined by the agreed upon parameters written into the smart contract. There is a currency that actually does this now. The currency is based on ETH and is called Augur (REP). It is being used for online gambling. This person to person contract eliminates the need for an intermediary and reduces the cost of the interaction between two entities.
How much ETH is there in the world?
Unlike Bitcoin, the ETH supply will grow with time. Initially, at the time of the launch of ETH, there were 72 million. However, new ETH is being generated every day. Each year there will be 18 million new ETH. This creates an inflation rate. However, as the supply grows the percentage of increase will decrease with time. So although there is an inherent rate of inflation due to increasing supply, the actual percentage rate of inflation will decrease with time.
In conclusion, ETH is similar to Bitcoin in that it is a cryptocurrency. However, unlike Bitcoin the supply will grow with time. It has the advantage of being programmable which may create novel use cases in the future. However, the answer as to whether it will be a widely adopted currency in the future remains to be seen.