First, it’s important to understand that there are two categories of digital coins: Cryptocurrencies (e.g. Bitcoin, Litecoin, Monero, ZCash, etc) and Tokens (e.g. Ethereum, Filecoin, Storj, Blockstack, etc.)
Bitcoin is a “cryptocurrency.” Bitcoin and other cryptocurrencies are competing against existing money (and gold) to replace them with a truly global currency.
The promise of Bitcoin is that it is:
A global currency which allows individuals to own their own money (without having to rely on national banks).
Lower fees for transferring money across geographic borders.
Financial stability for people who live in countries with unstable currencies. (e.g. In 2016, the Venezuela’s currency hit an inflation rate of 800%). In addition, two-thirds of the current global population has no access to banking, or limited access — Bitcoin is changing that.
Ethereum is a “token.” What Bitcoin does for money, Ethereum does for contracts. Ethereum’s innovation is that is allows you to write Smart Contracts: basically any digital agreement where you can say “if this” happens, “then something else happens.” For example:
- If I vote for the President, then my vote is official and no one else can vote as me.
- If I sign my name on this document, then I own the car, and you no longer own the car.
- Up until now we’ve carried out these agreements with a signature at the bottom of a paper document. Ethereum dramatically improves this model because it is digital, and proof of the transaction can never be deleted.