Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference. It’s a programmable blockchain and shared global infrastructure and all apps on it are built on the same network and share the same cryptographic token. So instead of building an entirely new blockchain for each new application, Ethereum enables the development of potentially thousands of different applications all on one platform.
Anyone can create their own cryptocurrency tokens, running on Ethereum with relative ease. Maybe you want to represent your favorite baseball team’s fan token which will be tradeable for memorabilia? You could do that using Ethereum! Or perhaps you want to sell insurance for those same digital collectibles? Sell it using Ethereum smart contracts! Anything legal can be represented as a digital token on the Ethereum network.
Ether is also used to pay for transaction fees and computational services on the Ethereum network, some of which are implemented by third party entities that are running more efficient versions of some apps. The ether tokens exist soley for this purpose. There is an annual inflationary issuance of ether at a fixed rate set in the code controlling how much new currency is allowed to enter circulation each year. This makes it so users do not have to pay transaction fees with something like Bitcoin because many people feel they should “earn” their cryptocurrency rather than having to “pay” for. However, this issuance decreases over time. The issuance is currently ~2% per year, and will decrease exponentially until it reaches 1eth:0.618033988 (which may take over 100 years).
When the Ethereum platform was first established, ether could only be mined through proof of work by miners running an eth client on their computers. But this process has become too complicated for normal people who just want to get into cryptocurrency or run apps on ethereum because it requires expensive equipment (GPUs that cost hundreds of dollars) and uses a tremendous amount of electricity (and therefore produces heat). This causes problems for both miners and gamers looking to get involved in the Ethereum platform without having to fork over tons of money for these special mining rigs.
For this reason, ether is currently being mined primarily by large-scale operations running specialized hardware. But if you have cheap power and are looking to start mining, it might be worth looking into cloud mining services available on the internet.
The Ethereum platform was initially proposed in late 2013 by Vitalik Buterin at a Miami Bitcoin conference, but maxed out its potential after receiving $18 million in early 2014 from an online crowdsale of 50 million ether tokens (the first ever ICO). It was publicly announced that initial development work had begun on the platform in January 2014.
Ether’s market capitalization has increased rapidly this year as more people begin to use it for decentralized programmable contracts such as those seen with Golem (decentralized computing) and Augur (decentralized trading) on the Ethereum platform.