Ethereum vocabulary worth knowing before you invest

Anyone studying — or thinking of investing in — a digital currency like Ethereum will feel rather lost at some of the vocabulary they have never come across before: smart contract, gas, ICO. It gets in the way of understanding, and some people give up and go back to Bitcoin because it is simpler and easier to follow. So we have gathered together the terms connected with Ethereum for you to get to grips with.

Smart contract

Smart contract is the first term you need to learn if you are thinking of investing in ETH, because this is the thing that keeps pushing ETH's value higher. Translated literally it means something like a clever contract, and that is because Ethereum users can write programs onto the coin — programs that set out conditions or agreements: a contract of sale, a rental agreement, and sometimes in the form of a game or a casino. Anyone who satisfies the conditions of the contract receives the reward that was agreed.

Gas

Gas here does not mean gas as a substance. It is the name used for transaction costs, measured in a unit called wei. To explain: whenever we carry out any transaction, we get a transaction recording the details of it, and carrying out a transaction on Ethereum has a cost, which is what gas refers to. To avoid paying excessive fees, there is a gas limit, which guards against bugs in the way a program is written that might otherwise empty your wallet without you realising.

ICO

ICO stands for Initial Coin Offering, a form of fundraising popular with startups. A digital coin is created and sold to raise money from investors, and the coin being sold usually uses ETH as its base for safety, and to give investors more confidence. This kind of fundraising is not so different from selling shares, except that the shares are replaced by digital money. If the company is able to keep going, the value of the coin rises, and it can be traded for other currencies as desired.

EEA

EEA stands for Enterprise Ethereum Alliance, a group of large companies that came together to develop ETH so that it can be used in their own businesses. Ethereum has a great many well-known companies behind it, Microsoft and Intel among them.

These four terms are the ones you will see most often if you read anything about ETH, because they are at the heart of what has allowed Ethereum to grow to where it is today. So anyone studying this currency should understand these terms thoroughly before starting to invest.