Ethereum Accounts, Ether tokens

Bitcoin uses the word address to describe accounts. Ethereum uses the word account but technically they are also addresses. The words seem to be more interchangeable with Ethereum. There are two types of Ethereum accounts: accounts that only store ETH; accounts that contain smart contracts. Accounts that only store ETH are similar to Bitcoin addresses and are sometimes known as Externally Owned Accounts. You make payments from these accounts by signing transactions with the appropriate private key. Accounts that contain smart contracts are activated by a transaction sending ETH into it. Once the smart contract has been uploaded it sits there at an address, waiting to be used.

The issuance of Ether tokens is a bit more complicated than Bitcoin. The number of ETH in existence are: Pre-mine + Block rewards + Uncle rewards. Around 72 million ETH were created for the crowdsale in July/Aug 2014. This is sometimes called a ‘pre-mine’ as they were just written in rather than mined through proof-of-work hashing. These were distributed to initial supporters of the project and to the project team itself. It was decided that after the initial crowdsale, future ETH generation would be capped at 25% of the pre-mine total, i.e., no more than 18m ETH could be mined per year. Originally, each block mined created five fresh ETH as the block reward. Due to concerns about oversupply, this was reduced to 3 ETH, in a set of changes to the protocol called the Byzantium update, in October 2017 (block 4,370,000).

Some blocks are mined but do not form part of the main blockchain. In Bitcoin, these are called ‘orphans’ and are entirely discarded, and the miner of the orphaned block receives no rewards. In Ethereum, these discarded blocks are called ‘uncles’ and can be referenced by later blocks. If a later block references an uncle, the miner of the uncle gets some ETH. This is called the ‘uncle’ reward. The miner of the later block referencing the uncle also gets an additional small reward called an ‘uncle referencing’ reward.

The uncle reward used to be 4.375 ETH (7/8th of the full 5 ETH reward). It was reduced in the Byzantium upgrade to 0.625-2.625 ETH. The biggest difference between ETH and BTC token generation is that BTC generation halves approximately every 4 years and has a planned finite cap, whereas ETH generation continues to be generated at a constant number every year indefinitely. Like any other parameter or rule, however, this rule is subject to ongoing debate and can be changed if the majority of the Ethereum network agrees.

The Ethereum community hasn’t yet come to agreement about what happens to the rate of issue when Ethereum moves from proof-of-work to proof-of-stake. Some argue that perhaps the rate at which ETH is created should decrease, as the value will not have to subsidise competitive electricity usage.

In Bitcoin, the miner of a block receives the block reward (new BTC), plus transaction fees for transactions mined (existing BTC). In Ethereum, the miner of a block receives the block and uncle referencing rewards (new ETH), plus mining fees (gas amount x gas price) from transactions and
contracts that were run during the block.