If you are curious about the cryptocurrency market, for sure you have wondered what is Ethereum. And the answer is simple – a major cryptocurrency! In fact, you can buy Ethereum or sell Ethereum on nearly every cryptocurrency exchange. However, Ethereum is not just another cryptocurrency. It is special and unique with its purpose and the way it operates.
Understanding the Internet
But before we break down what is Ethereum (ETH), let’s first understand the internet. Today, important information such as financial data, passwords, and personal data are stored by other people in their computers — in servers and cloud storage spaces owned by companies such as Amazon, Facebook, or Google. This setup is convenient since the companies deploy experts to secure the information and eliminate the hosting and uptime costs. Nonetheless, this is where the vulnerability comes in.
It is common knowledge, that a government or any malicious hacker can access your data by gaining access to these servers. This means that they can change, leak, or steal your data.
According to the creator of the Apache Web Server Brian Behlendorf, the centralization of the data is the “original sin” of the internet. Such individuals believe that the internet should be decentralized, and Ethereum technology provides a solution for this challenge.
Ethereum aims to remove these internet third parties. In short, it aims to build a decentralized “World Computer” to democratize the client-server model.
Now let’s look closer at what is Ethereum.
What is Ethereum?
Ethereum (ETH) is a decentralized, open-source, and distributed computing platform that enables the creation of smart contracts and decentralized applications, also known as dApps. Like other major cryptocurrencies, you can mine Ethereum – solo or participate in mining pools.
Smart contracts are a piece of code that automatically executes once conditions set in an agreement are fulfilled. For instance, they can be used in the legal industry to specify the responsibilities of all parties involved in a contract, emulate the logic of contractual clauses, and specify automated flows of value.
Additionally, a smart contract operates based on the ‘if’ logic. For example, if action ‘a’ happens, then ‘b’ is executed automatically.
Below is an illustration of how smart contracts work.
Brief History Of Ethereum (ETH)
Vitalik Buterin, the CEO of Ethereum, published its whitepaper in November 2013. However, it was not until January 2014 that the Ethereum platform was publicly announced. This announcement followed an Initial Coin Offering in August 2014, where they raised $18.4 million.
The Olympic, Ethereum’s testnet was released in May 2015, and on July of the same year, the first stage of Ethereum’s development, “Frontier” was released. The DAO hack happened in June 2016, where $50 million worth of Ethereum was stolen which was 15% of the total Ether in circulation at the time was lost. In October the same year, Ethereum Classic forked from the original Ethereum protocol.
ETH is the token that is used on the Ethereum network. Currently, it is trading around $370, with a market cap of nearly $40 billion.
Advantages Of Smart Contracts and Decentralized Applications
Autonomy: this implies that after a smart contract launches, the parties in an agreement do not have to participate anymore in the process.
Auto-sufficiency: means that they can collect money, realize transactions, and spend funds to increase storage capacity and computation power.
Decentralized: they are not focused on a central server, but distributed by various network points.
Downtime: the decentralized applications never shut down unexpectedly and can never be switched off.
Censorship: Ethereum node (computers running the protocol) are distributed around the world, thus eliminating censorship from a central authority.
Fraud: the contract cannot be changed, hacked or manipulated.
Third parties: the contract is autonomous, thus doesn’t need an intermediary.
With these, Ethereum will enable a similar functionality globally, providing a platform where people can compete fairly to offer their services on the platform.
When scrolling through a typical application store, for instance, you’ll notice several apps for fitness, banking, messaging, and even books. These applications rely on third-party services to store your confidential information, namely passwords and emails.
Additionally, the choice of the applications to download is also controlled by these third parties; as they maintain and curate the specific apps, you can download.
Take, for instance, a document storage application such as Goodge Docs. With the Ethereum technology, users can control the data on such applications, and all creation rights will be restored to the author.
Users currently do not have control over their content/notes, and the application could be banned suddenly, temporarily taking all the notes offline. However, Ethereum gives control to the users, so that only they can make changes to the notes, instead of third parties.
Theoretically, this new technology combines the control users have with their previous information with the easy-to-access information in this digital age. Each time a user makes changes to the notes, the changes are saved on each node in the network.
Ethereum can decentralize any centralized service. Think about all the services that require third-party intervention in the world today. From obvious services such as loans to the voting system, regulatory compliance, and much more.
Some Core Technological Blocks from Smart Contracts
Cryptographic addresses and tokens: this is a mathematically, secure, and unique voucher system that allows building assets on existing blockchain. These are used as the standards for computing value or numeraire. They can be used in payment for services and goods, as well as to represent a mathematically secured identity.
Virtual machine: before Ethereum (ETH) was created, the design of blockchain applications limited their operations. For instance, Bitcoin and other virtual currencies were exclusively developed to operate peer-to-peer digital currencies.
As such, developers had two choices, either expand the operations of the blockchain applications, which could be time-consuming and very complicated, or create an entirely new platform. Understanding this challenge, Buterin came up with a new approach.
According to Buterin, “I thought (those in the Bitcoin community) weren’t approaching the challenge in the right way. I thought they were going after individual applications; they were trying to explicitly support each use case in sort of Swiss Army Knife protocol.”
He developed the Ethereum Virtual Machine, which runs on the same network.
Thanks to this new platform, anyone can run a program developed from any programing language, if given enough time and memory. Additionally, with the virtual machine, it is easy to create a blockchain application. More specifically, instead of having to build an entirely new application, the machine allows the creation of thousands of applications all on one platform.
Consensus algorithms: this entails agreeing on the current state of the blockchain. For instance, Ethereum blockchain reaches consensus in approximately 15 seconds, while Bitcoin blockchain is changed about once every 10 minutes.
These pillars of decentralized applications technology are designed to enable smart contracts.
Additionally, Ethereum platform is being used to develop other digital currencies. Thanks to the ERC20 token standards defined by Ethereum Foundation, other developers can develop their versions of the token, and raise funds with an ICO.
In this case, the owners of the token set the amount they plan to raise, offer it in a crowd scale, and receive Ether in exchange.
Billions of dollars have been raised by ICOs on the Ethereum platform, and one of the top digital currencies in the market, EOS, is an ERC20 token.
Ethereum is among the world’s largest virtual currencies, and its technology enables the development of decentralized applications and smart contracts. The decentralized applications eliminate the need for third-party services, which can steal or change an individual’s information. Additionally, the smart contracts are efficient, as they are autonomous and auto-efficient, in that, it eliminates the need for further facilitation by the participants in an agreement.