Heard of Ethereum, but you have no idea what is Ethereum? Ethereum is a platform, with its own token. Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications.
What is Ethereum?
Although commonly associated with Bitcoin, blockchain technology has many other applications that go way beyond digital currencies. In fact, Bitcoin is only one of several hundred applications that use blockchain technology today.
“[Blockchain] is to Bitcoin, what the internet is to email. A big electronic system, on top of which you can build applications. Currency is just one.” – Sally Davies, FT Technology Reporter
That translated into an open software platform based on blockchain technology, but unlike Bitcoin, developers can develop applications on the Ethereum blockchain.
The key difference between Bitcoin and Ethereum, is that Bitcoin is a peer-to-peer money ledger, a system to keep track of digital money transactions, while the Ethereum platform is focused on developing and maintain the code for any programming code of a decentralized application. The two, Bitcoin and Ethereum have their own, distinctive blockchain.
As ethereum.org says:
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.
On the Ethereum blockchain, miners work for Ether, the token which fuels the network. Ether is also used to pay transactions fees and services over the Ethereum network. The second type of token used on the Ethereum blockchain is gas. Gas needs to be paid for every smart contract execution and to be put in the blockchain.
What is a smart contract in the Ethereum blockchain?
A smart contract is a computer code used to facilitate the exchange of content, money, assets and anything of value. A Smart contract is a self-operating computer program which automatically executed when specific conditions are met on the blockchain. Because these are programmed, there is no possibility of downtime, fraud or any third-party interference.
While all blockchains can process code, Ethereum is different, allowing its developers to create whatever kind of applications they wish.
“ [Ethereum] blockchain has some extraordinary capabilities. One of them is that you can build smart contracts. It’s kind of what it sounds like. It’s a contract that self-executes, and the contract handles the enforcement, the management, performance, and payment” – Don Tapscott
The Ethereum Virtual Machine
Blockchain applications were limited before the creation of the Ethereum blockchain. The functions offered by Ethereum are meant to solve and run any kind of problem. Ethereum Virtual Machine EVM is its core innovation. EVS is a Turing machine software running on the Ethereum, which allows running any kind of application, regardless of the programming language.
The EVM enables the creation of blockchain applications, making this process much easier than before. Practically, instead of creating a new blockchain for each application, Ethereum allows developers of different applications to use just one platform.
What can Ethereum be used for?
Ethereum is used to deploy decentralized applications (Dapp). These applications can serve particular purpose to its users.
For example, Bitcoin is a Dapp. It provides a peer-to-peer digital currency system that enabled online bitcoin payments. Decentralized applications are built on a blockchain network, and that means they are not controlled by any central entity or individual.
Read the Ethereum white paper.
All centralized services can become decentralized using the Ethereum platform: bank loans, any kind of registries, voting systems, regulatory compliance and much more.
Decentralized Autonomous Organizations (DAO)
Ethereum can also be used to build Decentralized Autonomous Organizations (DAO). A DAO is fully autonomous, decentralized organization with no single leader.
DAO’s are run by programming code, on a collection of smart contracts written on the Ethereum blockchain. The code is designed to replace the rules and structure of a traditional organization, eliminating the need for people and centralized control. A DAO is owned by everyone who purchases tokens, but instead of each token equating to equity shares & ownership, tokens act as contributions that give people voting rights.
“A DAO consists of one or more contracts and could be funded by a group of like-minded individuals. It operates completely transparently and completely independently of any human intervention, including its original creators. A DAO will stay on the network as long as it covers its survival costs and provide a useful service to its customer base” – Stephen Tual, Slock.it Founder, former CCO Ethereum.
Ethereum is also being used as a platform to launch other cryptocurrencies. Because of the ERC20 token standard defined by the Ethereum Foundation, other developers can issue their own versions of this token and raise funds with an initial coin offering (ICO). In this fundraising strategy, the issuers of the token set an amount they want to raise, offer it in a crowdsale, and receive Ether in exchange.
Billions of dollars have been raised by ICOs on the Ethereum platform in the last two years, and one of the most valuable cryptocurrencies in the world, EOS, is an ERC20 token.
Ethereum has recently created a new standard called the ERC721 token for tracking unique digital assets. One of the biggest use cases currently for such tokens is digital collectables, as the infrastructure allows people to prove ownership of scarce digital goods. Many games are currently being built using this technology, such as the overnight hit CryptoKitties, a game where you can collect and breed digital cats.
What are the benefits of Ethereum decentralized Platform?
Because decentralized applications run on the blockchain, they benefit from all of its properties.
- Immutability – A third party cannot make any changes to data.
- Corruption & tamper proof – Apps are based on a network formed around the principle of consensus, making censorship impossible.
- Secure – With no central point of failure and secured using cryptography, applications are well protected against hacking attacks and fraudulent activities.
- Zero downtime – Apps never go down and can never be switched off.
What’s the downside of decentralized applications?
Despite bringing a number of benefits, decentralized applications aren’t faultless. Because smart contract code is written by humans, smart contracts are only as good as the people who write them. Code bugs or oversights can lead to unintended adverse actions being taken.
If a mistake in the code gets exploited, there is no efficient way in which an attack or exploitation can be stopped other than obtaining a network consensus and rewriting the underlying code. This goes against the essence of the blockchain which is meant to be immutable.
Also, any action taken by a central party raises serious questions about the decentralized nature of an application.
I want to develop an app. How do I access Ethereum?
There are many ways you can plug into the Ethereum network, one of the easiest ways is to use its native Mist browser. Mist provides a user-friendly interface & digital wallet for users to trade & store Ether as well as write, manage, deploy and use smart contracts. Like web browsers give access and help people navigate the internet, Mist provides a portal into the world of decentralized blockchain applications.
There is also the MetaMask browser extension, which turns Google Chrome into an Ethereum browser. MetaMask allows anyone to easily run or develop decentralized applications from their browser. Although initially built as a Chrome plugin, MetaMask supports Firefox and the Brave Browser as well.
While it’s still early days, Mist, MetaMask and a variety of other browsers look set to make blockchain-based applications accessible to more people than ever before. Even people without a technical background can now potentially build blockchain apps. This is a revolutionary leap for blockchain technology that could bring decentralized applications into the mainstream.
“If you think the internet has affected your life, Ethereum will have that same pervasive influence on our communications, on our entire information infrastructure. It’s going to impact all aspects of our existence
Building the public Ethereum ecosystem: As scalability and configurable privacy/confidentiality grow on public Ethereum over the next two years, consumers will use their blockchain identity and access point (uPort) to interact with a variety of interesting early stage offerings.
Including crowdfunding platforms (Weifund), group governance tools (Boardroom), music/film/art content registration and utilization platforms (ujo), wisdom markets (Gnosis), and gaming apps (Virtue Poker)”
Joseph Lubin, CEO of Consensys