What is Ethereum?
Everyone talking about it,
We know that it’s the second-largest cryptocurrency around but do know what it is? and how it works.
Is it as revolutionary as Bitcoin?
Can it actually change the world as we know it?
If you want to have a better understanding of Ethereum, but are tired of explanations that sound like complete technical gibberish then stick around… we’ll answer these questions and more
Before we get into Ethereum we need to understand Bitcoin, since it’s the basis from which Ethereum was born. well, so what decentralized means or how it works will see here a short brief about BITCOIN,
“What is Bitcoin” ?.
Before Bitcoin was invented, the only way to use money digitally was through an intermediary like a bank or Paypal. Even then, the money used was still a government-issued and controlled currency.
However, Bitcoin changed all that by creating a decentralized form of currency that individuals could trade directly without the need for an intermediary. Each Bitcoin transaction is validated and confirmed by the entire Bitcoin network. There’s no single point of failure so the system is virtually impossible to shut down, manipulate or control. Blockchain technology is that it’s actually the by-product of the Bitcoin invention. Blockchain technology was created by combining already existing technologies like cryptography, proof of work, and decentralized network architecture together in order to create a system that can reach decisions without a central authority.
Blockchain is to Bitcoin what the Internet is to email; a system on top of which you can build applications and programs. A currency like Bitcoin is just one of the options. So this got people very excited, and they began to explore what else can we decentralize. However, in order for a system to be truly decentralized, it needs a large network of computers to run it. Back then the only network that existed was Bitcoin and it was pretty limited. Bitcoin is written in what is known as a “Turing incomplete” language which makes it understand only a small set of orders, like who sent how much money to whom. If you want to create a more complex system, you’ll need a different programming language, which means a different network of computers. Imagine for a second you wanted to build your own decentralized program, just like Bitcoin, at home.
You’d need to understand how Bitcoin’s decentralization works, write code that mimics the same behavior, get a huge network of computers to run this code, and so on….and that is a lot of work and money involved.
Ethereum was first proposed in late 2013 and then brought to life in 2014 by Vitalik Buterin who at the time was the co-founder of Bitcoin Magazine. Ethereum is the Do It Yourself platform for decentralized programs also known as Dapps – decentralized apps. If you want to create a decentralized program that no single person controls, not even you even though you wrote it, all you have to do is learn the Ethereum programming language called Solidity and begin coding.
The Ethereum platform has thousands of independent computers running it meaning it’s fully decentralized. Once a program is deployed to the Ethereum network these computers, also known as nodes, will make sure it executes as written. Ethereum is the infrastructure for running Dapps worldwide. It’s not a currency, it’s a platform. The currency used to incentivize the network is called Ether (ETH). In short, Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications. Any services that are centralized can be decentralized using Ethereum. Think about all the intermediary or 3rd party services that exist across hundreds of different industries
There’s almost no activity on the web that happens without some sort of intermediary or 3rd party. But once the concept of digital decentralization was demonstrated by Bitcoin, a whole new array of opportunities became available.
How it does
Ethereum’s coding language, Solidity, is used to write “Smart Contracts” that are the logic that runs Dapps. In real life, all a contract is a set of “Ifs” and “Thens”. Meaning a set of conditions and actions. For example, if I pay my landlord $ 1500 on the 1st of the month then he lets me use my apartment. That’s exactly how smart contracts work on Ethereum. Ethereum developers write the conditions for their program or Dapp and then the Ethereum network executes it. They are called smart contracts because they deal with all of the aspects of the contract -enforcement, management, performance, and payment.
Ethereum was built with the ability to create really complex contracts, and complex contracts are very difficult to secure. With any contract, the more complicated it is, the harder it is to enforce as more room is left for interpretations, or more clauses must be written to deal with contingencies. With smart contracts, security means handling with perfect accuracy every possible way in which a contract could be executed in order to make sure that the contract does only what the author intended.
Well, that all came to a crashing halt when the DAO event happened. DAO stands for “Decentralized Autonomous Organization” which allowed users to deposit money and get returns based on the investments that the DAO made. The decisions themselves would be crowd-sourced and decentralized. The DAO raised $150M in Ethereum currency, Ether (ETH), when ether was trading around $20. While this all sounded very good, the code wasn’t secured very well and resulted in someone figuring out a way to drain the DAO out of money. Now you could say that the person who drained the DAO was a “hacker”. But some would argue that this was just someone who was taking advantage of the loopholes he found in the DAO’s smart contract. This isn’t very different than a creative lawyer figuring out a loophole in the current law to effect a positive result for his client. What happened next is that the Ethereum community decided that code no longer is a law and changed the Ethereum rules in order to revert all the money that went into the DAO.
In other words, the contract writers and investors did something stupid and the Ethereum developers decided to bail them out. The small minority that didn’t agree with this move stuck to the original Ethereum Blockchain before its protocol was altered and that’s how Ethereum Classic was born, which is actually the original Ethereum.
Ether currency that incentivizes people to run the Ethereum protocol on their computer. This is very similar to the way Bitcoin miners get paid for maintaining the Bitcoin blockchain. In order to deploy a smart contract to the Ethereum platform, its author must pay to do so. That payment is made in the form of ether. This is done so that people will write optimized and efficient code and won’t waste the Ethereum network computing power on unnecessary tasks. Ether was first distributed in Ethereum’s original Initial Coin Offering (ICO) back in 2014. Back then it cost around 40 cents to buy one Ether (ETH). Today, one Ether is valued in hundreds of US dollars since the use of the Ethereum network has grown immensely due to the ICO hype that started in 2017.
Hopefully, by now you have a better understanding of what is Ethereum.