Ethereum: What You Need to Know
To have a full understanding of how Ethereum operates and its effect on the global society, a proper look at its core characteristics and how Ethereum is different from traditional approaches is required.
Ethereum is essentially a decentralized platform free of any governmental or authoritative monopolized control unlike a larger amount of businesses, companies operating under governance. Despite not being any new method, government interference is indeed faulty although required among the industry when trust itself is an issue.
As for centralized control by any entity, hackers provide an extreme point of concern this applications and servers under centralized status. Many social networks and services mandate at least the bare minimum of personal information which can easily be hacked into on the servers hosting the data.
Ethereum (ETH) operates as a fully decentralized platform. All operations are autonomous and no one controls the system. Additionally, no certain point of failure is exposed due to the fact that Ethereum is hosted by countless computers on a global scale and can never be truly shutdown or go offline. As an added bonus, any personal information by a user is stored on their own devices and any media content remains in full control under the creator.
It is very important to understand the difference between Bitcoin and Ethereum. Bitcoin (BTC) is the world’s first cryptocurrency and was designed as a transfer system for funds based on the technology known as blockchain.
Ethereum was constructed on the same technology with its own additions. ETH is essentially an entire network on its own, providing an internet browser, its own coding and payment systems and developers are free to create any dApps on the distributed ledger.
What this does is that it cuts out any medium and any payments that would normally be handed over to the observing third party. On Ethereum, any content uploader or creator is granted full returns for any of their own work, unlike Facebook for example, where the company takes most of the profits from advertisements and “liking” or “sharing” content on the website. Additionally, any applications built on Ethereum will forsake any third party payments and content creators will also receive a part of the company’s future revenue.
At its core, Ethereum is an open-source and public distributed ledger granting developers space and resources to develop and launch any decentralized apps. Ethereum is a P2P service and only individuals directly involved in a transaction can oversee or handle it while avoiding any official governance.
Nodes are users that download the entire blockchain and host it on their computers while ensuring that the entire network remains fair and just for all users and any funds or rewards are allocated to the rightful accounts.
By providing a consensus, these rules are controlled and operated on through digital or smart contracts. What these rules do is serve as an automated transaction service and several other operations on the blockchain. With parties that are not fully trusted by housing all conditions of a transaction on the contract for both parties to view and fulfill them before a transaction is completed. Smart contracts offer much more security than any traditional contractual laws and regulations, with many of the community fully backing the new method of business.
Vitalik Buterin, a co-founder of Ethereum, initially publicized ETH white paper back in 2013 and sent it to a few friends which then continued sending to others. Eventually, dozens of those that received and read the paper contacted Buterin to further discuss his idea.
Ethereum was officially announced in 2014. Buterin also took place on stage at a BTC conference where he presented the new creation, Ethereum, and only a few months following the conference, Ethereum decided to host an Ether crowdsale as a means of acquiring funds for further development.
Is it a Cryptocurrency?
Many ask if Ethereum is a cryptocurrency or not. In truth, down to its core, Ethereum is a digital platform operating as a decentralized internet and application store. Ether is a result of the company’s need for a cryptocurrency to fund all its resources needed to operate applications.
Ether is the systems native coin and can process itself without the need for third-party interference. Apart from being a cryptocurrency, Ether also drives any dApps on the system.
Similarities with BTC
Ethereum may share a few common aspects with Bitcoin, although both are completely separate and different. BTC has earned its way to the top as the world’s leading cryptocurrency in terms of stability, function, and adoption.
Ethereum, on the other hand, is an entire system and Ether just happens to be a feature of the network to drive smart contracts. Both systems operate very differently, for example, BTC only deploys 21 million coins at any given time and the limit can never be exceeded, although Ethereum’s cap seems to be infinite. Bitcoin blocks also take an average of about 10 minutes to complete mining, unlike Ethereum which aims at maintaining a 12-second mining operation per block.
Bitcoin is also incredibly difficult, costly and taxing to mine, unlike Ethereum that promotes mining for every individual involved. What may be the most important aspect that separates both coins is that Ethereum Turing complete code grant's full calculations that enough computer power is available, including the time it takes to do such. However, this also provides areas of security concerns for ETH users.
How ETH Works
Ethereum was built on the back of BTC and its blockchain with more added perks and functionality. This includes features and services apart from any financial interactions on the system, such as decentralized application development. What both systems share in common is that all transactions are recorded on each network permanently and every volunteering node on the ETH blockchain will require constant downloading of the up-to-date information on each digital contract.
Ethereum also operates as a state machine which can read multiple inputs at a time and move up to a new state depending on the input provided. Whenever a transaction goes through, machines will then move on to another state and each of these states houses countless transactions that are merged to become a block on the chain, all connected to previous blocks.
This leads us to a process known as crypto-mining where several of these nodes collaborate to execute a proof of work. PoW is essentially a mathematical problem which a computer solves as quickly as possible, depending on its computing power, to verify and validate the chosen block. Mining is now a very challenging environment given that any verified block by a miner is added and more ETH tokens are generated, resulting in gains for the miner.
Ethereum permits any users or developers to create and launch dApps on the network. It also decentralizes any previously centralized systems that hop on board the blockchain. The only thing that would hinder any potential development of applications on the system comes down to a developer’s imagination.
Blockchain itself has the potential to completely revamp and upgrade online services and large companies through the smart contract tech. It provides a much easier method for completing transactions using clarity and transparency to maintain its trusted relationship with users.
Through digital contracts, users can hand in any insurance claims online, for example, and receive confirmation almost instantly depending on the contract and its requirements.
The system delivers its core values that include being fully trusted, completely transparent for all users and offering robust security and enhanced performance for every player in the industry, whether a company or a standalone investor. Decentralized independent organizations (DAO) can also be created on the platform, offering full transparency and zero-governance by authorities and operating through smart contracts.
With Ethereum’s decentralized status, the platform offers a wide variety of benefits and features. The system is completely protected from third parties meaning that no one can fully take over the system or DAOs and control them all.
A consensus is a key aspect to any blockchain which means that every node functioning on the platform must comply and agree on every new change made to the network which cuts out on malicious acts such fraud, scams and more.
Smart contracts, albeit designed to avoid this very issue, are not completely secure since those writing the code are still human at the end of the day so any human-error may occur, especially when writing the code. Should any of these errors rise, it comes as no surprise that hackers and cybercriminals may jump the gun and take advantage of the mistake in coding.
This entire issue can be completely avoided through an agreed consensus and altering the base code which goes in direct violation of the core notion of Blockchain due to its immutable and alter-proof nature. Following a hack on The DAO and resulting in 3.6 million ETH being stolen, it severely affected ETH and its value plummeted from around $20 to $13.
Ethereum presents the possibility of global dApp acceptance and introduction even for those with almost no knowledge or expertise in the field. At this rate, it may become a new unique step forward for blockchain-tech on its path to worldwide adoption on a massive scale.
As of now, Ethereum is very accessible for all users through its own web-browser, Mist. The browser displays a user-friendly and easily accessible and navigational interface, including the platforms, own wallet to hold and exchange ETH whenever required. Users can also create smart contracts whenever needed and Ethereum can also be accessed through MetaMask, a browser extension available on Google Chrome. It may possibly revolutionize countless companies that are centralized and governed by official authorities, including banks, property management, and insurance.
As of now, almost 900 decentralized applications exist and a list can be acquired online on stateofthedapps.com.
ETH can be acquired through mining or buying the coin. As it goes, the most popular method of acquiring Ether is buying it through cryptocurrency exchange platforms. The process is as simple as location an exchange that lists ETH and is available in your location followed by a simple registration and purchasing the cryptocurrency through various methods like bank transfers or your personal account.
Any acquired Ether will then need to be safely deposited and stored in a digital wallet, often provided by the specific exchange or through Ethereum itself and any other wallet-dedicated service providers. Additionally, P2P services are also another method of acquiring Ether and can be conducted virtually online or by meeting each other personally.
Granted that Ethereum is virtually unlimited in its supply, unlike Bitcoin, many prefer to purchase ETH through crypto-exchanges. Mining ETH is another popular method of acquiring the crypto as mentioned previously, with each block mined providing a reward for the miner.
Even though Ethereum has been a presence for quite some time, it seems to have only gathered momentum and publicity recently. Many agree on the fact that Ethereum is a disruptive tech and will provide several vital changes to everyday operations globally and will revolutionize any online and financial businesses.
Buterin, the creative mind behind ETH, has always been supportive, albeit modest with any predictions regarding Ethereum that he has made in the past. Recently asked about the platform, he said that it will hold true to its original purpose as a blockchain that provides unique security and is dedicated to tackling any technical complications.
Many dedicated experts and professionals have also praised Ethereum for its design and displayed potential. However, just as many oppose and criticize ETH despite its undeniable success, claiming that it’s just a matter of time before Ethereum collapses.