What is Ethereum?
Ethereum is a decentralised platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference. Ethereum uses a public blockchain similar to Bitcoin, but also enables advanced programmable transactions types.
At its simplest, Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy decentralised applications. The Ethereum platform was created by Vitalik Buterin.
How is Ethereum different from Bitcoin?
Like Bitcoin, Ethereum is a distributed public blockchain network. Although, there are multiple differences between the two, the most important difference to note is that Bitcoin and Ethereum differ in their purpose and capabilities. Ethereum’s blockchain is used to run the programming code of any decentralised application, while Bitcoin’s blockchain is solely used to track ownership of Bitcoins.
Similar to Bitcoin, Ethereum uses a proof-of-work consensus. However, instead of getting rewarded in Bitcoins upon completion of the cryptographic puzzle, Ethereum miners get Ether. Beyond a tradeable cryptocurrency, Ether is also used by application developers to pay for transaction fees and services on the Ethereum network.
Moreover, Ethereum is planning to move from proof-of-work to proof-of-stake in the near future. Proof-of-stake will allow Ethereum to handle more transaction.
What is Ether?
Ether (ETH) is the primary currency on the Ethereum network. Much like Bitcoin (BTC), it is created by computerised mining. Ether can be sent from one address on the Ethereum network to another, and can also be used in smart contracts.
What are smart contracts?
Smart contracts is a phrase used to describe computer code that can facilitate the exchange of money, content, property, shares, or anything of value. Smart contracts run on the blockchain and thus, run exactly as programmed without any possibility of censorship, downtime, fraud or third party interference. Most of the current blockchains have limited ability to process code. Ethereum, on the other hand, allows developers to build any applications on their blockchain.
So, what is Ethereum used for?
Ethereum enables developers to build and deploy decentralised applications or Dapps. For example, Bitcoin is a Dapp that provides users with a peer-to-peer electronic cash system that enables Bitcoin payments. Because decentralised applications are made up of code that runs on a blockchain network, there is not a central authority.
Ethereum Network aims at decentralising intermediary services that exist across most industries. From bank loans, to voting systems, to notary services and more.
Ethereum can also be used to build Decentralised Autonomous Organisations (DAO). A DAO is fully autonomous, decentralised organisation with no single leader. A DAO is designed to replace the rules and structure of traditional organisations, eliminating the need for bureaucracy and centralised control. A DAO is owned by anyone who purchases its tokens, thus, giving every token holder an equity share and also a voting right.
Why use Ethereum?
Ethereum decentralised applications run on the blockchain and thus, enjoy all the benefits that come with blockchain technology.
First, Dapps are immutable, meaning that a third party cannot make any changes to the data.
Second, Dapps are based on a network formed around the principle of consensus, making censorship impossible.
Third, with no central point of failure and being secured with cryptography, applications are well protected against hacking attacks and fraudulent activities.
Ethereum sounds great, doesn’t it?
Well, even though, Ethereum has many advantageous there are some negative aspects that need to be considered.
Smart contracts are written by humans and are only as flawless as the people who write them. Code bugs can lead to unintended adverse actions being taken. In other words, 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. However, this goes against the essence of the blockchain – it’s immutability.
Ethereum is still in its early days but we can already see that it is a truly transformational platform. With many applications yet to be developed. We can only begin to wonder whether Ethereum has the capacity to influence the future.