Ethereum is creating a lot of excitement in the tech community showing promise early on. To understand Ethereum, it is important to have a grasp on what things like “blockchains” and “smart contracts” are before delving into a sea of technological jargin that may seem intimidating at first, but don’t fret, we’re here to comprehensively break-down Vitalik Buterin’s revolutionary, innovated cryptocurrency (Ether) and the platform on which we can use it.
What Is Blockchain Technology?
How blockchain essentially works is someone requests a transaction, for example, and the requested transaction is broadcast to a P2P network consisting of computers, known as “nodes”. The network of nodes validates the transaction and the user’s status using known algorithms. A verified transaction can involve things like contracts, records, cryptocurrency and other information. Cryptocurrency has no intrinsic value, meaning that it cannot be redeemable for another commodity such as gold. Cryptocurrency has no physical form, it exists only in the network. Its supply is not determined by a centralized bank and the network is completely decentralized. Blockchains hold information on a shared, continuously updated database, completely decentralized and self-correcting. Two important characteristics come from this self-auditing ecosystem.
- data is stored in a network as a whole, it is public by definition.
- it would take a huge amount of computer power to alter any unit of information on the blockchain, which would mean that someone would have to override the entire network which is possible yet seems completely inconceivable.
Effects Blockchains Will Have And What Added Security Means
Anything that happens on a blockchain is a function of the network as a whole. This can mean a lot of things. By creating a new way to validate transactions aspects of traditional commerce could become a way of the past. Stock market trades become almost simultaneous on the blockchain, or it could make types of record keeping completely public. Decentralization is already a reality.
Decentralization means the network operates on a peer-to-peer basis. The forms of mass collaboration this makes possible are just starting to be investigated.
Currently, finance offers the strongest use cases for the technology. International remittances, for instance. The World Bank estimates that over $430 billion USD in money transfers were sent in 2015. The blockchain potentially cuts out the middleman for these types of transactions. By storing data across its network, the blockchain eliminates the risks that come with data being held centrally. Its network lacks centralized points of vulnerability that computer hackers can exploit.
Bitcoin transactions in 2016 averaged over $200,000 USD per day. With the added security brought by the blockchain new internet business are on track to unbundle the traditional institutions of finance. Goldman Sachs believes that blockchain technology holds great potential especially to optimize clearing and settlements, and could represent global savings of up to $6 Billion per year.
Distributed ledgers enable the coding of simple contracts that will execute when specified conditions are met. Vitalik Buterin’s Ethereum is an open source blockchain project that was built specifically to realize this possibility. Still, in its early stages, Ethereum has the potential to leverage the usefulness of blockchains on a truly revolutionary scale.
Nick Szabo, a legal scholar, and cryptographer, realized in 1994 that the decentralized ledger could be used for smart contracts. Smart contracts are also called self-executing contracts, blockchain contracts and digital contracts. In this format, contracts could be converted to computer code, stored and replicated on the system and supervised by the network of computers that run the blockchain. This would also result in ledger feedback such as transferring money and receiving the product or service.
Smart contracts assist the user in exchanging money, property, shares, or anything of value in a transparent, conflict-free way, evading the services of a middleman. Smart contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but also automatically enforces those obligations.
An option contact is written as code into the blockchain. The individuals involved are anonymous, but the contact is the pubic ledger. A triggering event like an expiration date and strike price is hit and the contract executes itself according to the coded terms. Regulators can use the blockchain to understand the activity in the market while maintaining the privacy of individual players’ positions.
As said on Blockgeeks:
Vitalik Buterin, the 22-year-old programmer of Ethereum, explained it at a recent DC Blockchain Summit, in a smart contract approach, an asset or currency is transferred into a program “and the program runs this code and at some point it automatically validates a condition and it automatically determines whether the asset should go to one person or back to the other person, or whether it should be immediately refunded to the person who sent it or some combination thereof.”In the meantime, the decentralized ledger also stores and replicates the document which gives it a certain security and immutability.
The Development Of Ethereum
Ethereum is an open-source, public, blockchain-based distributed computing platform featuring smart contract functionality, which facilitates online contractual agreements.Due to his research and work in the Bitcoin community, Vitalik Buterin was able to vocalize his idea for Ethereum in early 2013. Buterin released the Ethereum White Paper shortly after. The “white paper” describes in detail the technical design and rationale for Ethereum protocol and smart contract architecture. Ethereum was formally announced at the The North American Bitcoin Conference in January 2014.
In addition to developing the software for Ethereum, the ability to launch a new cryptocurrency and blockchain requires monstrous efforts in order to accumulate the resources needed to get it to commence. To gain momentum, a large network of developers, miners, investors, and other stakeholders Ethereum announced its plan to conduct a presale of ether tokens, the currency unit of Ethereum.
Beginning in July 2014, Ethereum distributed the initial allocation of ether via a 42-day public ether presale, netting 31,591 bitcoins, worth $18,439,086 at that time, in exchange for about 60,102,216 ether. The results of the sale were initially used to pay back mounting legal debts and also for the months of developer effort that had yet to be compensated, and to finance the ongoing development of the Ethereum.
After the pre-sale proved to be successful, Ethereum development was formalized under a non-for-profit organization called ETH DEV, which manages the development of Ethereum under contract from Ethereum Suisse – with Vitalik Buterin, Gavin Wood, and Jeffrey Wilcke as the 3 directors of the organization.
In 2016 Ethereum was forked into two blockchains. The two chains have different numbers of users, and the minority fork was renamed to Ethereum Classic. The majority fork has retained the name Ethereum. The cryptocurrency Ether, which powers the world’s second-largest blockchain, Ethereum, has seen its price rise more than 3,000% year-to-date and roughly 180% in the last month.
How Ethereum Differs From Bitcoin
First off, Bitcoin is run by Satoshi Nakamoto, a pseudonym hiding the true identity of the mastermind behind the cryptocurrency. The figure heads running Ethereum are key, tangible people behind the platform who you can reach out to and speak to if need be.
Ethereum has a completely different blockchain protocol. Bitcoin functions on proof of work (computations of GPU’s) and it goes directly to a blockchain. Ethereum, right now, is also proof of work, but soon-to-be proof of stake, quote on quote “virtual mining“.
It may seem a bit redundant, but by having its own currency “Ether”, Ethereum differs greatly from Bitcoin as it is the only lasting/ promising contender.
Lastly, smart codes and the digital “triggers” can be implemented online to execute certain tasks which is vastly different from Bitcoin, also having decentralized apps is quite the distinguishing characteristic of the platform.