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What Is Ethereum?

Published days ago on July 31, 2020
By Anton Kovačić

Understanding Ethereum

In order to be able to understand ethereum, you need to understand some of the basics of the internet. The majority of your personal data is stored on someone else's computer. This includes servers and clouds owned by major companies including Amazon, Google and Facebook. Companies control servers used for storage until the data is required. This type of setup is convenient because the company absorbs the costs of uptime and hosting, stores the date and keeps it secure.

The setup is also vulnerable. Governments and hackers can access your data without your permission or knowledge. This is accomplished by attacking or influencing one of the third-party services. This means your data can be changed, leaked or stolen. This has been referred to as one of the sins of the internet. Some experts believe the internet was always intended to be decentralized. This goal is being achieved by new tools and technology such as blockchain.

One of the latest technologies to become a part of this goal is ethereum. Where the goal of bitcoin is the disruption of online banking and PayPal, the goal of ethereum is replacing third parties on the internet with the blockchain. Third parties are responsible for tracking complicated financial instruments, transferring mortgages and storing data.

The Potential of the World Computer

The goal of ethereum is to be a world computer to decentralize the current client-server model. Some argue this would result in democratizing this model instead. Ethereum would enable thousands of nodes being run by volunteers all over the world to replace both clouds and servers. The result would be the formation of a world computer. The belief is ethereum would enable people across the globe to access the same functionality. This would enable competition for services due to the infrastructure.

A good example is a standard app store. When you scroll through the store, you will notice numerous colorful squares. They represent everything from messaging apps to nutrition to banking. The apps are reliant on either a third-party service or company for purchasing personal data such as history and storing credit card details. Third-parties are usually in control of the servers. Third-party servers including Google and Apple govern which apps you can download.

This means the third-party servers have the ability to censor as well as maintain the apps. A good example is online document services including Google Docs or Evernote.

Returning Control of the Data

If everything unfolds as expected, ethereum will return control of creative rights to the author and the service to the owner. This would mean your notes would no longer be controlled by just one entity. The app would be unable to be banned, preventing all of your notebooks from becoming unavailable online. No entity other than the user would be able to make any changes. The idea is to combine easily accessed information from the digital age with the control you had over your information during the past.

Every time you edit, delete or add to your notes, all of the network nodes would make the changes. There has been skepticism regarding this idea. The theory of the apps is believed to be possible, but it remains unknown which blockchain applications would be the most scalable, secure and useful. There is no way to know if these new apps would become as useful as the apps used in the present day.

The Decentralized System

No single. Governing entity controls ethereum because it is a decentralized system. Most enterprises, businesses and online services have been built using a centralized governance system. This is the way the system has been for hundreds of years, despite the fact history has proven numerous times there are flaws in the system. When parties are unable to establish trust, the implementation of this system is still required.

A centralized approach provides control from one entity with just a single point of failure. This means the online servers and apps using the system are vulnerable to both power outages and hacker attacks. Users are required by online servers and social networks to provide some personal information. These details are then stored on the servers. At this point, the information can be stolen by hackers, rogue workers or by the company itself.

Ethereum and Bitcoin

As a centralized system, ethereum is completely autonomous. There is nobody controlling the system. Since the system is being run by the computers of hundreds or even thousands of volunteers all over the world, the central point of failure has been eliminated. This means the system will never go offline. The personal information of the users remains on their computers. The user is in complete control of videos, apps, etc., without the necessity of following the rules of the hosting services.

Despite the constant comparisons, bitcoin and ethereum are each part of a different project with completely different goals. Bitcoin was the first cryptocurrency ever launched. Bitcoin is basically a money transfer system constructed from a distributed public ledger called the Blockchain.

The Expansion of Technology

The technology of bitcoin was used to expand the already substantial capabilities of ethereum. As a complete network, ethereum has its own payment system, coding language and internet browser. Even more important is the capability of creating decentralized applications through the ethereum blockchain. The applications can either be decentralized reworkings of preexisting concepts or completely new ideas. This eliminates third-party involvement along with the associated expenses and middleman.

A good example is the profits obtained from the shares and likes of Facebook posts featuring favorite musicians. The profits come from the ads placed on the user's page. These profits go right to Facebook. The version of a social network based on ethereum is different. Rewards would be received by both the audience and the artists for their support and positive communication. When the network is decentralized, the contributions made receive a lot more than just an artifact.

The artists and the audience will receive a portion of the future profits of the company. Applications based on ethereum will eliminate all of the different types of payments received by third parties for their services. Since the ethereum system is decentralized, a peer-to-peer approach is implemented. This means the users are the only ones supporting the transactions. The part of the users takes the place of a controlling authority. This effectively eliminates the need for a third-party.

The Ethereum System

Nodes are the global system supporting the entire ethereum system. A node is a volunteer responsible for downloading the complete ethereum blockchain to their computer. The consensus rules for the system are fully enforced by the nodes. The nodes receive rewards for ensuring the network remains honest. Smart contracts dictate many aspects of the network and the consensus rules. The contracts were created for performing transactions for the network with parties not necessarily trusted by the network.

The contract has the terms both parties are required to fulfill pre-programmed. A specific action or transaction is triggered when the terms of the contract are completed. A lot of people believe the future of the world is smart contracts. They feel contractural agreements will be replaced due to the implementation of these contracts. This is because the security provided establishes trust between the parties involved and decreases the contracting cost of the transaction.

The contracts also provide superior security as opposed to traditional law contracts. Users are provided with an (EVM) Ethereum Virtual Machine by the system. This is basically a smart contract runtime environment with ethereum at the base. This provides the security necessary for an untrusted code to be executed while making certain there is no interference between programs. EVM is 100 percent isolated from the main network. This means it is the ideal tool for improving and testing smart contracts.

The Ether Cryptocurrency Token

The ether token is a type of cryptocurrency provided by the platform. Vitalik Buterin was responsible for the creation of ethereum in 2013. He sent his idea to some of his friends in a white paper. From there, the idea was passed onwards. This resulted in approximately 30 individuals reaching out to Vitalik for a discussion of his concept. He was waiting for critical mistakes to be pointed out in his concept along with critical reviews, but this never occurred.

In January of 2014, a public announcement was made regarding the project. The core team was Vitalik Buterin, Anthony Di Iorio, Gavin Wood, Joe Lubin Mihai Alisie and Charles Hoskinson. Ethereum was presented by Buterin onstage during a Miami bitcoin conference. After a few months, the team made the decision to hold an ether crowdsale since this was the native network token. This was to fund development. Bitcoin and ethereum appear similar from a cryptocurrency aspect.

The truth is bitcoin and ethereum are separate projects with extremely different goals. Bitcoin has become known as the most successful and relatively stable cryptocurrency currently available. Ethereum is basically a multipurpose platform. One of the components for the application of smart contracts the ether, the digital currency.

Anton Kovačić

Anton is a finance graduate and crypto enthusiast.
He specializes in market strategies and technical analysis, and has been interested in Bitcoin and actively involved in the crypto markets since 2013.
Apart from writing, Anton’s hobbies and interests include sports and movies.