What is Ethereum? I mean, I keep hearing about it everywhere I turn. I see that it’s the second-largest cryptocurrency around, but I just can’t seem to wrap my head around the concept. Is it the next Bitcoin? Can it actually change the world as we know it? If you want a better understanding of Ethereum but are tired of explanations that sound like complete technical gibberish, stick around, we’ll answer these questions and more.
Before we dive into Ethereum, we need to do a quick recap on Bitcoin. In fact, Bitcoin was the basis on which Ethereum was founded. To make a long story short, Bitcoin is a form of decentralized money. Before the invention of Bitcoin, the only way to use money digitally was through an intermediary like a bank or PayPal. Even then, the money used was a controlled government-issued currency.
However, Bitcoin disrupted all that. By creating a decentralized form of currency, people could trade directly with each other without the need for an intermediary. What’s great about Bitcoin is that every transaction is validated and confirmed by the whole Bitcoin network.
And since there’s no single point of failure – unlike centralized systems, the Bitcoin system is virtually impossible to control, shut down or manipulate. Pretty neat, huh?
Did you know that Blockchain technology is a bi-product of the Bitcoin invention? Before Bitcoin was invented, there was no such thing as “Blockchain technology.”
By fusing already existing technologies (i.e. cryptography, proof of work, and decentralized network architecture) a system to reach decisions without a centralized authority was created. We refer to this as Blockchain technology.
To put this into perspective, Blockchain is to Bitcoin, what the internet is to email. Essentially it’s a system that you can build applications and programs on top of. And Ethereum is apart of that.
Humor me for a second; what if we could use the technology behind Bitcoin, a.k.a Blockchain, to decentralize other parts of our life as well?
Now that we know that we can decentralize money, what else can we look to decentralize? What about voting? As it stands now, voting requires a central authority to count and validate votes. Because of this setup, voting is prime for manipulation and miscounts.
One such solution to this is to allow people to vote on a decentralized system. Because the system is transparent, all voters can see where each vote is coming from. And further to that, the legitimacy of each vote. It would guarantee that people only get one vote, and there could be no way for the decentralized government voting system to be manipulated.
Let’s look at another example. People can rent hard drive space directly to other people and subsequently make Dropbox obsolete. Drivers can offer services directly to passengers and remove Uber as the middle man.
People can buy cryptocurrencies directly from each other without the need for a centralized exchange (i.e. a back) which can get hacked, and people steal your money. Which makes Ethereum very attractive.
For those of you who thought the internet was already decentralized, you’re mistaken. Amazon, Facebook, Uber, Netflix and other giants control much of the WWW as we know it. Without a doubt, there’s almost no activity on the web that happens without some sort of intermediary or third party. But this is changing.
Once digital decentralization was demonstrated by Bitcoin, a whole new world opened up. Think about it for a second, what would life be like without the need for a centralized third party.
Ethereum was first proposed in late 2013 by Vitalik Buterin, but it wasn’t until 2014 that it was brought to life. In plain and simple terms, Ethereum is the DIY platform for decentralized programs; also known as Dapps (decentralized applications). Ethereum is a decentralized open-source blockchain system with its own cryptocurrency, Ether. It acts as a platform for numerous other cryptocurrencies and the execution of decentralized smart contracts.
Ethereum allows people to connect directly with each other without a central authority or big brother overseeing things. By combining a network of computers, we end up with one powerful decentralized supercomputer.
There are thousands of individual computers running on the Ethereum platform, meaning it’s fully decentralized. Once a program or Dapp is launched to the Ethereum network, these computers, or nodes, ensure it’s executed as written.
Ethereum 5-Minute Takeaway
Two words: Smart contracts.
Ethereum is the pioneer behind the blockchain smart contract platform. Smart contracts are computer programs that automatically execute agreements between users on the world wide web. They were designed to reduce the need for trusted intermediates between contractors. Overall this reduces the costs of transactions; while at the same time increasing transaction reliability.
Ethereum’s coding language, Solidity is used to write “smart contracts” which is the logic that runs Dapps. If you’ve dreamed of creating your own decentralized program that no single person controls, learn the Ethereum programming language, Solidity, and begin coding.
A contract is a set of “if’s” and “then’s.” Or a set of conditions and actions. Here’s an example of a contract at work: As a tenant, I pay my landlord $1500 at the beginning of each month, and he lets me use his apartment.
And that’s precisely how smart contracts work on Ethereum. We call contracts “smart” because they deal with all aspects of the contract from enforcement, management, performance, and payment.
Ethereum developers write the conditions for the program or Dapp, and the Ethereum network executes it. For example, if I have a smart contract for paying rent, the landlord doesn’t need to collect the money physically.
The contract itself knows if the money’s in the account. If I indeed sent the money, I’ll be able to open my apartment door. If I missed my payment, I’d be locked out.
Now we need to talk about Ethereum as a currency. We’ve already established that Ethereum is basically a large bunch of computers working together; like one supercomputer to execute code that powers Dapps. However, all of this costs money in the form of powering, storing, and cooling machines. And that’s the rationale behind the creation of Ether.
When people talk about the price of Ethereum, they actually are referring to Ether. Ether is the currency that incentivizes people to run the Ethereum protocol on their computer. For an author to deploy a smart contract to the Ethereum platform, they need to pay to do so.
And that payment is in the form of Ether. Charging a fee forces people to write efficient and optimized code and won’t waste the Ethereum network computing power on unnecessary tasks.
Ether was first distributed in July of 2014. Back then, it cost around $0.40 to buy one Ether. Today, one Ether’s valued at an astonishing $1808.75.
Is Ethereum the way of the future? ETH is the second-largest cryptocurrency. In fact, over the next few years, it’s thought that Ethereum will become the backbone of the decentralized internet; wholly dominating the platform market. For starters, the number of developers on the Ethereum network is growing and snowballing.
With over 250,000 developers on the network, the number of Dapps created on the Ethereum blockchain will only attract more users. This snowball effect will only prove to further the dominance of the network.
Because Ethereum is the second-largest cryptocurrency after Bitcoin, you’ll find ETH listed on nearly all of the major crypto exchanges. Some of the largest markets include:
There is a consensus among experts that the ETH price outlook will remain bullish in the coming years. According to insights from leading crypto sources like Coin Telegraph, Ethereum should go through a breakthrough this year. Some experts anticipate Ether will dominate the platform network and subsequently hit $15,000 this year. This should come as no surprise considering the appetite for a decentralized web.
Personally, I know I’m going to invest in Ethereum. But as always, do your research and come to your own conclusions. Happy trading and investing!