Ethereum | How Ethereum works & #1 Definition | Coinlist.me

Ethereum Explained – Coinlist.me

Ethereum Definition

Ethereum is described as a next-generation smart contract and decentralized application platform. Its blockchain technology can be applied by other cryptocurrencies which is a major reason experts are tipping ethereum to eventually take bitcoins crown.

The ethereum symbol is ETH and is usually shown against another currency, either fiat or crypto. An example us ETH/USD.

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Ethereum Address

The Ethereum Foundation was established June 2014 in Zug, Switzerland and currently still has its offices there.

Like every other cryptocurrency, ethereum also has its own site where you can download a wallet and find more information about the network. The online ethereum address is www.ethereum.org.

How Ethereum Works

Bitcoin introduced the blockchain concept to the World and uses the network as basis for its digital currency. However, blockchain is a big electronic system on which any application can be built; currencies is just one of the very many possibilities. A case in point is the ethereum network.

What is Ethereum Blockchain?

It’s an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications.

Although ethereum is similar to bitcoin –both are a distributed public blockchain network- they differ substantially in purpose and capability. The bitcoin network is used to track ownership of digital currency, while the ethereum blockchain focuses on running the programming code of any decentralized application.

All blockchains have the ability to process code. However, whilst most offer severely limited adaptability, the ethereum network is different; it allows developers to build whatever they want onto the blockchain. An example is smart contracts.

What are Smart Contracts?

The ethereum blockchain allows for computer code – called a smart contract – which automatically executes when specific conditions are met.

It is ideal to govern the exchange of anything with value between parties –such as content, money, property & shares, to name but a few- and cannot be tampered with.

It means that funds can be placed in escrow and then the code will transfer once the agreed conditions are met.

Meaning no middle man can affect the transfer and thus is very secure.

Ethereum Virtual Machine

Another example of the outstanding functionality of the ethereum network is its own Ethereum Virtual Machine (EVM). Written completely in Turing programming language, the EVM has significantly improved the original code of the bitcoin blockchain.

By incorporating EVM, the ethereum blockchain enables anyone to run any program, regardless of its code. This means that -instead of having to build an entirely original blockchain for each new application- the ethereum network allows for thousands of different applications to run on one platform.

This has hugely increased the ICO market, because it saves new companies having to create their own blockchain, instead they simple use the ethereum blockchain.

ICO monthly funding

Source: Coindesk.com

Ethereum Decentralized Applications (Dapps)

The ethereum blockchain enables developers to build and deploy decentralized applications (Dapp). An example of a Dapp is bitcoin; bitcoin is an application -which runs on a blockchain- that gives its users the service of peer-to-peer digital money exchanges.

Bitcoin is a traditional example but developers are beginning to experiment and you can now play poker on the blockchain as well as many other applications. The reach of this technology is vast!

Ethereum Platform

Developers use tools such as Application Programming Interface (API) for building application software. The ethereum API is provided as a community service and is called Etherscan Ethereum Developer.

 Ethereum Network Takes the Power Back

Any traditional, centralized service, can be decentralized by means of the ethereum blockchain. For instance, the services currently offered by middlemen –such as bank loans and the registering of property ownership titles, to name a few- can be regulated by means of smart contracts on the ethereum network.

Whole corporations, institutions and any other entities can also be governed on the ethereum blockchain; Decentralized Autonomous Organizations (DAO) are run by programming code, on a collection of smart contracts written on the ethereum blockchain and they have no single leader.

 A DAO is owned by everyone who purchases tokens, but instead of each token equating to equity shares & ownership, tokens act as contributions that give people voting rights.

Benefits of Using the Ethereum Network is:

  • zero downtime;
  • security – no central point of failure and the use of cryptographic protocols;
  • corruption & tamper proof – the ethereum blockchain operates on the principle of consensus, making censorship impossible, and
  • immutability – third parties cannot make any changes to data.

However, there are also risks associated with decentralized applications. An example is the smart contracts used on the ethereum network; if, due to human error, there is a glitch in the computer code of a smart contract, it may lead to exploitation which can only be stopped by means of network consensus to rewrite the code.

Where is Ethereum Blockchain Stored?

Users can store data on the ethereum network – at a fee – or on their own computers. For instance, by using the ‘full mode’ to sync, the entire blockchain is transferred to the user’s computer; whereas the ‘fast mode’ only transfers metadata and basic info.

The whole blockchain is getting larger and larger, so it is often advised to go for the ‘fast mode’.

Ethereum cryptocurrency

The ethereum cryptocurrency is called ether (ETH). It is loosely described as the fuel that runs the ethereum network.

The primary use of ethereum digital currency is for application developers to pay for transaction fees and services on the ethereum network.

But, the ethereum coin is also exchangeable in the open market. Importantly, ETH is not ethereum stock; it’s ethereum digital currency which is tradeable on cryptocurrency exchanges.

Coin Market Cap

Currently, after bitcoin, ETH has the second-largest market capitalization of all crypto coins. And experts are predicting it to take the top spot sooner or later.

Vitalik Buterin

Vitalik Buterin

Ethereum creator – white paper

The ethereum founder -Vitalik Buterin- has explained the concept of the platform –what is ethereum and what is ethereum blockchain- in a whitepaper, which is available online.

Ethereum fork explained

A fork is what happens when the blockchain diverges into two potential paths forward. Essentially when two sides of a cryptocurrency have different ideas for the future of the coin, a fork occurs to cater for both sides. Ethereum has had one fork, where ethereum classic was formed.

Bitcoin has had two, forming bitcoin cash and bitcoin gold.

Ethereum Classic Formation

During June 2016, a hacker exploited a smart contract weakness at an user of the ethereum network – the Decentralized Autonomous Organization (DAO) – and moved $50 million to a position on the ethereum blockchain where the smart contract would release the funds to the hacker 28 days later.

Although the weakness existed in the smart contract written by the customer –the ethereum blockchain itself was not at fault- community consensus on the ethereum network was to isolate the money so that it would not be released to the hacker.

Due to the rules of the network having to be re-coded to isolate the funds, a soft fork occurred which gave rise to a second ethereum blockchain network –ethereum classic– which has the symbol ETC.

Ethereum Reviews

“[Ethereum] blockchain has some extraordinary capabilities. One of them is that you can build smart contracts. It’s kind of what it sounds like. It’s a contract that self-executes, and the contract handles the enforcement, the management, performance, and payment.” – Don Tapscott, author of Blockchain Revolution

“If you think the internet has affected your life, Ethereum will have that same pervasive influence on our communications, on our entire information infrastructure. It’s going impact all aspects of our existence.” – Joseph Lubin, CEO of Consensys

 

Ethereum Explained – Coinlist.me
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