What is Ethereum
Beyond Bitcoin & first generation decentralized applications
Although commonly associated with Bitcoin, Blockchain technology has lots of different programs that go way beyond electronic currencies. Actually, Bitcoin is but one of many hundred software which use blockchain technologies now.
“Blockchain is to Bitcoin, what the internet is to email. A big electronic system, on top of which you can build applications. Currency is just one.” Sally Davies, FT Technology Reporter
Until relatively recently, construction blockchain software has required a complex history in coding, cryptography, math in addition to considerable resources. But times have changed. Previously unimagined applications, from digital voting & digitally documented property assets into regulatory compliance & trading are now actively being developed and deployed quicker than ever before. By providing developers with all the tools to build decentralized software, Ethereum is making all of this possible.
Ethereum for beginners
At its simplest, Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications.
Is Ethereum similar to Bitcoin? Well, sort of, but not really.
Like Bitcoin, Ethereum is a distributed public blockchain network. Although there are some significant technical differences between the two, the most important distinction to note is that Bitcoin and Ethereum differ substantially in purpose and capability. Bitcoin offers one particular application of blockchain technology, a peer to peer electronic cash system that enables online Bitcoin payments. While the bitcoin blockchain is used to track ownership of digital currency (bitcoins), the Ethereum blockchain focuses on running the programming code of any decentralized application.
In the Ethereum blockchain, instead of mining for bitcoin, miners work to earn Ether, a type of crypto token that fuels the network. Beyond a tradeable cryptocurrency, Ether is also used by application developers to pay for transaction fees and services on the Ethereum network.
“Bitcoin is first and foremost a currency; this is one particular application of a blockchain. However, it is far from the only application. To take a past example of a similar situation, e-mail is one particular use of the internet, and for sure helped popularise it, but there are many others.” Dr Gavin Wood, Ethereum Co-Founder
What is a smart contract?
Smart contract is just a phrase used to describe computer code that can facilitate the exchange of money, content, property, shares, or anything of value. When running on the blockchain a smart contract becomes like a self-operating computer program that automatically executes when specific conditions are met. Because smart contracts run on the blockchain, they run exactly as programmed without any possibility of censorship, downtime, fraud or third party interference.
While all blockchains have the ability to process code, most are severely limited. Ethereum is different. Rather than giving a set of limited operations, Ethereum allows developers to create whatever operations they want. This means developers can build thousands of different applications that go way beyond anything we have seen before.
“ 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
The Ethereum Virtual Machine
Prior to the development of Ethereum, blockchain applications were designed to perform a very limited set of operations. Bitcoin and other cryptocurrencies, for example, were developed exclusively to operate as peer-to-peer electronic monies.
Developers faced a problem. Either extend the set of functions offered by Bitcoin along with other types of applications, which is quite complicated and time-consuming, or even develop a new blockchain program and also an entirely new platform as well. Recognizing this predicament, Ethereum’s creator, Vitalik Buterin developed a fresh approach.
“I thought [those in the Bitcoin community] weren’t approaching the problem in the right way. I thought they were going after individual applications; they were trying to kind of explicitly support each [use case] in a sort of Swiss Army knife protocol.” Vitalik Buterin, inventor of Ethereum
Ethereum’s core innovation, the Ethereum Virtual Machine (EVM) is a Turing complete software that runs on the Ethereum network. It enables anyone to run any program, regardless of the programming language given enough time and memory. The Ethereum Virtual Machine makes the process of creating blockchain applications much easier and efficient than ever before. Instead of having to build an entirely original blockchain for each new application, Ethereum enables the development of potentially thousands of different applications all on one platform.
What can Ethereum be used for?
Ethereum enables developers to build and deploy decentralized applications. A decentralized application or Dapp serve some particular purpose to its users. Bitcoin, for example, is a Dapp that provides its users with a peer to peer electronic cash system that enables online Bitcoin payments. Because decentralized applications are made up of code that runs on a blockchain network, they are not controlled by any individual or central entity.
Any services that are centralized could be decentralized using Ethereum. Think about all the intermediary services that exist across hundreds of different businesses. From obvious services like loans provided by banks to intermediary services rarely thought about by the majority of people like title registries, voting systems, regulatory compliance and much more.
Ethereum may also be employed to build Decentralized Autonomous Organizations (DAO). A DAO is completely autonomous, decentralized company with no single leader. DAO’s are conducted by programming language, on a collection of smart contracts written on the Ethereum blockchain. The code is designed to replace the rules and structure of a conventional organization, eliminating the need for individuals and centralized control. A DAO is owned by everybody who purchases tokens, but instead of every token equating to equity stocks & ownership, tokens act as gifts that provide people voting rights.
“A DAO consists of one or more contracts and could be funded by a group of like-minded individuals. A DAO operates completely transparently and completely independently of any human intervention, including its original creators. A DAO will stay on the network as long as it covers its survival costs and provide a useful service to its customer base” Stephen Tual, Slock.it Founder, former CCO Ethereum.
What are the benefits of Ethereum decentralized Platform?
Because decentralized applications run on the blockchain, they benefit from all of its properties.
Immutability – A third party cannot make any changes to data.
Corruption & tamper proof – Apps are based on a network formed around the principle of consensus, making censorship impossible.
Secure – With no central point of failure and secured using cryptography, applications are well protected against hacking attacks and fraudulent activities.
Zero downtime – Apps never go down and can never be switched off.
What’s the downside of decentralized applications?
Despite bringing a number of benefits, decentralized applications aren’t faultless. Because smart contract code is written by humans, smart contracts are only as good as the people who write them. Code bugs or oversights can lead to unintended adverse actions being taken. 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 re-writing the underlying code. This goes against the essence of the blockchain which is meant to be immutable. Also, any action taken by a central party raises serious questions about the decentralized nature of an application.
I want to develop an app. How do I access Ethereum?
There are lots of ways in which you can plug into the Ethereum network, among the simplest ways is to use its native Mist browser. Mist provides a user friendly interface & digital wallet for consumers to exchange & shop Ether in addition to write, handle, install and use smart contracts. Like internet browsers give accessibility and help individuals navigate the internet, Mist provides a gateway to the world of decentralized blockchain applications.
There’s also the MetaMask browser extension, which turns Google chrome into an Ethereum browser. MetaMask allows anyone to easily run or develop decentralized software from their own browser.
While it’s still early days, Mist, MetaMask and a number of other browsers seem set to make blockchain-based applications accessible to more people than ever before. Even people with no technical background can now possibly construct blockchain apps. This is a radical leap for blockchain technology which could bring decentralized applications into the mainstream.
What apps are currently being developed on Ethereum?
The Ethereum platform is being used to create applications across a broad range of services and industries. But developers are in unchartered territory, so it’s hard to know which apps will succeed and which ones will fail. Here are a few exciting projects.
Weifund provides an open platform for crowdfunding campaigns that leverages smart contracts. It enables contributions to be turned into contractually backed digital assets that can be used, traded or sold within the Ethereum ecosystem.
Uport provides users with a secure and convenient way to take complete control of their identity and personal information. Instead of relying on government institutions and surrendering their identities to third parties, users control who can access and use their data and personal information.
BlockApps is looking to provide the easiest way for enterprises to build, manage and deploy blockchain applications. From the proof of concept to full production systems and integration with legacy systems, Blockapps provides all the tools necessary to create private, semi-private and public industry-specific blockchain applications.
Provenance is using Ethereum to make opaque supply chains more transparent. By tracing the origins and histories of products, the project aims to build an open & accessible framework of information so consumers can make informed decisions when they buy products.
Augur is an open-source prediction & forecasting market platform that allows anyone to forecast events and get rewarded for predicting them correctly. Predictions on future real world events, like who will win the next US election, are carried out by trading virtual shares. If a person buys shares in a winning prediction, they receive monetary rewards.
To view other projects currently in development on Ethereum, click here.
“Ethereum is a spectacular public experiment that is showing the value of smart contracts on a public blockchain. It is the result of and the source of disruptive innovation of the likes that we haven’t seen since the early days of the Internet.” – Caleb Chen London Trust Media
The DAO hack that threatened everything
Remember how Ethereum may be used to construct Decentralized Autonomous Organizations? Well in 2016, something awful occurred. A startup working on a single particular DOA job, aptly named ‘The DAO’ got hacked.
Their aim was to build a humanless venture capital company that would permit investors to make decisions through smart contracts. The DAO was funded by way of a token sale and ended up raising around $150 million bucks from tens of thousands of different people.
Shortly after the funds were increased, The DAO was hacked by an unknown attacker that stole Ether worth around $50 million bucks at the time. While the assault was made possible by a technical flaw in The DAO software, not the Ethereum platform itself, the programmers and founders of Ethereum were forced to deal with the mess.
An Ethereum fork in the road
After much debate, the Ethereum community voted and decided to retrieve the stolen funds by executing what’s known as a hard fork or a change in code. The hard fork moved the stolen funds to a new smart contract designed to let the original owners withdraw their tokens. But this is where things get complicated. The implications of this decision are controversial and the topic of intense debate.
Here’s why. Ethereum is based on blockchain technology where all transactions are meant to be irreversible and unchangeable. By executing a hard fork and rewriting the rules by which the blockchain executes, Ethereum set a dangerous precedent that goes against the very essence of blockchain. If the blockchain is changed every time a large enough amount of money is involved, or enough people get negatively impacted, the blockchain will lose its main value proposition – secure, anonymous, tamper proof & unchangeable.
While another less aggressive soft fork solution was put forth, the Ethereum community and its founders were placed in a perilous position. If they didn’t retrieve the stolen investor money, confidence in Ethereum could be lost. On the other hand, recovering investor money required actions that went against the core ideals of decentralization and set a dangerous precedent.
The aftermath – Ethereum splits
In the end, the majority of the Ethereum community voted to perform a hard fork, and retrieve The DAO investors money. But not everyone agreed with this course of action. This resulted in a split where two parallel blockchains now exist. For those members who strongly disagree with any changes to the blockchain even when hacking occurs there is Ethereum classic. For the majority who agreed to rewrite a small part of the blockchain and return stolen money to their owners, there is Ethereum.
Both blockchains have the same features and are identical in every way up to a certain block where the hard-fork was implemented. This means that everything that happened on Ethereum up until the hard-fork is still valid on the Ethereum Classic Blockchain. From the block where the hard fork or change in code was executed onwards, the two blockchains act individually.
A future of unimagined possibilities for Ethereum
Despite the fallout from The DAO hack, Ethereum is moving forward and looking to a bright future. By providing a user-friendly platform that enables people to harness the power of blockchain technology, Ethereum is speeding up the decentralization of the world economy. Decentralized applications have the potential to profoundly disrupt hundreds of industries including finance, real estate, academia, insurance, healthcare and the public sector amongst many others.
“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
Building the public Ethereum ecosystem: As scalability and configurable privacy/confidentiality grow on public Ethereum over the next two years, consumers will use their blockchain identity and access point (uPort) to interact with a variety of interesting early stage offerings.
Including crowdfunding platforms (Weifund), group governance tools (Boardroom), music/film/art content registration and utilization platforms (ujo), wisdom markets (Gnosis), and gaming apps (Virtue Poker)”
Joseph Lubin, CEO of Consensys
Most significant companies will run business processes on their private blockchains.
The Ethereum platform is also helping to shift the way we use the Internet. Decentralized applications are pushing a fundamental change from an Internet of information where we can instantly view, exchange and communicate information to the Internet of value where people can exchange immediate value without any intermediaries.
“As the industry continues to investigate blockchain platforms, it’s apparent that Ethereum is becoming a de facto leader. For example, a few days ago JPMorgan publicly open-sourced its Quorum platform, architected and developed around the Go Ethereum client by Jeff Wilcke and his team. Several other major banks are using Ethereum, and Microsoft is anchoring its Bletchley platform on it as the foundational blockchain element. Industry, both publicly and confidentially, continues to contribute to Ethereum and work with us and others to help our promising, toddler-age codebase reach maturity. Stay tuned for news on this front.
It takes a (global) village to raise a blockchain. The live network and the community of open source developers contribute significantly to this effort. They continuously refine and harden the Ethereum platform, helping it get faster at responding to industry demands for the value propositions it offers. These investments of time and resources speak to their faith in Ethereum governance and the value that businesses and developers see in its capabilities.” – Joseph Lubin, CEO of Consensys
While it’s still early days, and there will no doubt be more hurdles to overcome, Ethereum looks to be a truly transformational platform. With many of the most exciting applications yet to be developed, we can only begin to wonder about the unimagined possibilities that await.