What Everyone Should Know about Ethereum
What is Ethereum?
Most people who hear about Ethereum for the first time think that it’s a type of coin or a cryptocurrency. But it’s a lot more than that.
History and Development
Ethereum was first proposed in 2013 by Vitalik Buterin, a cryptocurrency programmer and researcher in the Bitcoin community. Vitalik felt that Bitcoin needed a scripting language for application development, so in early 2014 at the North American Bitcoin Conference in Miami, he formally announced the development of the new platform in collaboration with Dr. Gavin Wood and Jeffrey Wilcke.
Developing the software for Ethereum and launching a new cryptocurrency and blockchain was a massive undertaking and required a large investment. The Ethereum Foundation, a non-profit organization, was founded in Switzerland for this purpose. Then, beginning in July 2014, Ethereum held its successful ICO (Initial Coin Offering) in a 42-day public pre-sale to get it up and running.
The importance of Ethereum is the platform itself, because businesses are able to build on to it, using its own cryptocurrency Ether (ETH) for transactions and smart contracts. (More on that further on.) Compared to the first cryptocurrency, Bitcoin, which handles only currency and financial trading, Ethereum broke new ground. Ethereum uses seven different scripting languages, including the widely known Javascript, whereas Bitcoin uses only C++, a more specialized and less common script. Ethereum can process transactions about 10 times faster than Bitcoin with a much smaller transaction fee, giving Ethereum a transactional advantage.
ETH the Cryptocurrency
Ether (ETH) began trading on exchanges in 2015, and since early 2016, it has held the 2nd largest market cap of all cryptocurrencies. Ether can be purchased with U.S. dollars or other fiat currencies from a bank account on a cryptocurrency exchange. Coinbase is presently the most popular exchange in the U.S. and the one that many people usually start with for trading. One reason ETH is so popular is that it is used to trade for hundreds of other altcoins, also called ERC-20 coins or tokens, which have been developed on the Ethereum platform. Alt coins are other cryptocurrency tokens, each with a specific niche or purpose. To get started in cryptocurrency trading, it’s necessary to own either Bitcoin or Ether.
Using cryptocurrencies is a bit like using poker chips. Just as money can be exchanged for poker chips, in this case it is exchanged for coins or tokens in order to do things like invest, trade and support the formation of new blockchain technologies.
Ethereum Wallet
ETH and (other cryptocurrencies) are often stored in a wallet after buying or trading on cryptocurrency exchanges. There are two kinds of wallets. The first is a soft wallet or online wallet. MyEtherWallet.com and Blockchain.info are examples of a soft wallet, which uses a password known only to the user and other forms of security, such as two-step authentication. The second kind is a hard wallet, which is a physical device that attaches to a computer USB slot and makes it possible to take all the passwords and secret keys to unlock a cryptocurrency completely off the Internet. People who have a more substantial amount of cryptocurrency often buy a hard wallet, such as Ledger Nano S or Trezor.
How is Ether Created?
Users “mine” for Ether to earn money. Miners purchase special computer equipment that allows them to facilitate Ethereum transactions. This equipment is necessary since Ethereum runs with a decentralized network, rather than a centralized server (such as Facebook, for example). Each miner’s computer is called a node, and there are thousands of nodes all over the world. When a transaction is performed through an exchange on the blockchain, the buyer indicates the price they want to pay for a particular coin, and then it has to wait until the blockchain matches the buyer’s price with a seller’s. Transactions take place on the mining equipment, which works 24 hours a day/365 days a year. Each transaction requires gas, which is a small transactional fee that goes to the miner, paid in ETH. The activity of mining also creates more Ether.
What is the Ethereum Platform?
Ethereum is a platform, like the Internet. To understand what the Ethereum platform does and how it works, it’s necessary to have some background knowledge about decentralized networks and blockchain technology.
The Decentralized Network and Why it Exists
Instead of having one central server doing everything, decentralized networks use peer-to-peer communication. For example, when sending a Whatsapp text, it goes to the recipient through the central Whatsapp server, which then has your message forever. However, a decentralized network is able to communicate and make agreements across the whole network without any central authority.
The problem with centralized networks is that if something goes wrong or shuts down, the whole thing shuts down. Whether it is Facebook, Google, Apple, etc., we cannot use it until the company fixes it. But in a decentralized network, there is no single point of failure. Centralized networks are still useful for many functions, but with Ethereum, Bitcoin and other platforms that exist or are in development, the decentralized option now exists.
What’s a Blockchain?
Blockchain is a new innovation, with the potential to greatly change how currencies and all kinds of business and records are stored, transmitted and exchanged. As a technological innovation, it’s as world-changing as the invention of the Internet.
For a basic picture of blockchain, think a spreadsheet that is duplicated thousands of times across a network of computers, which is being instantaneously updated as people make transactions. It’s similar to Google Docs, with many people editing it all at the same time. Every blockchain transaction is visible to all users, while user identities are 100% anonymous, and transactions are permanent. Nothing can be deleted or hidden, which creates a high level of trust.
The Ethereum Platform on the Blockchain
Ethereum is a next generation platform that allows anyone – both developers and consumers – to easily take advantage of decentralized networks and realize the benefits of blockchain technology.
With the Ethereum blockchain, money can be moved globally in only seconds, and the transaction fee is minimal. With a conventional bank, the same action would take days and the cost is considerable. Ethereum can move anything in this way, for example, company shares, access rights, tickets, and so on.
Smart Contracts
Ethereum has a coding language for smart contracts called Solidity. It’s similar to Javascript, and specifically designed for contract-writing.
When we think of contracts, we usually think of complicated legal documents and lawyers. But there is another meaning to the word “contract,” that is, to “self-execute” or execute automatically. Think of a vending machine, which does what it’s told and does it automatically. This is because a simple code is written into the machine, that when the specified amount of money is deposited, it will release the selected item. Smart contracts work in a similar way.
Smart contracts utilize blockchain technology, which operates like “setting things in stone,” so to speak. If something is carved in stone, it’s permanent; you can’t change it or erase it. If you try, it will be obvious to all. The rules apply to all. Like the vending machine, it doesn’t care who you are, it operates the same for everyone. The blockchain is a unique creation of cryptography and decentralization, with features of permanence, transparency, and neutrality. Thus the blockchain enables a high level of trust.
What is the Future of Ethereum?
At present, Ethereum stands as the number two cryptocurrency in the world after Bitcoin. Since its inception in 2014, it has already broken Bitcoin’s records. As an alternative type of currency, Bitcoin may pose a threat to the banking industry, and could face some obstruction down the line. Ethereum, on the other hand, presents itself in a different way and will probably avoid this risk.
Thirty large companies and banks, including J.P. Morgan and Microsoft, formed the Enterprise Ethereum Alliance, with the purpose of developing business technologies that are compatible with the Ethereum platform. That level of backing points to a bright future for Ethereum.
What Everyone Should Know about Ethereum
What is Ethereum?
Most people who hear about Ethereum for the first time think that it’s a type of coin or a cryptocurrency. But it’s a lot more than that.
History and Development
Ethereum was first proposed in 2013 by Vitalik Buterin, a cryptocurrency programmer and researcher in the Bitcoin community. Vitalik felt that Bitcoin needed a scripting language for application development, so in early 2014 at the North American Bitcoin Conference in Miami, he formally announced the development of the new platform in collaboration with Dr. Gavin Wood and Jeffrey Wilcke.
Developing the software for Ethereum and launching a new cryptocurrency and blockchain was a massive undertaking and required a large investment. The Ethereum Foundation, a non-profit organization, was founded in Switzerland for this purpose. Then, beginning in July 2014, Ethereum held its successful ICO (Initial Coin Offering) in a 42-day public pre-sale to get it up and running.
The importance of Ethereum is the platform itself, because businesses are able to build on to it, using its own cryptocurrency Ether (ETH) for transactions and smart contracts. (More on that further on.) Compared to the first cryptocurrency, Bitcoin, which handles only currency and financial trading, Ethereum broke new ground. Ethereum uses seven different scripting languages, including the widely known Javascript, whereas Bitcoin uses only C++, a more specialized and less common script. Ethereum can process transactions about 10 times faster than Bitcoin with a much smaller transaction fee, giving Ethereum a transactional advantage.
ETH the Cryptocurrency
Ether (ETH) began trading on exchanges in 2015, and since early 2016, it has held the 2nd largest market cap of all cryptocurrencies. Ether can be purchased with U.S. dollars or other fiat currencies from a bank account on a cryptocurrency exchange. Coinbase is presently the most popular exchange in the U.S. and the one that many people usually start with for trading. One reason ETH is so popular is that it is used to trade for hundreds of other altcoins, also called ERC-20 coins or tokens, which have been developed on the Ethereum platform. Alt coins are other cryptocurrency tokens, each with a specific niche or purpose. To get started in cryptocurrency trading, it’s necessary to own either Bitcoin or Ether.
Using cryptocurrencies is a bit like using poker chips. Just as money can be exchanged for poker chips, in this case it is exchanged for coins or tokens in order to do things like invest, trade and support the formation of new blockchain technologies.
Ethereum Wallet
ETH and (other cryptocurrencies) are often stored in a wallet after buying or trading on cryptocurrency exchanges. There are two kinds of wallets. The first is a soft wallet or online wallet. MyEtherWallet.com and Blockchain.info are examples of a soft wallet, which uses a password known only to the user and other forms of security, such as two-step authentication. The second kind is a hard wallet, which is a physical device that attaches to a computer USB slot and makes it possible to take all the passwords and secret keys to unlock a cryptocurrency completely off the Internet. People who have a more substantial amount of cryptocurrency often buy a hard wallet, such as Ledger Nano S or Trezor.
How is Ether Created?
Users “mine” for Ether to earn money. Miners purchase special computer equipment that allows them to facilitate Ethereum transactions. This equipment is necessary since Ethereum runs with a decentralized network, rather than a centralized server (such as Facebook, for example). Each miner’s computer is called a node, and there are thousands of nodes all over the world. When a transaction is performed through an exchange on the blockchain, the buyer indicates the price they want to pay for a particular coin, and then it has to wait until the blockchain matches the buyer’s price with a seller’s. Transactions take place on the mining equipment, which works 24 hours a day/365 days a year. Each transaction requires gas, which is a small transactional fee that goes to the miner, paid in ETH. The activity of mining also creates more Ether.
What is the Ethereum Platform?
Ethereum is a platform, like the Internet. To understand what the Ethereum platform does and how it works, it’s necessary to have some background knowledge about decentralized networks and blockchain technology.
The Decentralized Network and Why it Exists
Instead of having one central server doing everything, decentralized networks use peer-to-peer communication. For example, when sending a Whatsapp text, it goes to the recipient through the central Whatsapp server, which then has your message forever. However, a decentralized network is able to communicate and make agreements across the whole network without any central authority.
The problem with centralized networks is that if something goes wrong or shuts down, the whole thing shuts down. Whether it is Facebook, Google, Apple, etc., we cannot use it until the company fixes it. But in a decentralized network, there is no single point of failure. Centralized networks are still useful for many functions, but with Ethereum, Bitcoin and other platforms that exist or are in development, the decentralized option now exists.
What’s a Blockchain?
Blockchain is a new innovation, with the potential to greatly change how currencies and all kinds of business and records are stored, transmitted and exchanged. As a technological innovation, it’s as world-changing as the invention of the Internet.
For a basic picture of blockchain, think a spreadsheet that is duplicated thousands of times across a network of computers, which is being instantaneously updated as people make transactions. It’s similar to Google Docs, with many people editing it all at the same time. Every blockchain transaction is visible to all users, while user identities are 100% anonymous, and transactions are permanent. Nothing can be deleted or hidden, which creates a high level of trust.
The Ethereum Platform on the Blockchain
Ethereum is a next generation platform that allows anyone – both developers and consumers – to easily take advantage of decentralized networks and realize the benefits of blockchain technology.
With the Ethereum blockchain, money can be moved globally in only seconds, and the transaction fee is minimal. With a conventional bank, the same action would take days and the cost is considerable. Ethereum can move anything in this way, for example, company shares, access rights, tickets, and so on.
Smart Contracts
Ethereum has a coding language for smart contracts called Solidity. It’s similar to Javascript, and specifically designed for contract-writing.
When we think of contracts, we usually think of complicated legal documents and lawyers. But there is another meaning to the word “contract,” that is, to “self-execute” or execute automatically. Think of a vending machine, which does what it’s told and does it automatically. This is because a simple code is written into the machine, that when the specified amount of money is deposited, it will release the selected item. Smart contracts work in a similar way.
Smart contracts utilize blockchain technology, which operates like “setting things in stone,” so to speak. If something is carved in stone, it’s permanent; you can’t change it or erase it. If you try, it will be obvious to all. The rules apply to all. Like the vending machine, it doesn’t care who you are, it operates the same for everyone. The blockchain is a unique creation of cryptography and decentralization, with features of permanence, transparency, and neutrality. Thus the blockchain enables a high level of trust.
What is the Future of Ethereum?
At present, Ethereum stands as the number two cryptocurrency in the world after Bitcoin. Since its inception in 2014, it has already broken Bitcoin’s records. As an alternative type of currency, Bitcoin may pose a threat to the banking industry, and could face some obstruction down the line. Ethereum, on the other hand, presents itself in a different way and will probably avoid this risk.
Thirty large companies and banks, including J.P. Morgan and Microsoft, formed the Enterprise Ethereum Alliance, with the purpose of developing business technologies that are compatible with the Ethereum platform. That level of backing points to a bright future for Ethereum.
