Understanding another industry leader: Ethereum

Ethereum is another industry leader in the blockchain revolution and is an important pillar in bridging the knowledge gap in this new world. The first misconception is that it is comparable to Bitcoin, although they share some similarities, it is important to remember that these are two different applications of blockchain technology.

In relatable terms, it is like trying to compare a company (such as PayPal) that uses internet technology to facilitate payments?to?a company that uses the internet to facilitate the sale of goods via the creation of an application built on the internet (such as Takealot). They both use the underlying technology, in this case being the internet. The same applies to Bitcoin and Ethereum, however, they are just different applications of blockchain technology.

• Bitcoin offers a particular application of blockchain technology, a peer-to-peer electronic cash system that enables online Bitcoin payments and is used to track ownership of the digital currency (Bitcoins) or serves as a store of value.
• Ethereum focuses on running the programming code of any decentralised applications, smart contracts, and much more. (Dapps is a topic to be covered in one of our next articles). Ethereum also uses a proof of stake consensus mechanism. [Please see my article explaining consensus mechanisms:?https://www.dhirubhai.net/pulse/learn-lingo-digital-investments-dale-russell-ca-sa-?]

As a starting point, we need to first identify a similar type of platform that exists in traditional finance as we know it and the limitations they have and then talk about how Ethereum aims to improve on these as well as describe how it differs.

If we take Google, Android, and Apple as examples of companies that allow for data to be stored and applications to be run. The important point here is centralised control. These companies host software on a server owned and operated by these companies, this gives them the power to control all the data. Ethereum enables the users to host applications on the Ethereum blockchain, giving them control over their data as well as open use of the applications as there is no central authority managing everything.

So, what is Ethereum?

Ethereum is a global, decentralised platform for money?and?new kinds of?applications. On the Ethereum platform, you can write code that controls the money (using smart contracts), which allows for the building and support of applications that are accessible anywhere in the world. Basically, it is a blockchain-based platform that enables developers to build and deploy decentralised applications that are not run by a centralised authority, for which the participants of that particular application are the decision-making authority.

The issue that Ethereum aimed to solve, was a common problem that was seen after the establishment of Bitcoin. Because Bitcoin does not allow for any applications to be built on top of its blockchain network, it means that people needed to establish their own blockchain networks – which is not the easiest exercise out there. The idea behind Ethereum was to establish and build a general-purpose decentralised application blockchain network platform that would allow people to focus on building applications on the Ethereum blockchain. In essence, a base layer tool that serves as the established platform that has the infrastructure to enable users to build applications on this platform.

The Ethereum platform is also helping to shift the way we use the internet. Decentralised 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.

What are the features of Ethereum?

1. Ether (ETH): this is Ethereum’s native cryptocurrency. It is the fuel that runs the network and is used to pay for the computational resources and transaction fees for any transaction executed on the Ethereum network. It is also used to buy “gas” (which we will unpack in articles to follow), which is used to pay for the computation of any transaction made on the Ethereum network. In its most simple terms, it can be used to build decentralised applications, smart contracts as well as make regular peer-to-peer payments.
2. Smart Contracts: Ethereum allows the development and deployment of these types of contracts. [Please refer to my previous article,?https://www.dhirubhai.net/pulse/unpacking-smart-contract-dale-russell-ca-sa-, for the understanding of smart contracts]
3. Ethereum Virtual Machine: 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 more 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. Ethereum provides the underlying technology, the architecture, and the software that understands smart contracts and allows you to interact with them. It is designed to operate as a runtime environment for compiling and deploying Ethereum-based smart contracts. Put simply, it is the engine that understands the language of smart contracts.
4. Decentralised Applications (Dapps): Ethereum allows you to create consolidated applications called decentralised applications. [As I said earlier, this will be covered in depth in an article to follow, the important point is to remember that Ethereum provides a platform for these]
5. Decentralised autonomous organizations (DAOS): Ethereum provides the platform and ability to create these for democratic decision-making. [I don’t want to lose sight of the focus of this article, which is Ethereum, and will unpack DAOS in future articles.] The piece of information to take from this is that Ethereum enables these functions and as we unpack these in the upcoming weeks – it will all come together.

Without getting side-tracked. There are many applications and capabilities that Ethereum has launched, two noteworthy standards being:

• ERC20 token: this has emerged as the technical standard; it is used for all smart contracts on the Ethereum blockchain for token implementation and provides a list of rules that all Ethereum-based tokens must follow. Allowing developers to issue their own version of this token and raise funds through Initial Coin Offerings. Essentially it serves as a base model that can be used by participants to implement their tokens using established infrastructure, just like a standard website creator assistant platform gives you the base for creating your own website.
• ERC271 token: a standard outlines a set of common rules that all tokens can follow on the Ethereum network to produce expected results. A standardized token for tracking unique digital assets (NFTS). It is essentially a standard interface for non-Fungible tokens. Again, a base template that is issued by Ethereum to easily implement your projects.

But as we explore these concepts in the weeks to follow, do not let the new somewhat complex jargon deter you, we will unpack these piece by piece. Ethereum is just the platform that allows for all these concepts to come to fruition, and this is why it seems like a lot to take in.

How does it work?

Just like all cryptocurrencies, Ethereum works on the basis of a blockchain network. A blockchain is a decentralised, distributed public ledger where all transactions are verified and recorded. The Ethereum platform can support many more applications than ETH and other cryptocurrencies. The networks users can create, publish, monetise, and use a diverse range of applications on the Ethereum platform. You can use ETH or another cryptocurrency as payment.

[Please see my article on blockchain technology if you want to recap on the technology:?https://www.dhirubhai.net/pulse/back-basics-what-blockchain-technology-dale-russell?]

In summary:

This article has been somewhat technical, so I will put this into a nutshell that summarises what I have explained above in an attempt to make it relatable in a holistic manner.

Ethereum is an open-source platform that uses blockchain technology to create and run decentralized digital applications, that enable users to make agreements and conduct transactions directly with each other to buy, sell and trade goods and services without a middleman. For instance, users can bypass banks to transfer money, skip using a lawyer to draw up a sales contract, and launch their own fundraising site for project crowd sale rather than going through a crowdfunding Internet site, among other uses.

Ethereum operates via a global network of computers that work together as a supercomputer. The network assembles and runs smart contracts - applications that are, in theory, independent from any third-party interference or censorship, as the blockchain is resistant to tampering. Smart contracts run exactly as programmed, greatly reducing the risk of fraud, and are self-executing. Basically, like a vending machine that carries out the contract terms digitally. Once certain conditions are proven to have been met, such as the transfer of a payment, then the merchandise is conveyed or made accessible to the buyer.

The difference between Ethereum and the internet is that all of these agreements and all the data pertaining to your transaction are stored in individual blockchain ledgers, not in some central warehouse, for example, like a Google database. Making it less likely to be compromised by a data breach. The user is in control of their own data.

Although it places us outside our comfort zone, keep following our journey into the Digital Investments and Blockchain space through these weekly articles as we are here to assist in the process of understanding.

We have started to paint the picture and as we keep filling in the gaps, we will soon become literate in this industry. A comfort zone is a beautiful place, but nothing ever grows there.

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