Ethereum is an open source blockchain platform that allows developers to create and deploy decentralized applications on the network. Etherium like bitcoin is a decentralized platform that is not controlled by any single governing entity. This means the platform has no central point of failure. It’s also run by thousands of volunteer computers around the world and for this reason, can’t go offline.
Individual users’ private information stays on their machines. Also content like videos and apps stay in full control of the creators who don’t have to deal with the rules imposed by hosting services like YouTube and App Store.
Etherium is different from Bitcoin in that it’s a whole network by itself. That Posses its own internet browser, payment system, and coding language. More importantly, it allows users to create decentralized applications on its Blockchain.
The apps can either be completely new ideas or decentralized reworks of concepts that already exist. Consequently, this cuts off the middlemen and the costs of involving a third party.
The platform uses a peer to peer approach where only the users support every interaction that takes place. Nodes support the Ethereum network. Nodes are made up of volunteers who download the entire Etherium blockchain to their computers and help enforce all the consensus rules of the system. This helps keep the network honest, and in turn, they are rewarded.
Smart contracts control the consensus rules and other aspects of the network. Codes that automatically perform transactions and other specific actions within the system where two parties that don’t trust each other are involved. The terms of engagement for both parties are pre-programmed into the ‘smart contract.’
After the parties involved fulfill the terms of an agreement, the smart contract triggers a transaction or any other specific action.
Many people see smart contracts as the future, and they believe that they will eventually replace other types of contractual agreements. It’s because these smart contracts offer security that is far superior to traditional contract law. They also reduce the transaction cost that is associated with contracting and they also establish trust between two parties.
The Ethereum blockchain also provides users with the Ethereum Virtual machine (EVM). EVM serves as a runtime environment for smart contracts that are based on the network. Offering users the security to execute untrusted code, however, ensuring that the programs don’t mess with each other. More importantly, EVM is isolated from the main Etherium network. Making it the perfect sandbox-tool for users to test and improve smart contracts.
The Ethereum blockchain utilizes Ether as its native currency.
The Mind Behind The Etherium Platform
Vitalik Buterin created Ethereum. In late 2013, after briefly touring the world to see the developments that were taking place in the cryptocurrency world, Vitalik described his idea on a white paper. He sent the document to his friends who send it out further.
Consequently, he was reached out by about 30 people who wanted to discuss more on the concept. To his surprise, no one came with up with any critical remarks about the idea, and in January of 2014, the project was officially announced.
The Native Currency Ether (ETH)
Simply put Ethereum is a software platform which primary goal is to act as a decentralized app store as well as decentralized internet. For a system like this to function well, it needs currency to pay for the computational resources required to run a program or an application.
Here is where Ether comes into play. The native currency of the Etherium platform doesn’t require a third party to process the payments. It also acts as fuel for decentralized apps that are within the network. So, for example, if a user wants to change something in one of the applications within the blockchain, they have to pay a transaction fee for the network to process the change.
Automatically, transaction fees are calculated based on how much gas an action requires. Also, the amount of fuel needed is calculated based on how much computing power is needed and how long it will take to run.
How Ethereum Works
It’s important to note that Ethereum is based on the bitcoin protocol. However, its blockchain is tweaked to allow applications that are beyond money systems to be supported. The only similarity between the two blockchains is that they store the entire histories of their respective networks.
Transactions on the Etherium network are grouped into blocks which are chained together with previous blocks. However, before a transaction is added on the ledger, it has to be validated. The validation process is known as mining.
Mining is a process where different nodes compete to solve a mathematical puzzle, using their computational power to validate blocks.
Miners play a crucial role in the Etherium network. Not only do they confirm and validate transactions, but they also generate tokens for the platform.