Yet another Ethereum Explanation

Arjun Bhuptani
Jun 14, 2017 · 4 min read

If you’re reading this, you’ve probably heard of Ethereum by now. Chances are you saw something related to the meteoric rise of the price of Ether over the past few months. You might even have done a little digging and found this graph:

Exhibit A: What the eth

But any explanation of what it actually is, was most likely too obscure to shed any light as to why people seem so damn interested in it. Here’s my attempt at explaining why many think it will be important.

What is it?

In simplest terms: Ethereum is a world computer that lives on the internet.

Everyone who participates in the Ethereum network can give up a portion of their computing power towards making it run. Their incentive for doing so is that they get a small amount of currency, called Ether, in return, which trades against a real dollar value at a price that makes doing the work worthwhile.

Exhibit B: A computer made of computers (not to scale)

Because it’s a part of the internet, no one owns the Ethereum world computer. This means that 1) it can never be turned off, 2) the code that is put on there is viewable by everyone and is guaranteed to run perfectly as written, and 3) there is no need to “trust” anyone or any company to make things work.

The combination of these properties means that the apps that are built on Ethereum are guaranteed to be up all of the time. They’re also kind of forced to have a lot of integrity since you could personally inspect the business logic at any time and call bullshit. Lastly, and most importantly, they do their thing directly between individual people without needing a server or middle-man in between.

Why is it so important?

Did I lose you at that last sentence? It takes a little more thinking to wrap your head around it. Let’s try with an example:

Say I want to buy a bicycle. I hop on my computer and find some guy halfway around the country selling one that I like and I buy it. The marketplace that I bought at takes a fee for the transaction. Why? Because, the seller can’t really “trust” me. Even if I’m generally a nice guy, the seller needs the marketplace to act as a middle man here because it would otherwise be possible for me to “cheat” in the transaction, either by sending fake money or pretending to send money that I don’t have.

Exhibit C: My market my rules

What if I had bought a bicycle from my neighbor instead? In that case, I wouldn’t have needed a marketplace to oversee the transaction because cheating would have been much more difficult. One way to think about this is that there are rules built into physical cash which make them hard to duplicate or fake. Since those rules are a part of the cash itself you don’t need some external authority to create “trust” in the transaction.

Exhibit D: This one was also made with MS Paint

With Ethereum, you can take any sort of interaction that happens using the internet and build rules into the interaction itself similar to how physical cash works. Then, it’s not just illegal to cheat in those interactions, but actually impossible. This also means that we no longer need a middleman or external authority in order to make sure that an app runs smoothly, it just does. Another way of putting this is that producers can directly interact with consumers, something which hasn’t really been possible on the internet in the past.

What implications does this have for the world? People have many theories, but no one is really sure. In the early days of the smartphone, people tried to predict what kinds of apps would be successful, or what industries would be changed. But instead, the biggest changes came from applications that no one had even conceived of at the time. We won’t know exactly how Ethereum will change the world for quite some time, just that it definitely will.

Arjun Bhuptani

Written by

Founder of Connext. Ethereum developer, game theory enthusiast, physics nerd, occasional sleeper.