A Beginner’s Guide to Ethereum

I’ve been around Ethereum for awhile. If are like me, you’ve been telling people how revolutionary Ethereum is since the days Ether was below $50. I was always pretty vocal about my excitement for Ethereum, and now as it grows more popular and mainstream, many of my friends and family are contacting me to learn more about it. In this article, I will give you a brief introduction into what Ethereum actually is.

What is a blockchain?

To first understand what Ethereum is, you first must grasp the concept of what a blockchain is. A blockchain is a series of distributed computing devices connected to each other sharing and validating data. Blockchains are one of the most disruptive and innovative advancements in technology today. What makes blockchains so powerful is it uses the power of numbers (thousands of different computing devices) to validate and store data. More on this below.

What’s so cool about blockchains, and how are they any different than say a traditional database?

In a traditional application, let’s use Facebook as an example, all my data is stored on Facebook’s servers. Facebook pays for thousands of servers to store the massive amount of data they have. Anyone using any mainstream application (Facebook, Twitter, Netflix, etc) has witnessed a site or application being “down.” What brings a site “down” is when the application can not get access to the data it needs due to a large variety of possible issues. If a server or data center goes down, an application will completely stop working. A blockchain is a distributed database across multiple “nodes.” Nodes are a computing device of any sort that could be placed anywhere around the world. Every node in a blockchain shares the same data, so if one node happens to go down, it does not matter as every other node in the chain has the same data. Blockchains therefore add built in data redundancy.

A blockchain is also decentralized, meaning once data is inserted, it can no longer be altered. In order for any data (“block”) to be inserted into a blockchain, multiple nodes must come to an agreement (“consensus”) that the data is valid.

So what makes this technology valuable to companies? Due to the fact that blockchains are decentralized (meaning no one has direct access to manipulate data) it makes it almost impossible for any blockchain application to get hacked. Also, since every node on the network has the same data, blockchain apps get thousands of backups for free, something that costs thousands if not millions of dollars in a traditional server/database model.

What are some potential use cases for a blockchain?

Many of the easiest to understand use cases for a blockchain are tied to finance and government. Any application that needs data to be secured and validated through multiple processes is a perfect fit for a blockchain. Hence, the most obvious use case, anti-money laundering (read more here: https://www2.deloitte.com/content/dam/Deloitte/ch/Documents/innovation/ch-en-innovation-deloitte-blockchain-app-in-banking.pdf). Another great use case is digital identity (read about how Microsoft and Accenture are changing the digital identity landscape here: https://newsroom.accenture.com/news/accenture-microsoft-create-blockchain-solution-to-support-id2020.htm). More uses cases to come below.

What is Bitcoin?

Bitcoin is a cryptocurrency that is powered by a blockchain. Bitcoin is considered to be the father of blockchain, primarily being the first application to use it. Bitcoin’s blockchain is solely used as an irreversible financial ledger. Nodes on Bitcoin’s blockchain (you’ve probably heard the term “mine” or “miner” thrown around which is what nodes do) validate every transaction on the network. Since every node has a copy of every transaction, and no one has access to edit any data already inserted into the blockchain, money laundering is impossible. This was an extremely powerful innovation.

What is Ethereum and how is it any different than Bitcoin?

Ah, now we get to the fun part. While Bitcoin is a cryptocurrency based on a blockchain, Ethereum is an entire network powered by a blockchain and its cryptocurrency, Ether. Vitalik Buterin, the founder of Ethereum, realized how powerful blockchains could be, however didn’t like that Bitcoin’s blockchain had one use case, an irreversible financial ledger. Buterin took Bitcoin’s innovation of blockchain and took it one step further by creating a platform where any developer could write any blockchain application they wanted. Now with Ethereum, any developer can make use of a worldwide blockchain by simply writing code in Ethereum’s language, Solidity (https://solidity.readthedocs.io/en/develop/). Solidity allows developers to create “smart contracts” which are used to programmatically power the blockchain. This makes Ethereum’s use cases unlimited, which is it’s fundamental difference versus Bitcoin.

Since Ethereum is a programmatically powered blockchain, another key difference is how each would achieve “large-scale, mainstream adaption.” In order for Bitcoin to be successful, since it’s only functionality is irreversible, financial transactions, it would have to be accepted as an alternative to traditional fiat currency. For this to happen, every business would have to be willing to accept Bitcoin. Ether is only used to power “smart contracts” over the Ethereum network. Bitcoin is in competition with fiat currency, while Ether is not.

Who is using Ethereum?

The main investor advantage Ether (Ethereum’s currency) has over Bitcoin and other cryptocurrencies is the Enterprise Ethereum Alliance (EEA). The EEA is a group of companies ranging from the world’s most powerful companies to startups, further working on improving the Ethereum network. This list of companies includes:

  • Microsoft
  • JP Morgan
  • Intel
  • Samsung
  • BP
  • Accenture
  • BBVA
  • BNY Mellon
  • Santander
  • National Bank of Canada

These are just a few. The full list can be seen here: https://entethalliance.org/members/.

What are some potential use cases for Ethereum?

By looking at the list of companies in the EEA above, you can start to guess for yourself on how each one of these companies will make use of Ethereum. Without me talking about each one, here’s a few examples of how it will be used:

What does the future hold for Ethereum and the price of Ether?

It’s impossible to accurately predict what the price will be at any given date. The best we can do is look at the current developments going on with Ethereum. With more and more companies getting involved in Ethereum, I have no doubt we will see main stream adaption in just a few years. However here’s some articles of people trying to predict it:

Like my article? Follow me on (my brand new) twitter: @maxekaplan