What is Ethereum?
The ultimate guide to understand Ethereum in simple words.
In a nutshell: Ethereum is a powerful, decentralised, super computer running on blockchain technology. Some key innovations make Ethereum a unique project with all the necessary building blocks to create a new, better, more secure, privacy and trust oriented internet. And that’s a big deal.
Why is it so interesting?
Well, first of all it is “decentralised”: this global computer runs on a network of machines (nodes) distributed around the world (more specifically, it runs on a blockchain). This means that it cannot be stopped, you can’t just unplug it or halt its operations. In fact, anyone who wants to run a node of the network can do so from any computer connected to the internet, without asking for permission. Also, being decentralised, it cannot be easily hacked¹ because there is no central point of failure.
“It’s ubiquitous, where there is internet there is Ethereum.” - by Gavin Wood
Who actually runs Ethereum then? It doesn’t belong to anyone. There is no single entity who controls it, as of today it is governed by a community of software developers that write code and run the nodes of the network using their computers. With no single entity managing it, Ethereum is a truly decentralised project which is being built by the crowdsourced work of many skilled computer programmers. The efforts for improving Ethereum technology are coordinated by the Ethereum Foundation, a non for profit organisation who’s mission is to “[…] build a more globally accessible, more free and more trustworthy Internet”.
It’s an open project, in fact anyone can make use of this global computer. It can have as many users as we want, and anyone can both read the code that such computer is running or write new code that the computer can run. This means you can run your own applications on it, or just use applications developed by others. Ethereum code is open source and available on github.com/ethereum.
There is no middleman, users can interact directly with other users with no third party involved. And when you decide to interact via an application built on Ethereum by a third party you can read the code directly to make sure the application does what it says it does. No middleman, no surprises².
The code running on Ethereum is immutable. The transactions, the data stored, the programs written are permanent. Once deployed on the global computer they cannot be changed. This means that not only you can verify the code of any application and understand what it does, but it also means once you’ve verified it you can be sure nobody will be able to change it ex-post. Written, running code cannot be changed³.
The interactions with this computer are extremely secure. In fact, any interaction with the computer (being it deploying new code, interacting with existing applications or exchanging value) is cryptographically signed - which in simple words means that it can not be altered or replicated⁴.
You own your data, you keep your value. On Ethereum each user will be able to decide which data to share and which data to keep, so you will be in full control of who uses your data and what for. Moreover, should your data generate value (i.e. like all the data you share on Facebook, that is a goldmine for advertisers) you will be able to retain (and profit from) that value too.
As you can see from the chart below, Ethereum attracted a lot of attention lately and its adoption rate is growing exponentially.
So, what can Ethereum be used for?
Ethereum aims to be a platform on which anyone can create applications for value and data exchange. Its technology is based on “smart contracts”, programs that run on Ethereum and execute transactions of value and information.
Let me give you an example. Imagine Jack has solar panels installed on his roof and his neighbour Alice would like to use Jack’s renewable energy to recharge her electric bike during peak time at midday. However, each charge is worth just a few cents and they don’t want to deal with exchanging a few pennies every day after each charge. If Jack and Alice would like to automate the payment in a smooth, seamless fashion they could just write a smart contract on Ethereum (nothing crazy, it’s just some code) that checks how much energy Alice’s bike is using from Jack’s solar panels, multiplies it by the current electricity market price (at the time of the charge) and transfers the correct amount from Alice’s account to Jack’s one automatically. Done. No third party. No extra fees charged.
Is the technology ready to be used? Yes, so much so that the United Nations are using it to provide food to thousands of refugees.
Ethereum can be used to build unstoppable applications that coordinate the exchange of value and information for the public.
Here below are some of the most interesting applications that can be built on Ethereum (with some real examples):
- Identity management. Since each user on the Ethereum platform signs digitally all his/her interactions with smart contracts or other users, it is possible to associate an identity to a user and all actions performed by that user will be connected to his/her identity. - Civic and Blockstack are two projects that aim at managing identity on the blockchain.
- Trust and Transparency. Every time an agreement can be expressed via programming language, smart contracts can be used as a way to replace (and enforce) contracts between parties. It can also be used for transparency. For example: let’s say you want to donate to a non-for-profit organisation but want to make sure they use the funds to support clean water projects in Africa. You can write an application on Ethereum that monitors how your funds are used in real time. - Take a look at AidCoin.
- Crowdfunding. Ethereum smart contracts allow you to generate tokens that can be sold in exchange for “real money”, effectively funding your new project or new venture. Very much like Kickstarter or Indiegogo, but without the need to rely on a third party. - Read more about Initial Coin Offering (ICO).
- Marketplaces. Imagine building an Airbnb where guests can interact directly with hosts and that has no service charges, or a Facebook where users interact directly own all their data and get a share of the payment advertisers do to gain their attention. Ethereum enables that too. - A decentralised version of LinkedIn called Indorse is already live.
- Copyright/ownership repository. When you send a transaction on the Ethereum network the information you add to such transaction are permanently stored on the Ethereum blockchain. They are immutable, have a time stamp of when they have been added and cannot be removed. For these reasons you can store a proof of ownership, register your IP or the copyright of a song or a book, on the Ethereum blockchain with the certainty that nobody can delete it and you will always be able to prove that you are the author/owner of such document. - MIT built a system to release certificates on the blockchain called Blockcerts.
- Governance. Ethereum is a good platform to handle voting systems at scale. Since each user of this global computer can interact with it in a secure way, Ethereum can be used to implement voting systems for elections, corporate governance, decision making and consensus agreement. - Abu Dhabi Stock Exchange and the Russian government are now experimenting voting systems based on blockchain.
So, Ethereum is an extremely powerful platform on which we can build applications that can exchange value and information in a very secure way. Being still in its infancy it has several limits (i.e. it can only execute 10–15 transactions per second at the moment), but it is evolving rapidly thanks to the large community of developers working on it. Hopefully, this new technology will be leveraged to solve some of the biggest problems we are facing today and not just to collect some virtual kitties.
How can I use Ethereum?
The first step to use Ethereum is to get your own Ethereum wallet and buy some Ether (ETH) in order to make your first transactions. You can do so on exchanges like Coinbase (10$ for free with my invitation). Once you have set up your wallet, you can interact with Ethereum applications and transfer Ether between accounts. If you would like to learn how to code in Solidity (the programming language of Ethereum), these zombies are a good way to get started. Are you a developer? Here you can find an in-depth, professional course to learn how to program Ethereum.
If you would like to learn more about how Ethereum works behind the scenes, the short article below covers the logic and mechanics of how Ethereum works.
- Learn more about Ethereum project - link
- See the network of computers running Ethereum in real time - link
- How to get your own Ethereum online wallet - 10$ free on Coinbase
- How to keep your Ether safe - link
- How to install and run your own Ethereum node - link (pro)
- Learn more about how the blockchain works - link
- How to keep your Ether safe - link
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- In order to “hack” the network, a potential hacker would need to control 51% of the computing power of the whole network and forge malicious blocks. This is really hard to do because the mechanics of how blockchain works. Follow this link if you want to learn more.
- Surprises can still happen if hackers mess up with the code. While it’s hard to hack the blockchain which runs Ethereum, it’s fairly easy to identify bugs in the smart contracts used to run applications on top of this platform. Therefore, proof testing the code of smart contracts becomes essential to avoid major hacks.
- The deployed code cannot be changed unless the community running the whole network agrees to do so with a “hard fork” or “soft fork”. These forks are hard to implement and rewrite part of the blockchain database behind Ethereum. You can learn more about blockchain forks on Wikipedia.
- Transactions on the Ethereum network are signed with “asymmetrical cryptography”, it’s a strong encryption system that makes sure information cannot be altered unless the sender of that information wants to. You can read more about it here.