What is Ethereum? Ultimate Guide to the Ethereum Protocol
The launch of Bitcoin in 2008 was a revolution to the financial industry. Now, a decentralized financial system existed. This system could execute monetary transactions and maintain the same integrity in monetary value exchange just as banks did but now in a decentralized fashion where a central third party was not needed to keep records or approve transactions. To read more about Bitcoin and the Decentralized money (Money transfer without third parties like banks), check out our previous chapter: Introduction to Bitcoin & Blockchain.
The underlying technology of Bitcoin/decentralized money is Blockchain. It is the blockchain that made it possible to eliminate the third party, keep a public database and transfer value at the same integrity as with the banking systems. Simply, blockchain assured trust and transparency in peer-to-peer transactions without the need of a third-party as with Banks in the case of finance. However, with the revelation of decentralized money, early adopters of Bitcoin and the blockchain technology realized that “decentralization” was not just suitable for financial systems and “the decentralized ledger system” (otherwise called Blockchain) could be used in industries involving transfer of value (not necessarily monetary value) and in dire need of trust and transparency.
One good example of an alternative use of blockchain was the ownership of physical property (smart property). Essentially, a token run in a blockchain system could represent someone’s physical ownership of property (e.g. ownership of land) and this ownership could be transacted digitally on the blockchain for a corresponding value of the physical asset. Imagine having land recorded digitally and being able to sell your land digitally in a decentralized ledger system and exchanging physical land based on the digital transactions and records on the blockchain. Such decentralization would improve transparency of land ownership and the integrity of land transfer as it would run without an easily corruptible third party’s control. Note that land corruption is already a rampant occurrence in highly corrupt countries with centralized land registries.
Now, this is just one of the numerous ways blockchain could be applied. Unfortunately, despite the numerous opportunities for blockchain application, creating a blockchain was an extremely cumbersome process. It involved the creation of a distributed consensus protocol from scratch or on top of the Bitcoin blockchain (still an extremely tedious process) but only until the Ethereum protocol was created.
What exactly is the Ethereum protocol?
The ethereum protocol was a blockchain protocol that allowed programmers to build decentralized applications on top of it without the need for creation of an entire blockchain. The ethereum blockchain served as the pillar for blockchain innovation. Any unimagined blockchain application could coded on top of the protocol with its built in Turing-complete programming language.
Think of ethereum as the android for decentralized applications. Most of us are familiar with Android: since our phones already run on Android, a programmer doesn’t need to rebuild an operating system when creating a small use case application for a smartphone. All it takes is creating an application that can run on Android and the rest is taken care of. This is why, one can play a ton of games, access e-commerce applications and even messaging platforms on one phone thanks to the ease of creating applications on an already existing operating system — Android. In the case of blockchain technology, Ethereum provided a platform for creation of decentralized applications just like Android to mobile applications.
“What Ethereum intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create “contracts” that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code.” — Ethereum White Paper, Vitalik Buterin
The Ethereum Virtual Machine
The Ethereum Virtual Machine (EVM) is the tool within the Ethereum protocol on which decentralized applications are created. It is the Ethereum layer where one can programme using the built-in Turing-complete programming language and thus have one’s application rest on Ethereum’s protocol and run by Ethereum’s distributed consensus. We’ll expound more on the EVM concept as we get a deeper understanding of Ethereum and its applications in later chapters. Back to the Android example: for those familiar with mobile application development, they are familiar with the Android studio where one can deploy code for mobile applications to run on the Android operating system. In the case of Ethereum, your code will be run and deployed on the Ethereum Virtual Machine and will run with Ethereum’s distributed consensus and blockchain without the need for creation of a blockchain from scratch.
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