The Ultimate Newbie Guide to Ethereum
Jeff Reed once had this to say about investing in Ethereum:
“There is little stopping Ethereum from being an alternative currency to fiat and commodity currencies. You can conceivably trade anything using Ethereum, but this is not Ethereum’s strength in comparison to other cryptocurrencies (CCs) — they can all do this. It’s rather the computing language that allows the smart contracts to exist that makes Ethereum more valuable than BTC”.
Recent trends and news reports have placed Ethereum as the next best and fastest rising crypto currency after Bitcoin. You may have heard a few things about these currencies but found yourself at crossroads. On one hand experts are telling you to join the cryptocurrency train before the market prices skyrocket any further. On the other hand, naysayers warn about the dangers of investing in digital currencies and warning you of great volatility and inevitable market crashes.
Market Cap
A crypto currency is a digital currency structured to serve as a means of exchange. Unlike paper money, it is a virtual currency that uses cryptography to make its transactions safe for users all over the world. There are already over 1,600 crypto currencies in the World accounting for a market cap today at $380B. Bitcoin and Ethereum are the top two accounting for $141B & $69B respectively. Bitcoin has 37% of the market cap, Ethereum is 2nd with 18% and Ripple (XRP) is 3rd with $27B or 7% of the market cap. There are even coins that have volumes that trade for less than 1 BTC in total per day, or less than 1 bitcoin’s worth of that crypto currency is traded within a 24hr period. These currencies run on what is called a block chain, a powerful medium that controls, signifies ownership of property and moves the value of these currencies.
Ethereum itself is a digitized open software platform run on block chain technology. Blockchain enables developers to build and deploy decentralized applications in the form of virtual coins or digital currencies.
Ethereum has been commonly associated with Bitcoin. This is not surprising since they are cut from the same cloth. However, Ethereum is an open-source computing platform with scripting functionality. It is also a blockchain based business that uses a virtual machine called EVM (Ethereum Virtual Machine) for its operations. This virtual machine can work with these scripts using a network of nodes.
To make sure this digital currency is protected in cyber space, Ethereum works with a crypto token called “ether”, which is the smallest unit of value on the Ethereum blockchain. For those who don’t understand coding and cryptography, building block chains can also be understood. In recent times, understanding of these digital currencies have been simplified to help newbies who are not tech savvy. New and easier applications are being created to simplify trading in ethereum and crypto currencies. These applications are regulated by trading bodies that record and safeguard online properties and assets.
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All virtual currencies have come under threat at one time or the other. Ethereum is not an exception. Ethereum split into different block chains after it suffered a hit in 2016 on the DAO project. The new version became ETH, Ethereum while the initial version continued as Ethereum Classic (ETC). Both versions have grown in leaps and bounds and they are worth millions of dollars as listed in virtual markets.
Ethers run on custom built blockchains. What this means is that these block chains are created sorely for them. Hence, bitcoin blockchains are different from Ethereum blockchains. They are unique and globally recognized as infrastructure needs for digital currency transactions. From where ever you are in the world, you can make transactions still retaining the globally recognized value and proof of ownership.
Ethereum should not be confused with Bitcoin. They are just two digital currencies among a hundred others. Block chain technology has many functions that are not limited to being instrumental to digital currencies. Ethereum and Bitcoin are just two of the hundreds of currencies that use block chain.
Ethereum runs smart contracts on a decentralized platform. This mean your virtual currency can be protected without one person having all the ethers in his or her account. There is no big bank controlled by people at the top. It is run this way to reduce fraud or any third party interference. This method allows for developers create market, check records, balance accounts, facilitate transactions and move funds with the acceptable medium without any intermediary. It is for this reason that there is little government interference and non-existent charges. However, come countries have legalized crypto currencies and demand tax for them.
Now, let’s talk about the Ethereum Wallet. This wallet is like a pocket where applications are made on an Ethereum Block chain. It’s like your personal account where you make transactions and keep your ethers. All those who have this wallet can hold or store ethers on them in addition to other crypto-assets and smart contracts built on ethereum.
Like Jeff Reed would say “With that said, if you were to be a long-term investor in Ethereum, you have to focus on the long-term timeline, with short-term volatility being a necessary even to find traction within the market, and for value to solidify”.
The Difference between Bitcoin and Ethereum
Since they are both digital currencies, both are usually made out to be one and the same. Like Bitcoin, Ethereum uses the Block chain technology. Bitcoins and Ethers are distributed via this network but it should be noted that they have different purposes and capabilities. The former operates a peer to peer e-system that enables Bitcoin payments. The block chain for bitcoin is used to file owners of these e-coins and e-transactions. The latter is however used to run codes or smart contracts for any decentralized application. Therein lies the biggest difference.
Those who control or own these coins are called Miners. Everyone can be a bitcoin miner. Bitcoin has been structured in such a way that although there is no decentralized network, crypto currencies need regulated mechanism to check and balance activities of miners. In Bitcoin, miners need to invest some kind of wok to qualify for certain remunerations. Indeed, they have to find a product of a cryptographic function that will connect the new block with its predecessor.
Bitcoins can only be created if miners solve a cryptographic puzzle on their computers. This puzzle is not exactly a walk in the park. The more you work on this puzzle, the more you increase the number of hours spent as a miner. Even so, there is a specific amount of coins you can mine during a particular period. This is a safety measure and part of an agreed algorithm that ensures that no peer in the network can break.
Unlike Bitcoin, miners in Ethereum put in work to earn ethers. They are tradable crypto tokens that fuel the network. Ether is the tool used by application developers to pay for transaction fees and services on their network. Rather than restricting developers, Ethereum hands over the reins to any developer who wants to create any operation of their choice. Developers can build thousands of applications and have control over them. Perhaps this freedom is what makes Ethereum the fastest growing crypto currency.
Don Tapscott has this to say about the whole process: “[Ethereum] blockchain has some extraordinary capabilities. One of them is that you can build smart contracts. It’s kind of what it sounds like. It’s a contract that self-executes, and the contract handles the enforcement, the management, performance, and payment”.
The Uniqueness of Ethereum
Ethereum is also instrumental in building Decentralized Autonomous Organizations (DAO). A DAO is a fully autonomous, decentralized organization with no single leader. DAO’s only run by programs or codes that are hinged in a collection of smart contracts written on an Ethereum Blockchain.
With this universal code, man power, monitoring and centralization becomes secondary. There is no need for rules and regulations as one can find in financial institutions. Stephen Tual, the former COO of Ethereum says “A DAO is owned by everyone who purchases tokens, but instead of each token equating to equity shares & ownership, tokens act as contributions that give people voting rights. A DAO consists of one or more contracts and could be funded by a group of like-minded individuals. A DAO operates completely transparently and completely independently of any human intervention, including its original creators. A DAO will stay on the network as long as it covers its survival costs and provide a useful service to its customer base”.
Ethereum changed the face of the crypto currency scene. In the recent past, block chain applications were constructed in a way that carried only limited transactions. Some crypto currencies are exclusive in its dealings, leaning only towards peer-to-peer currencies. Ethereum solved this issue by giving developers the leave to create their own applications instead of being just another crypto currency that expanding on the function of an existing one.
Vitalik Buterin, the inventor of Ethereum had this to say: “I thought [those in the Bitcoin community] weren’t approaching the problem in the right way. I thought they were going after individual applications; they were trying to kind of explicitly support each [use case] in a sort of Swiss Army knife protocol.”
The Ethereum Virtual Machine
The EVM as it is popularly called is a unique innovation that is exclusive to Ethereum. Its major function is tuning the software than runs the Ethereum network. With this powerful virtual machine, developers from all over the world run varying programs in any programming language or code of their choice. Blockchain applications are easier to use without the stress of creating a new block chain for any a new application. Different applications can now run on a single platform and retain its validity.
Every developers dream of freedom of code and programming can finally come true. They can build decentralized applications which serves the purpose of virtual currency not being controlled by any individual or institution.
Benefits of a Decentralized Application as proposed by Ethereum
· Free from third party interference
· Tamper proof apps
· Secure and safe with no central body in charge of virtual currencies. Applications are protected from unethical hackers
· Zero downtime as apps can never go down or be switched off
Disadvantages of Decentralized Applications
· Smart codes are only as good as those that write them
· Bug oversight can lead to attack
· One attack can lead to a code being written on the network
Ethereum in the Present and Future
Digital currencies are gaining traction and fast too. Private blockchains have made it easy for institutions to create and run their businesses on their blockchains. Now employees, staff and business owners can carry out secure transactions through strong cryptic channels. In just two years, many companies have latched on to digital currencies building consortia blockchains with a small number of counterparties in their ecosystem. Some companies use Ethereum for their international transactions.
With the Ethereum platform, there has been a change through decentralized applications in the internet use and value. People can now view, exchange and communicate vital financial information and financial holdings without intervention. Banks are using Ethereum and Microsoft is anchoring its Bletchley platform on it as the foundational blockchain element.
Like Joseph Lubin said “It takes a (global) village to raise a blockchain. The live network and the community of open source developers contribute significantly to this effort. They continuously refine and harden the Ethereum platform, helping it get faster at responding to industry demands for the value propositions it offers. These investments of time and resources speak to their faith in Ethereum governance and the value that businesses and developers see in its capabilities”.
Government and banks have taken a cautious approach towards them because it keeps them out of the financial loop and hindered tax accountability. Nevertheless, it is only a matter of time before it becomes generally accepted.
Glossary
Bitcoin- The first and most famous crypto currency. It is known as digital gold standard in the whole virtual cryptocurrency-industry. A means of global payment, it has been in existence for over seven years and one bitcoin is worth about 650 dollars with over 200.000 daily transactions.
Crypto-currency- Virtual online tenders secured by a strong cryptography. They are not secured by institutions or humans but by codes and calculations.
Digital currency- Digital gold. Sound money that is secure from political influence. Money that promises to preserve and increase its value over time. A new way of making payments worldwide. Functions in black markets.
Ether- A unit of an ethereum.
Ethereum- The brainchild of crypto-genius Vitalik Buterin. Placed second in the hierarchy of digital currencies. Ethereum can not only process transactions but complex contracts and programs as well.
Smart contract- A phrase used to describe computer code that can facilitate the exchange of money, content, property, shares, or anything of value. When running on the blockchain, a smart contract is a self-operating computer program that automatically executes when specific conditions are met. They are run on the block chain without censorship, downtime, fraud or third party interference.
Virtual currency- Digital money created from code. Free from government oversight and monitored by internet protocol.
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