A Brief Introduction to Ethereum
With the advent of good internet connectivity across many places in the world today, it’s become relatively cheap for parties to communicate. Technologies such as Bitcoin have enabled secure peer-to-peer transfer of value between parties by leveraging a public distributed ledger known as blockchain. With Bitcoin limited to financial transactions, however, there is need to create other trust-based systems including smart contracts that can take advantage of blockchain’s distributed and immutable nature. This is how Ethereum was born.
Ethereum attempts to create a generalized technology that goes beyond Bitcoin’s decentralized value transfer system to provide trust between transacting parties. It was first proposed by Buterin and ensures transactions, once published, are incorruptible and transparent. It is a transaction-based machine that begins from a genesis state, executing transactions until it reaches a final state. Some of this state information could be account balance, trust arrangement among others; the potential applications are limitless.
Transactions are arranged into blocks that are then chained together using a cryptographic hash for reference. You can think of a block as a journal; it records transactions along with the previous block and the identifier for the final state. For transactions to be published, they have incentives given to the miners who mine them. Mining is working to increase one’s blocks achieved using cryptographically secure proof-of-work. More on this in a bit. These transactions can result in either a message call or creation of new accounts.
To prevent the network from getting abused, transactions have associated costs that are known as gas. Ether, Ethereum’s intrinsic currency, for the gas is given to the miner who mines the block. With Bitcoin’s use of ASIC for mining a threat to its decentralization, Ethereum uses a special algorithm called Ethash for mining. For consensus, we pick the path with the most computation on it i.e. the path with the most blocks.
Ethereum’s generalized nature means it can be applied well beyond just financial transactions. It can be used in establishing smart contracts including digital transfer of land title deeds which effectively eliminates expensive intermediaries and further enhances transparency.
Disclaimer: The views expressed by the author above do not necessarily represent the views of the Ethereum Foundation.