In the most basic form, Ethereum is a blockchain-based open-source platform that gives developers the opportunity to build decentralized applications and deploy them. Like Bitcoin, it is a distributed blockchain network that is public but there are some significant differences between the two.
The most significant difference is in the purpose and the capability of the two networks. Bitcoin offers a specific blockchain application, that of a P2P digital cash system that allows for online payments of Bitcoin. This network is used for tracking the ownership of the Bitcoin but Ethereum is focused on the program code needed to run a decentralized application.
With the Ethereum blockchain, rather than Bitcoin the miners will work to earn Ether or ETH. Although this is a type of digital currency, rather than being spent in the same way as we can make purchases with Bitcoin, ETH is the fuel that is needed to run the Ethereum network. It can be traded but is generally used by the application developers to pay for the services and the transaction fees on the Ethereum network.
In a later chapter, I will be showing you how to build a Smart contract but, for now, we are just going to look at what they are and what they can be used for. A Smart contract is a piece of computer code that contains instructions for a transaction or exchange of something of value to take place upon certain conditions being met. Because they are programmed to run on the blockchain these contract act exactly as they should and execute exactly when they are programmed to do so without the interference of any third-party and without the risk of hacking or downtime.
All blockchains can process code but most of them are limited in what they can do. That is where Ethereum differs; instead of developers being curtailed by a limit on operations, they can create the operations they want to use. This means there is the potential for thousands of applications that can go beyond anything ever seen before.
The Virtual Machine
Before Ethereum came into existence, blockchain applications could only be designed to do limited things. The cryptocurrencies were designed to do one thing – operate as P2P digital currencies, nothing more. This posed a problem for developers – they either had to expand the range of functions that these cryptocurrencies could do, which would be complicated and take too much time, or they could come up with a new kind of blockchain-based platform and application. The developer of Ethereum, Vitalik Buterin, came up with an innovative approach.
The core innovation of Ethereum is the EVM or Ethereum Virtual Machine. It is a Turing-complete software running on the Ethereum network, enabling anybody to run whatever program they want regardless of what programming language it is written in, given sufficient memory and time. The EVM simplifies the process of creating blockchain-based applications and makes it all more efficient. Rather than needing to build a new blockchain for each application, the EVM enables thousands of different apps to be built on one single platform.
What Can We Use Ethereum for?
Ethereum is primarily for developers to build their decentralized applications on and to deploy them. Otherwise known as Dapps, these applications will serve a specific purpose. Bitcoin is a Dapp that provides the P2P digital cash system for example. Because these applications are comprised of code that runs on the blockchain, no one person or entity controls them.
Think of all the different intermediary services that are used across all the different industries. From banks to other services that we rarely give a second thought to, like regulatory compliance, voting systems, etc., if the service is centralized it can easily be decentralized with Ethereum.
We can also use Ethereum to build DAOs – Decentralized Autonomous Organizations. These are decentralized organizations that are fully autonomous, having no one leader. They are run purely by programming code, smart contracts that have been written on Ethereum. This code replaces the structure and the rules of a traditional organization and eliminates the need for centralized control and for people. Each DAO is owned by those who purchase ETH tokens but, rather than the tokens acting as equity shares or ownership, they
provide the token owner with voting rights instead.
The Benefits of Ethereum
Because all these decentralized applications will run on the blockchain, they will all benefit from the properties of the blockchain:
Immutable – changes cannot be made to any data by a third party Tamper-proof and corruption-free – the framework the apps are built on are based on the principle of consensus and this makes censorship virtually impossible
Secure – there is no single point of failure and all applications and transactions are secured with cryptography, giving them strong protection against fraud and hacking
No Downtime – the blockchain can’t go down so the apps can’t go down and they are never switched off
The Downside to Decentralized Applications
Although the decentralized application comes with a ton of benefits they are no completely without fault. The code for the Smart contracts are written by humans and they are only as good as who writes them. Any oversights, bugs in the code or sheer human error can lead to things happening that weren’t meant to and if a mistake is exploited, there is absolutely no efficient way to stop it – the only way would be to get consensus from the network and rewrite the underlying code. This is not what the blockchain is all about because it is meant to be immutable and any action that a central party does will raise questions about the apparent decentralized nature of the application.
How Do I Access Ethereum to Develop an App?
There are lots of ways to plug yourself into the Ethereum network but by far the best and easiest is to use the native Mist browser. Mist is user-friendly and provides you with a digital wallet for storage and trade of ETH tokens – later I will show you how to set up a Mist wallet. Mist also allows you to write Smart contracts as well as managing them, deploying them and using them. Like a normal web browser provides access to the net and helps you to navigate it, so Mist is a portal to the decentralized blockchain application world.
You can also use a browser extension called MetaMask. This transforms Google Chrome to an Ethereum browser and lets anyone develop or run a decentralized app from the browser. Although it was first built as a
plugin for Chrome, in time it will also provide support for Firefox and other platforms.
It is early days yet but Mist and MetaMask, not to mention other browsers are starting to give us more access to decentralized applications. Even if you are not of a technical background, you can still build that decentralized application, a revolutionary jump that could bring the Dapp firmly into the mainstream.
What Dapps Are Being Developed Now?
Ethereum is currently being used as a platform for applications covering a wide range of industries and different services. However, this is uncharted territory for developers so, at this stage, it is difficult to know what will and won’t be a success. Some of the more exciting projects are:
Weifund – provides an open-source platform aimed at crowdfunding for smart contracts. The platform helps contributions to be turned into digital assets, backed up by a contract that can be traded, used or sold on the Ethereum platform
Uport – gives users a convenient and secure method of taking control of their personal information and identity. Rather than having to rely on government agencies and giving up their identities to intermediaries, users have full control over who can see ad use their information and data.
BlockApps – is trying to provide enterprises with an easier way to build blockchain apps and manage them. All the tools needed are provided, from proof of concept to legacy system integration and full production, for blockchain applications that are industry- specific, private or public.
Provenance – making use of Ethereum to make supply chains somewhat more transparent. They allow for the tracing of a product origin and a full history of it, giving customers a more open and easily accessible information framework to base their purchasing decisions on
Augur – a market platform for prediction and forecasting, allowing people to forecaster events and rewarding them for correct predictions. Any predictions made on real-world events are done through the trade of virtual shares and if shares are
bought by a person who wins a prediction they are given a monetary reward
The DAO Hack
We know that Ethereum is a platform for building Decentralized Autonomous apps but in 2016 something went very wrong. A startup group who were working on a project called The DAO were hacked. This project was being developed by a team called lock.it with the aim of producing a venture capital firm that would not require human employees. People would be able to use Smart contracts to make their decisions. The DAO received funding through the sale of ETH tokens and raised around $150 million from thousands of sources.
An unknown attacker struck shortly after that money was raised and stole around $50 million of ETH. This attack came about through a single flaw in the DAO software, NOT the Ethereum platform but it left the founders and the developers of Ethereum having to clean up the mess.
Much debating took place and the entire Ethereum community held a vote. The outcome was to retrieve the funds through a Hard Fork, or by changing the code. The fork moved the stolen money into a new Smart contract, one that allowed the original owners to get their ETH tokens. Things got a bit complicated at this point with the implications proving somewhat controversial. Here’s why that happened.
Ethereum is based on the blockchain technology that is not meant to be reversible; transactions are not supposed to be able to be changed. The decision to execute the hard fork, effectively disregarding all the rules that dictate how a blockchain executes, resulted in a very dangerous precedent being set, one that goes against the reason for the blockchain. If the blockchain were to change whenever a large amount of ETH was involved or whenever a large group of investors was impacted negatively, the blockchain is going to lose the value proposition that backs it up – the value of being secure, unchangeable, tamper-proof and anonymous.
A slightly less aggressive solution was put forward but the Ethereum founders and the community as a whole were put in a dodgy situation. If the stolen funds weren’t retrieved, confidence in the platform would plummet. On the other hand, to recover the money would require actions that went against the value propositions of the platform and would set an incredibly dangerous precedent.
A majority vote went in favor of the hard fork but as not everyone agreed, the result was a split with two blockchains running parallel to one another. Ethereum Classic is for those investors who do not agree with changes being made to the blockchain, even in the case of hacking, while Ethereum remains for those who agreed to rewrite a bit of the code and retrieve the stolen funds.
The Future of Ethereum
Despite all this, Ethereum continues to move forward and the future is looking very bright. The platform is user-friendly and it gives people the opportunity to use the power of the blockchain, thus speeding up decentralization across the world economy. These decentralized applications have enormous potential in causing huge disruption to hundred of different industries. Most of the more significant organizations will use private blockchains to run their business processes.
Private Blockchain – inside the next couple of years, some of the major companies will be using private, permissioned blockchains to run some of their business processes, giving employees, service providers, vendors and customers alike access to the business blockchain through transactions that are cryptographically authenticated.
Consortia Blockchain – consortia blockchains will be on the rise within the next couple of year, providing collaboration for counterparties on use cases that will allow the sharing of trusted source-of-truth value, supply and infrastructure chains.
Public Blockchain – Business Use – some companies are expected to use the public Ethereum platform for use cases with the same blockchain components that hey use on their private blockchain implementations
The Ethereum platform is also starting to change the way we use the internet. Dapps are pushing for a change, from the Internet of Information we are all used to using for viewing and exchanging information, over to an Internet of Value, where immediate value can be exchanged without the need for intermediaries. It is early days yet and there is a lot of work to be done but there is no doubt that Ethereum is going to be one of the most revolutionary platforms and exciting times await us.