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What is Ethereum? | The Ultimate Beginners’ Guide

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This article by was originally published at CoinCentral.com

Ethereum is an open-source blockchain-based platform that essentially enables hundreds of decentralized cryptocurrencies and projects to be built and deployed exist without having to build their own blockchains.

With the second largest market cap in the cryptocurrency world, it has drawn a lot of attention from investors and crypto enthusiasts alike.

It not only presents a significant change to the status quo, it also allows for the quick development and deployment of new applications presenting niche solutions for various industries.

While Ethereum’s utility is obvious to programmers and the tech world at large, many people who are less tech-savvy have trouble understanding it. We’ve designed this guide to appeal to both crowds and expose anyone from complete crypto beginners and intermediates to this potentially world-changing cryptocurrency.

Ethereum vs. Bitcoin

If you’re interested in Ethereum, chances are you have some sort of foundational knowledge of Bitcoin.

All cryptocurrencies inevitably get compared to Bitcoin, and it frankly makes understanding them much easier.

Bitcoin launched in 2009 as the world’s first cryptocurrency, with the single goal of creating a decentralized universal currency. This currency would not require any intermediary financial institutions, but would still ensure safe and valid transactions. This was made possible by a revolutionary technology called the “blockchain.

Similar to Bitcoin, Ethereum is a distributed public blockchain network. While both Ethereum and Bitcoin are cryptocurrencies that can be traded among users, there are many substantial differences between the two.

Bitcoin, for example, utilizes blockchain to track ownership of the digital currency, making it an extremely effective peer to peer electronic cash system. Ethereum, on the other hand, focuses on running the programming code of an application. Application developers largely use it to pay for services and transaction fees on the Ethereum network.

Both Bitcoin and Ethereum are “decentralized,” meaning they have no central control or issuing authority. Respective miners run each network by validating transactions to earn either bitcoin (for Bitcoin) or ether (for Ethereum).

Ethereum is simply the application of blockchain technology for a completely different purpose.

 

What is Ethereum?

Simply put, Ethereum is a blockchain-based decentralized platform on which decentralized applications (Dapps) can be built.

  • Remember, blockchain is a database with no central server that keeps track of every transaction and exchange. The vast majority of cryptocurrencies and decentralized projects run on some application of blockchain.

 

Ethereum’s appeal is that it’s built in a way that enables developers to create smart contracts. Smart contracts are scripts that automatically execute tasks when certain conditions are met. For example, a smart contract could technically say, “pay Jane $10 if she submits a 1000 word article on goats by September 15, 2018,” and it would pay Jane once the conditions are met.

These smart contracts are executed by the Turing-complete Ethereum Virtual Machine (EVM), run by an international public network of nodes.

The cryptocurrency of the Ethereum network is called ether. Ether serves two different functions:

  1.    Compensate the mining full nodes that power its network. This keeps things running smoothly at an administrative level.
  2.    Pay people under smart contract conditions. This is what motivates users to work on the Ethereum platform.

 

Beyond Money

As a general purpose blockchain, Ethereum needs a mechanism to represent assets other than money.  The ERC-721 standard has been created to transact unique items of value.  The ERC acronym stands for Ethereum Request for Comment and provides a formal process for the Ethereum Foundation to improve its product.  The ERC-721 standard originally drove the development of the highly successful CryptoKitties collectibles, but it allows for the representation of any digital asset.

 

Future Updates to Ethereum: The Long Road of the Future

Software never stops changing until people stop using it.  The Ethereum Foundation follows a roadmap of future modifications and enhancements to the system.  No system ever runs fast enough, so scaling continues to develop.  Privacy remains paramount, and research into zero-knowledge proofs continues.  Decentralized systems demand constant attention to security.  Many aspects of the future remain unknown.  Some new and popular application not yet on the market may well demand new capabilities from the system.  As the world changes, Ethereum continues to evolve.

The future for Ethereum is bright, but it is not without its potential uncertainty.

 

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Prachi Sharma

In love with coding. A technophile and a web developer.

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