Ethereum, like Bitcoin, is a public ledger based on blockchain technology. Unlike Bitcoin, however, it allows development of decentralized applications. Tokens named Ether are used for running this platform, like the network’s fuel. Ether is used as a payment mode by clients to run its underlying operations. Now ether can be acquired by ‘mining’ it, in a manner very similar to Bitcoin mining operations, and of course, by trading it on crypto exchange platforms.
But before you sign up on an exchange to some Ether for yourself, it is important to understand that Ethereum is more than just a cryptocurrency- it is more like a crypto commodity. Here’s why:
Background
Ethereum uses an unconventional approach to development, which it calls the Ethereum Virtual Machine (EVM). This is Turing software that runs on its blockchain. With a sufficient amount of time and memory, it allows for execution of codes in any programming language. Developers can use the same Ethereum platform to develop applications in different languages. They need not build separate blockchain for every application! This is a huge step towards mass adoption.
Smart Contracts
Smart Contracts are Ethereum’s USP. If Bitcoin is an app for money, Ethereum is an entire app store. Its blockchain allows users to build self-executing, decentralised applications that run in a trustless way. This is more impactful than it may seem at first glance. What Bitcoin aims to do to our current fiat monetary system, Ethereum could do for all sorts of industries. Imagine renting out our home to a tenant, with a smart lock, that automatically checks if you’ve received your rent. If the tenant hasn’t paid, he is denied entry into your home.
Imagine claiming medical insurance, and everyone in the chain already has access to your data once you grant it, instead of you having to submit paperwork and wait at multiple folks on the way to receiving your claim.
The possibilities are endless. You could share your electrical power with others and get rewarded by a smart contract that facilitates this transfer, or you could share your computer’s vacant hard drive space and get rewarded by another system that facilitates those functions. Smart Contracts are in a great position to truly bring alive token economics on a global scale.
The blockchain based contracts execute as soon as the underlying conditions mentioned in the contract are met. As they take place on a decentralized network, they are free from any interference of third parties. Ethereum acts as a platform for execution of such contracts. Every application built on Ethereum is known to use smart contracts to some extent in transaction processing. Take a bunch of contracts together and you have what we call a Decentralised App. But more on that later. First, let’s understand why Ethereum’s Smart Contract model is destined to be a success.
The advantages with Ethereum
Being a decentralized platform, Ethereum delivers some clear cut, standout advantages over all other conventional systems. Two of the major ones are:
– Security
As all transactions on the blockchain are encrypted and have no central point of failure, the Ethereum platform is extremely safe for the users. If you lose access to the blockchain via your machine, your smart contract, your wallet, and all other data still exist.
– Immutability
The reason the blockchain really took off – immutability. No third party can make changes to the data on the Ethereum blockchain. So again, users are protected from fraud, malicious attempts and the like. Here, code is law. Immutable law.
The Consequences
– Decentralized Applications (DApps)
Ethereum is extensively used by developers to build decentralized applications that can run on the blockchain. Popularly known as a DApp, this is software that can run for an indefinite time, given sufficient available memory. It’s a bunch of smart contracts, along with other supplementary code of course, that lets us perform complex tasks on the blockchain. As a DApp runs on a decentralized platform, it cannot be manipulated or controlled by anyone. Golem and Augur are some of the most successful Ethereum based DApps which have achieved millions of dollars in market capitalization.
The Decentralized Organization (DAO)
Seeing the overwhelming response to decentralized applications built on Ethereum platform, developers went a step ahead and created the autonomous Decentralized Organization (DAO). The DAO is an autonomous venture fund of sorts, which allows popular and promising DApps to get funded by the community. Obviously, it consists of smart contracts that are created by developers, and is even infact, governed by smart contracts itself. Every member gets voting rights according to their contribution to the organization. With the DAO, anything from insurance claims to banks can be decentralized! Which takes us to the next question – if you wanted your idea funded via the DAO, where should you start?