A short guide to Ethereum

What is Ethereum?

Ethereum

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Ethereum is a blockchain-based decentralised platform on which decentralised applications (dapps) can be built. A blockchain is a database with no central server that keeps track of every transaction and exchange. Dapps serve a certain purpose to a user.

It enables developers to create smart contracts. These are scripts that automatically execute tasks when certain conditions are met.

Ethereum is also a cryptocurrency system. Ether is its cryptocurrency, which Ethereum’s clients use to pay the machines executing the requested operations.

It is the second largest cryptocurrency system by market cap.

The Ethereum Virtual Machine

It is the Ethereum Virtual Machine (EVM) that allows users to create their own operations. EVM is run by an international public network of nodes.

Since every node runs the EVM, applications built on it reap the benefits of being decentralised without having to build their own blockchain.

Smart contracts

Smart contracts are strings of computer code capable of automatically executing when certain predetermined conditions are met.

Instead of requiring a single central authority to say Yes or No, these contracts are self-operated. This not only makes the entire process more effective, it also makes it more fair and objective.

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.

Many smart contracts are extremely complex. They all allow dapps to connect to the blockchain.

Dapps

Most of us have a pretty good understanding of what an application (app) is. An app is program written to fulfil a particular purpose of the user. We use apps to check our bank balance or scroll through pictures.

Now take this definition and *decentralise* it. Dapps serve similar functions, but run on an entire network of nodes rather than a central source.

Successful dapps include Augur and OmiseGO. Augur’s goal is to utilise a decentralised network to create a forecasting tool using prediction markets. OmiseGO’s vision is to solve problems of financial firms by enabling decentralised exchange on a blockchain.

Dapps could also be defined as blockchain-enabled websites.

What really stands out with dapps is how their founders are able to raise capital by selling tokens. A dapp can simply “ICO” and raise the capital they need to build their company (see our previous post to learn more about ICOs).

The DAO

If a dapp is governed by people then it is a Decentralised Organisation. Alternatively, if a dapp governs itself with no or little help from people, then it is a Decentralised Autonomous Organisation or DAO.

The most famous DAO was simply known as The DAO. It was set up to give funders the power to vote for which dapps deserved investment through DAO tokens.

The DAO is most famous for a crowdfunding campaign raising over $150 million in ether from more than 11,000 investors. The DAO is also most infamous for getting hacked for $50 million.

The fork and future

The news of this hack created chaos in the Ethereum community. While this hack had nothing to do with the Ethereum platform and everything to do with The DAO platform, many members of the Ethereum community were invested in The DAO.

The community responded with a “fork”. The new Ethereum (ETH) is the result of the fork, and is essentially the blockchain before the hack. The old Ethereum (Ethereum Classic – ETC) is still running the original blockchain with the hack included.

The vast majority of the Ethereum community including the Ethereum founders pivoted along with ETH, with a small minority staying loyal to the original blockchain.

The future for Ethereum is bright, but it is not without its potential uncertainty. Major upgrades are taking place to improve anonymity, smart contracts, programming, security, mining, stability and more.

Exchanges

People invest in Ethereum using cryptocurrency exchanges such as Coinbase, Gemini, Kraken, GDAX, Bittrex and CEX.IO.

This article is an abridged version of an article originally posted at Coincentral.com (a P27 Partner) under the headline “What is Ethereum?”