Ethereum (ETH): A Beginner's Guide to Decentralized Applications

Think of Ethereum as Android OS or Linux, open-source platforms where you can write code, create, and build, without a set of rules, so to speak.

Think of Ethereum as Android OS or Linux, open-source platforms where you can write code, create, and build, without a set of rules, so to speak.

Ethereum at its most fundamental level is an open-source software platform that utilizes blockchain technology so that software and app developers can build and deploy decentralized applications.

First use

It was first introduced in a whitepaper by Vitalik Buterin, a programmer and co-founder of Bitcoin Magazine in late 2013. Buterin’s reasoning was that Bitcoin needed a scripting language for application development, and thus created Ethereum.

Ethereum is also be written and referenced as “ETH”.

Relationship to Bitcoin

When describing Bitcoin and blockchain technology, Ethereum’s co-founder Gavin Wood, analogized blockchain technology to the internet. Email is one particular use of the internet, just as Bitcoin, while first and foremost a currency, is also a particular use of a blockchain.

Ethereum just happens to be another use of the Blockchain. However, as to why an individual would choose to use Ethereum over Bitcoin, it all comes down to the purpose and capability each offer.

Bitcoin, in applying blockchain technology, offers a peer-to-peer (P2P) electronic cash system that enables online Bitcoin payments. Nothing different than using a PayPal or Venmo, except for the blockchain and encryption aspects.

While Bitcoin is used to track ownership of its native digital currency (bitcoins), ethereum focuses instead on running the programming code of any decentralized application (dApp).

Native Token: “Ether”

Unlike Bitcoin, where miners “mine” for bitcoin, in the Ethereum, miners work to earn the network’s native currency, Ether. Ether, like bitcoin, can also be purchased, traded, and used to pay for transaction fees and other services on the ethereum network. It is available on Cryptoexchange.com.

Alternate Token: Gas

In addition to Ether, another native token that is used to pay miners fees for including transactions in their block is called “gas”. Imagine if every ATM (including your own bank) assessed a fee for putting your card in...so it can do what you ask it to. In the world of blockchain, that’s gas fees.

Every Ethereum smart contract execution requires a certain amount of gas to be sent along with the contract, so that miners are encouraged to put that transaction into the Blockchain.

Ethereum Smart Contracts

Smart Contracts are writted as code and committed to the blockchain. The code and conditions in the contract are publicly available on the ledger. When an event outlined in the contract is triggerred, like an expiration date or an asset’s target price is reached -- code executes Regulators can watch contract activity on the blockchain to understand the market while still maintaining the privacy of individual actors

In non-cryptocurrency transaction, we are accustomed to traditional contracts (paper or electronic) that set out the terms and conditions for any particular transaction. Similarly, cryptocurrency exchanges also utilize a contract, but instead, use a computer code, called a “smart contract”, that helps facilitate the exchange of value (money, content, property, shares, etc) that is the essence of the transaction.

Once a smart contract is executed on the blockchain, it is self-governing, and does not require or need human interference, so as to completely eliminate the potential for censorship, downtime, fraud, or third-party interference--something that our traditional legal landscape unfortunately still faces. The smart contract, through the computer code, automatically executes different aspects of the contract when specific conditions are met.

For developer purposes, Ethereum is like the Matrix when it comes to innovation, allowing for app developers to create whatever operations they want, beyond anything we have seen before.

Using Ethereum for Decentralization

What Apps Are Being Developed On Ethereum

The Ethereum platform can run applications with use case across a broad range of services and industries.

• Finance
• Real Estate
• Insurance

Decentralization may profoundly disrupt many million dollar industries like these. The Decentralization of existing services leads to endless possibilites.

As mentioned earlier, Ethereum enables developers to build and deploy Dapps, or decentralized applications that serve some particular purpose to its users. These Dapps are made up of code that run on the ethereum network, and are not controlled by any individual or central entity, also known as “decentralization”.

Decentralization

serves to remove all the third-party intermediaries that are essentially the “pain-in-the-ass” to the transaction. Think about all those intermediary services you come across on a daily basis across hundreds of different industries (banks, brokers, etc.) Decentralization removes those “middle men” so that the parties can deal directly with one another, without delay.

But why is decentralization necessary? Or rather, attractive?

Immutability

You don’t want third-parties or other random clowns coming in and altering or manipulating data. Having an immutable ledger allows for complete control.

Removes Fraud

You don’t want corruption and fraud in the equation. These Dapps survive on a consensus network, making censorship and these rules, impossible.ver crash, slow down, or are turned off. So there’s that.

Secure

The golden word of 2020 when it comes to data privacy. With no central point of failure, utilizing cryptography guards against cybersecurity attacks like hacking and other fraudulent behavior. Now, keep in mind, that the smart contract code is written by humans, so these smart contracts are only as good as the people who write them. There is always the possibility for bugs or oversights that could yield unintended actions, which would open the network up to an attack.

No Off-Switch

Yeah, there’s no off-switch.