What is Ethereum (ETH)? — ‘Smart Way to Do Business’ — Beginner’s Guide

By Clark Wayne on ALTCOIN MAGAZINE

Ethereum was one of the first cryptocurrencies to be released (4 years after Bitcoin).

Unlike most other “coins”, Ethereum was established under the premise of bringing the idea of smart contracts to the world. Smart contracts are financial commitments ratified by no central authority — basically a system of trust.

A good example of how this works is if you get your hair cut. The typical way it works at present is that when you sit down in the barber’s chair, you are entering into a contract with the barber to pay them after they have performed their work.

The basis of this transaction is trust. They trust you will pay full price for the haircut, and it is enshrined in law that this process is a formal agreement, although no signature or documentation is provided.

The premise of ethereum is to give people a means through which to manage these transactions properly. By utilizing the decentralized blockchain data infrastructure, the premise is that before entering the agreement, you will agree to a price and deposit the money via an ethereum token. After the contract is complete, the money is deposited to the barber.

Whilst this sounds very good in principle, the reality is somewhat different. The contention has arisen within the investment community around the validity of the coins that Ethereum (and other “crypto” coins) has created. Deciphering this is pretty much the core of whether each of the coins has any value at all, and hence whether their prices are justified (they’re not).

What is Ethereum?

Ethereum was created by Vitalik Buterin in 2013, unveiled in 2014 at Bitcoin Miami.

The point of Ethereum was to create a decentralized network through which people could create smart contracts (scripts) that would rely on global data sets within the network.

Much akin to Bitcoin, in the sense that the system relies on the issuance of coins (decryption tokens), the Ethereum idea was built around the fact that in the modern world, computing infrastructure could easily support the creation of a system which allow two or more parties to deal with each other autonomously, creating the ability to share data and thus transactions.

Like many of the other coins created in the crypto craze, Ethereum works on the notion that each of its decryption tokens (coins) are worth a valid price against fiat currency (USD/GBP/EUR). This allowed for the notion of value to be integrated into the system from its inception, allowing for a large spectrum of transactions to occur.

The main point about Ethereum is that it was designed as an infrastructure layer from the get-go. This means that with the likes of its own scripting system and decentralized virtual machines, it’s able to provide the ability for developers to create decentralized applications that run on top of the platform.

Because of this, there are a number of peripheral features which Ethereum boasts over other cryptocurrencies:

Ether (Token)

This is the “token” issued by the Ethereum system (the coin everybody seems so eager to trade).

It is used to decrypt the various blocks in the Ethereum blockchain, allowing users access to the various smart contracts (applications) running on it.

Ethereum Virtual Machine

This is the primary mechanism through which the Ethereum network runs.

Like ALL the other coins in the crypto market, a network of processing systems has to be maintained in order for new transactions to be recorded in the various blockchain databases provided by the coins.

The way that ethereum manages this process (which is somewhat more involved than the likes of Bitcoin) is that it provides its own virtual machine through which the various smart contracts are ratified and processed.

This machine takes input data, processes it and then creates the various blocks for the chain as required. As a way to compensate the owners of these machines for their time/resources, they earn Ethereum tokens for each successful block they process.

Programming languages

Each smart contract is a mini-application designed with a number of scripting languages.

These languages are used to determine the data used and actions performed by the various Ethereum virtual private machines. The current languages include… Solidarity, Serpent, LLL, and Mutan.

Who Developed It?

The founder of Ethereum is Vitalik Buterin, born in Russia in 1994 and moved with his parents to Canada when he was 6.

A gifted student in school, he discovered an ability to add 3-digit numbers in his head twice as fast as the other students in his class, giving him an insight into his being drawn to mathematics, programming, and economics.

Buterin learned about Bitcoin when he was 19 when his father (a computer scientist) told him about the new technology. After indulging in the world of cryptocurrencies, he decided to develop his own smart contracting system — eventually leading him to win the Peter Thiel fellowship and calling the new system Ethereum.

Whilst much of the cryptocurrency world is shrouded in mystery, Vitalik has been relatively candid about Ethereum. He has stated on a number of occasions that it is waiting for a “killer app” to be developed on the platform.

Since the system is open-sourced, and therefore available for anybody to contribute to the code, a myriad of developers from around the world have created new features and fixed bugs in the system. To this end, there are a large number of people with both an emotive and financial commitment to the project.

Why is it Trading so Highly?

The Ethereum value proposition is different from the majority of other coins (which basically just wanted to cash in on Bitcoin’s popularity).

According to its white paper, the Ethereum currency was developed as “an alternative protocol for building decentralized applications”.

In other words, it wasn’t developed to rival the USD, etc (as some people have mistakenly attributed to Bitcoin) — it was designed to provide developers & end-users with a decentralized system on top of which they would be able to create & ratify specific use-cases (such as only allowing rental usage for a particular amount of time, or to agree on contracts that have henceforth been ignored due to inconvenience)…

Satoshi Nakamoto’s development of Bitcoin in 2008–2009 has often been hailed as a radical development in money and currency, being the first example of a digital asset which simultaneously has no backing or intrinsic value and no centralized issuer or controller. However, another, arguably more important, part of the Bitcoin experiment is the underlying blockchain technology as a tool of distributed consensus, and attention is rapidly starting to shift to this other aspect of Bitcoin. …. what Ethereum intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create “contracts” that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code.

You can read the full Whitepaper here.

The most important element here is the idea that Ethereum has been created as a platform to ratify contracts. This is significantly different to the myriad of other coins because it’s therefore not a transaction on its own that’s the determinant of the outcome, but the idea that certain pieces of logic need to be in place in order for the block to be processed.

Thus, when you consider the scope of Bitcoin’s infrastructure layer (IE giving the world the ability to transact without any central processor), and Ethereum’s ability to create logic-driven transactions, you begin to see that you could have a large number of time, or outcome-based contracts forming.

For example, you’d be able to pay your rent completely through the Ethereum system — unlike Bitcoin which doesn’t have any sort of timed mechanism or recurring model, the Ethereum system would give you the ability to pre-program the logic required to calculate the various rental prices and agreements for the tenants without needing any sort of central processor.

The implication here is that if the system was set up correctly, a landlord would not need ANY sort of involvement with the rent collection process. All banking and transactional systems would be handled entirely by the Ethereum infrastructure.

Obviously, we’re quite a way off from when this type of thing would be adopted en masse (there still needs to be a company like Microsoft who needs to come and popularize a central platform to make it work). Nonetheless, the underlying ideal behind the likes of Ethereum is actually intriguing.

Trajectory

As with Bitcoin, the price of Ethereum is pretty much dependent on the hype surrounding the cryptocurrency.

The most important thing to explain about Ethereum is that its adoption (as observed through its ever-growing transaction numbers) showcases the way in which the wider market has taken on its idea, and thus the ideas presented by many of the altcoins.

Most importantly, when you consider the crypto landscape, the underlying reality is that in order to make the system worthwhile, it needs adoption. Adoption — for a technology like this — comes from having a trustworthy and killer app that is able to provide users with the ability to harness the underlying technology without even having to think about it.

The likes of eBay, Amazon, Facebook, Google, Microsoft and more would be considered killer apps — what they built with the available technology drew millions of people to the respective solutions they made. As such, the interesting metric is the same with Ethereum.

The transaction graph for the coin has been growing steadily, with different levels of intensity, since its introduction in 2014. To date (Q4 2019), it has processed almost 600 million transactions, which are also free of many of the problems that Bitcoin suffers from — namely the difficulty problem as well as not having a limit on the size of blocks that can be added to its chain.

As such, the future (technologically) looks as bright for Ethereum as it is for Bitcoin… which is to say their fates are intertwined. As we’ve written before — it would just take a regulatory body to block their exchanges, or some other issue, to derail their trains permanently.

With this in mind, making a financial decision based on its technological prowess is not recommended.