What is Ethereum

Recently Ethereum got in the public eye when its price gained 5000% in less than 6 months since the start of 2017 – pumping the entire cryptocurrency market cap to over $100 billion. But what it really is? What it does? Is it anything like bitcoin? Well, yes and no.

Ethereum is a developer platform for the creation of decentralized applications running on blockchain, through the use of smart contracts. Ether is the cryptocurrency that runs on Ethereum blockchain, which is the technology behind bitcoin.

Ethereum itself is not a cryptocurrency, it is a platform to build tools and apps (dApps) on top of the blockchain. While bitcoin can be defined as:

a peer-to-peer network leveraging a data structure called a blockchain to enable creation and transmission of digital scarcity.

Ethereum is more like:

a peer-to-peer network leveraging a data structure called a blockchain to enable creation and transmission of digital scarcity as well as a public, global state of arbitrary data that can be updated with a Turing-complete instruction set.

The key difference between Ethereum and most other cryptocurrency networks like Bitcoin is in the way that the global network state is represented and operated on.

In legacy systems, the entire network is handled by a single server entity, making it a weak point and vulnerable to attacks.

Not all blockchains are created equal, even though it may seem like it. Ethereum utilizes smart contracts to create automated transactions over its blockchain. By using these built-in algorithms, users can automatically transfer Ether over the blockchain to other users.

Smart contract is a term used to describe a program that help you exchange money, property, shares, or anything of value in a transparent, conflict-free way. These are the programs that follow a series of steps every time they receive a message called a transaction.

You can think of smart contract as a traditional contract between two parties. It can not only define the rules and penalties of the agreement, but also automatically enforce those obligations.

Smart contracts written into the code make Ethereum more than just a distributed ledger. Bitcoin’s blockchain only has the capability to keep track of transactions. Ethereum’s setup allows developers to create smart contract-powered programs, like the DAO’s, on the Ethereum blockchain.

In a nutshell, Ethereum is more developer friendly. So when banks and other financial institutions say they are working with Ethereum, it’s very different than just experimenting with blockchain. They are trying to develop tools on top of the distributed ledger.

With Ethereum you can easily add any of the following things to your web application:

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• Payments from any user to any other user
• Payments from a user to you
• Timestamped, immutable records
• Password-free logins and automatic user management
• Your own currency with programmable monetary policy

Bitcoin is great for storing value, but it has been going through some scaling issues. It is still not viable to buy coffee using Bitcoin because the transactions may take too long. As of now, in Ethereum blockchain, miners are rewarded with Ethers, just like Bitcoin. They work to get these Ethers. Ethereum is PoW (Proof of Work) and so it Bitcoin, but Ethereum will soon switch to PoS (Proof of Stake).

PoW and PoS are different algorithms to achieve consensus on which block should be added next to the blockchain. PoW algorithm requires a lot of energy. According to some estimates, Bitcoin PoW already consumes as much energy as Denmark. Furthermore, top Bitcoin mining firms are based out China, and continue to be profitable businesses. There is a worry that this would leave decision making to a selected few and negatively impact user growth.

While proof-of-work algorithm provides a more secure network, some are eager for a greener alternative. This is where PoS comes in. Ethereum will soon switch to PoS algorithm aka Casper, which is going to be a radical change on how the network consensus is achieved.

PoS requires users that have a high stake at the currency (i.e. people who have a lot of coins) to determine the next block. This is not the first time a currency will implement PoS. Till date, this protocol has been embraced by several projects. Peercoin, NXT are to name a few.

But Ethereum’s transition would be unique, in that it would switch protocols without ever going offline. There is a high risk of some party achieving monopoly of the currency. That is the reason why some critics claim this approach may never work.

Despite the backlash, Ethereum core developers have continued to work on PoS for the past couple of years and have made a good progress so far. Vitalik Buterin, co-founder of Ethereum recently said, he’s “quite confident on the general principle” although “details need to be worked out.”

Positives of decentralized networks:

• • Immutable: Very resistant towards hacker attacks;
  • Corruption & tamper proof: Consensus makes censorship impossible
  • Have zero downtime, even if some of their parts go down;
  • Secure: Cryptography and no single point of failure protects the decentralized networks against hacking and fraudulent activities.

There are some downsides to decentralized networks as well. For instance, in case of Ethereum, smart contracts are written by humans. They can be as good as the people who write them.

Another flaw is when code bugs or oversights lead to adverse actions that are not intended. When some hacker exploits a mistake in the code, there is no efficient way to stop him. The only way to go about it to obtain a network consensus and rewrite the underlying code. No wonder Casper has been in development for years and still there is no date for its final release. Developers need to be very careful and positive about the quality of code being deployed on the blockchain.

Ethereum is still in infancy, but clearly growing very rapidly. There is a lot of cool stuff that can be built of Ethereum. We’re already seeing people raising millions of dollars through ICOs for their projects built entirely on Ethereum blockchain. This article Provided by Ethprice.com