What is Ethereum? – A Blockchain App Platform
Ether is a cryptocurrency that is used to fuel the Ethereum blockchain. It has some shared characteristics with Bitcoin like how it is decentralized and immutable, but Ethereum helps create applications beyond a simple digital currency.
The project was created in August 2014 and had a presale for its tokens around the world. Unlike Bitcoin, Ethereum has a public team of contributors, which is led by Vitalik Buterin.
Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third-party interference.
These apps run on a custom built blockchain, a powerful shared global infrastructure that can move value around and represent the ownership of property.
This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middleman or counterparty risk. All of this is performed through smart contracts.
What are smart contracts again?
A smart contract is a computer program that directly controls the transfer of digital currencies or assets between parties under certain conditions. A smart contract defines the rules of a transfer between users and automatically enforces obligations of transfers once those rules or conditions are met. Smart contracts can disintermediate legal and financial fields and have endless applications but let’s look at a simple example.
Bob and John want to bet on a football game. Bob is worried that John will not respect his bet and not pay him back if he wins, but he does not want to use a betting site that would collect a portion of their bet to administer payouts. Instead, they could place their bet using a decentralized smart contract, and if a condition is triggered (Bob winning the football game bet), the smart contract will automatically move the funds from John’s account to Bob’s account. All of this occurs through software that cannot be tampered with and can be public for everybody to see. Smart contracts are revolutionary because they can eliminate middlemen fees without sacrificing trust. To execute a smart contract on the Ethereum blockchain, you need to pay a small amount of Ether as a fee.
What is the most common use of a smart contract today?
ICOs or Initial Coin Offerings are a way for an organization to crowdfund money and they are currently the most common use for smart contracts. The function of an ICO is to raise money and in return, issue coins or tokens to investors who sent that money. To do this, investors send some Ether to a contract on the Ethereum network. When they send the Ether to a contract, the contract assigns them a certain amount of a token for the ICO. The function to assign them that certain amount of token is written into the smart contract. For example, a contract may enforce that if you send 1 Ether, you could receive 100 tokens of an organization’s cryptocurrency in return after a certain date or after a certain amount of money has been raised.
ICOs are not unique to the Ethereum but Ethereum has made it significantly easier to release an ICO than before. Ethereum made it easy to launch an ICO because it created an ERC-20 standardized format for people to use to create their own tokens on the Ethereum blockchain. Thanks to this standardized format, people can release their own token without any coding experience. In some ways, it is as if Ethereum offers Blockchain-as-a-service because you can easily create your own token on a blockchain using Ethereum and its ERC-20 format.