Many people consider Ethereum to be the second most popular cryptocurrency, with only Bitcoin surpassing it. According to The Motley Fool, the Enterprise Ethereum Alliance (EEA) has some big name founding members, including Microsoft, Intel, and JPMorgan Chase.
“The adoption of Ethereum by the corporate world,” says CNBC, “means it could eventually be bigger than it’s early stage rival,” That means it’s time to get to know the Ethereum platform, including it’s features and applications, and what makes Ethereum different from Bitcoin.
Our “Ethereum Explained” Ethereum tutorial video explains everything, and we’ll cover the key points discussed in the video here.
What is Ethereum?
Ethereum is a blockchain based computing platform that enables developers to build and deploy decentralized applications – meaning not run by a centralized authority. You can create a decentralized application for which the participants of that particular application are the decision making authority.
Ethereum Features
- Ether: This is Ethereum’s cryptocurrency.
- Smart contracts: Ethereum allows the development of these types of contracts.
- Ethereum Virtual Machine: Ethereum provides the underlying technology – the architecture and the software – that understands smart contracts and allows you to interact with it.
- Decentralized applications (Dapps): A decentralized application is called a Dapp (also spelled DAPP, App, or DApp) for short. Ethereum allows you to create consolidated applications, called decentralized applications.
- Decentralized autonomous organizations (DAOs): Ethereum allows you to create these for democratic decision making.
These are Ethereum’s essential features. Before going deep into the Ethereum tutorial, let’s discuss each of these features in more detail.
Ether
Ether (ETH) is Ethereum’s cryptocurrency. It is the fuel that runs the network. It is used to pay for the computational resources and the transaction fees for any transaction executed on the Ethereum network. Like Bitcoins, ether is a peer to peer currency. Apart from being used to pay for transactions, ether is also used to buy gas, which is used to pay for the computation of any transaction made on the Ethereum network.
Also, if you want to deploy a contract on Ethereum, you will need gas, and you would have to pay for that gas in either. So gas in the execution fee paid by a user for running a transaction in Ethereum. Ether can be utilized for building decentralized applications, building smart contracts, and making regular peer to peer payments.
Smart Contracts
Smart contracts are revolutionizing how traditional contracts work, which is why you need to use the tutorial to become more familiar with them. A smart contract is a simple computer program that facilities the exchange of any asset between two parties. It could be money, shares, property, or any other digital asset that you want to exchange. Anyone on the Ethereum network can create these contracts. The contract consists primarily of the terms and conditions mutually agreed on between the parties (peers).
A smart contract’s primary feature is its immutability: once executed, it cannot be altered. Any transaction carried out on top of a smart contract is registered permanently. Even if you modify the smart contract in the future, the original contract’s transactions remain unaltered; you cannot edit them.
Anonymous parties in the network verify smart contracts without needing a centralized authority, making any smart contract execution on Ethereum decentralized.
The Ethereum network ensures the transparent and trustworthy transfer of any asset or currency, while keeping the identities of the two entities secure. Once the transaction is successfully completed, it updates the accounts of the sender and receiver accordingly, thereby generating trust between the parties.
Ethereum Virtual Machine
The EVM operates as a runtime environment for compiling and deploying Ethereum-based smart contracts. The Ethereum Virtual Machine serves as the engine that understands the language of smart contracts written in Solidity. The EVM runs in a sandbox environment, allowing you to deploy a stand-alone environment that can act as a testing and development area. You can then test your smart contract, use it as many times as needed, verify it, and once satisfied with its performance and functionality, deploy it on the Ethereum main network.
Any programming language in the smart contract is complied into the bytecode, which the EVM understands. This bytecode can be read and executed using the EVM. Solidity is one of the most popular languages for writing a smart contract. Once you write your smart contract in Solidity, the system converts the contract into bytecode and deploys it on the EVM, thereby guaranteeing security from cyberattacks.
How Does EVM work?
Suppose person A wants to pay person B 10 ethers. A smart contract will send the transaction to the EVM to transfer funds from A to B. To validate the transaction; the Ethereum network will perform the proof o work consensus algorithm.
The miner nodes on Ethereum will validate this transaction – whether the identity of A exists or not, and if A has the requested amount to transfer. Once confirmed, the system will debit ether from A’s wallet and credit it to B’s wallet. During this process, miners will charge a fee to validate the transaction and earn a reward.
All the nodes on the Ethereum network execute smart contracts using their respective EVMs.
Decentralized Applications (Dapps)
Let’s compare decentralized applications with traditional applications. When you log in to Twitter, for example, a web application gets displayed that is rendered using HTML. The page will call an API to access your data (your information), which is centrally hosted. It’s a simple process: Your front end executes the backend API, and the API goes and fetches your data from a centralized database.
If we transform this application into a decentralized application when you log in, the same web application gets rendered, but it calls a smart contract based API to fetch the information from the blockchain network. A smart contract interface replaces the API, and the smart contract retrieves data from the blockchain network, which serves as its back end.
That blockchain network is not a centralized database; it’s a decentralized network in which the participants of the network (the miners) validate (verify) all the transactions that are happening using the smart contract on the blockchain network. Any transaction or action occurring on the newly transformed Twitter-type application will be a decentralized transaction.
A Dapp consists of a backing code that runs on a distributed peer-to-peer network. The software operates within the Ethereum network without centralized control, directly interacting with end users and decentralized application providers. This is the primary difference.
An application qualifies as a Dapp when it is open-source (it’s code is on Github), and it uses a public blockchain based token to run it’s applications. A token acts as fuel for the decentralized application to run. Dapp decentralizes the back-end code and data, forming the primary architecture of any Dapp.
Decentralized Autonomous Organizations (DAOs)
A DAO is a digital organization that operates without hierarchical management; it works in a decentralized and democratic fashion. So basically, a DAO is an organization in which the decision making is not in the hands of a centralized authority but preferably in the hands of certain designated authorities or a group or designated people as a part of an authority. The system exists on a blockchain network and is governed by the protocols embedded in a smart contract. Therefore, DAOs rely on smart contracts for decision-making or, in other words, decentralized voting systems within the organization. Before making any organizational decision, the voting system running on a decentralized application must approve it.
Here’s how it works. People add funds through the DAO because the DAO requires funding in order to execute and make decisions. Each member receives a token representing their percentage of shares in the DAO. Consequently, members vote in the DAO using those tokens, and the maximum votes decide the proposal status. Every decision within the organization must go through this voting process.
Real-World Applications of Ethereum
Voting Systems
As we’ve seen with DAO, voting systems are adopting Ethereum. The results of polls are publicly available, ensuring a transparent and fair democratic process by eliminating voting malpractices.
Banking Systems
Banks are widely adopting Ethereum because its decentralized system makes it challenging for hackers to gain unauthorized access. It also allows payments on an Ethereum based networks, so banks are also using Ethereum as a channel to make remittances and payments.
Shipping
Integrating Ethereum into shipping operations ensures precise tracking of cargo and prevents goods from being misplaced or counterfeited. Moreover, Ethereum provides the provenance and tracking framework for any asset required in a typical supply chain.
Agreements
Ethereum smart contracts maintain and execute agreements without any alteration. Additionally, they ensure that the terms of the agreement are immutable and cannot be tampered with. So in an industry that has fragmented participants, is subject to disputes, and requires digital contracts to be present, Ethereum can be used as a technology for developing smart contracts and for digitally recording the agreements and the transactions based on them.
Conclusion
Head over to our “Ethereum Explained” Ethereum tutorial video to see an in depth demo on how to deploy an Ethereum smart contract locally, including installing Ganache and Node in a Windows environment.
And if you want to take your career to the next level, what are you waiting for? Remember that blockchain is the underlying technology not just for Ethereum but for Bitcoin and other cryptocurrencies.
According to ZipRecruiter, the average salary for a blockchain developer is a little over $154,000 a year, and some salaries are as high as $242,000! Furthermore, the demand for blockchain expertise continues to rise, making it a lucrative career choice.
If you have any questions or doubts, feel free to post them in the comments below. I will get back to you at the earliest.