What Is Ethereum ? A Beginners Explanation In Plain English

What Is Ethereum 

My name is Ashu, I'm the CCO for Ethereum my background is IT, startups and development My role at ethereum is to bring together entrepreneurs, developers and investors to build decentralized applications on our platform 

Ethereum is an open source platform tobuild, distribute next-generation decentralized applications That is, applications that have no middlemenwhere users interact with social systems, financialsystems, gaming interfaces all in a peer to peer fashion 

Because the ethereum network will bedistributed on hundreds of thousands of computers around the globe this all takes place on a censorship proof foundation We make it easy for developers to buildthose applications leveraging tools that they are alreadyfamiliar with. 

Things like HTML and Javascript to build the interfaces or Go, python or Lisp to build the business logic In short, our mission is to open up thefloodgates of decentralized application development We're currently well into our development process and we're planning to launch a liveversion of our network towards the end of this year. 

Most of the services you use today have onething in common: they're centralized so for example you trust your bank tokeep your money safe, to be independently audited, and to behonest. The same is true with Facebook when you upload a picture of your kids when you push a document to Dropbox oreven when you go to your medical practice and provide them with your personal medical information

As a developer you need to submit your application to an App Store and risk having it removed for the mostfar-fetched of reasons History has proven time and time againthat this model is flawed but necessary as so-called trustlessoperations have so far been both unprofitable and too complex to implement Remember that everything that iscentralized makes it easy to attack because it offers a single point offailure like the firewall of a a website Applications built on ethereum do not require their users to trust thedevelopers with personal informations or funds On ethereum, 

your personal information stays yours your funds stays yours, your content staysyour content Ethereum is an application programmingplatform so what can be built on ethereum is onlylimited by the creativity of their developers That said, such technology has three types of applications thatimmediately comes to mind.

The first are individual currencies. Imagine if you 're an artist and you want to support yourself byissuing a brand new currency If you want to support this artist, you'd purchase that currency, technically investing in their own personal IPO.And as those millions of currencies are traded on decentralized exchanges currency itself becomes a representationof your values and not just a means of exchange Ethereum makes it straightforward to issue your own tokens of value so you can reward your users for actions that they take even outside of the network, such as aFoursquare checkin for example or participating in a grid computing project Imagine how the relationship between consumers and retailers would change if instead of issuing loyalty points, retailerswould issue crypto tokens of value that could be then exchanged for goodsand services on decentralized markets or even other tokens of value such as airmiles

Another interesting application of this concept is  that today on Facebook if you helpidentify artists that subsequently become successful by pressing the like button that value goes to Facebook advertisersnot the content producers, not you On ethereum on the other hand, both the content creator and the early adopters would be rewardedfor identifying that artist 

It's a brand new revenue model that'snever been seen before and it could completely revolutionize the way we think about revenue on the Internet today The second type of application that I forsee as being very successful on ethereum are applications that currentlyrequire a middleman Users are tired of paying exorbitant fees tocompanies such as Ebay, Kickstarter or Airbnb On a peer to peer network, the existence of a middleman is limitedto bringing true value-add such as insurance for example, ratherthan just putting two people in contact with each other and for a decentralized Kickstarter, insteadof receiving a pre-order product that quickly become so absoolete or just a t-shirt instead, users could be rewarded withtokens of value into the startups that they invest in

 The third type of applications arefinancial ones there's this concept of the village where if you were to take a loan anddefault on it, you'd be banished in short you're backing loans withreputations rather than with physical assets Now this is a successful concept in the developing world where microfinance companies have experiencedvery low default rates but it's not new and it's never scaled past a small groupof individuals With ethereum, you can scale reputationto millions of individuals so we foresee disruption not just in thedeveloping world but also much closer to home And this wouldn't be limited to credit as onethereum, any user can issue and trade stocks, bonds, derivatives and even contracts for differences 

It may even be that the ethereum applications that will havethe most impact on the world haven't been invented yet, just like ittook four years for social networks to appear on the web and a couple more years to see themdiversify and invent novel applications such as micro-blogging At the core of ethereum, you're going tofind blockchain technology 

If you look at centralized applications, you'llfind they reach trust by being closed firewalls and security teams that youhave to trust, and trust to do their job well Blockchain technology on the other hand uses a different model, one by whichtrust can be reached on an open network Bitcoin is a currency that was the firstand currently best-known application of blockchain technology Ethereum make this technology applicable to just about anything else Anything that can be mathematically represented, can be modeled, secured and traded and just like in bitcoin, where you donot need to trust into a bank or a central authority to keep your funds safe, on ethereum, your personal information, your identityand your funds stay under your control at all times On ethereum, developers write business logic into 

what we call contracts Contract are programs that follow a series of steps every time they receive a message called a transaction Contracts can store data, send and receive transactions and even interact with other contracts independently of any control 

They are maintained by thenetwork and they are written in a programming language that will beinstantly familiar to any developer Because the interfacesto the contracts that live on the ethereum network also decentralized, 

as an application developer you will need zero infrastructure to deploy and distribute your applications In fact, because an incentivization framework isinherent to the protocol your applications will also beimpervious to denial-of-service attacks A future application of ethereum are DAOs, or decentralized autonomous organisations A DAO consists of one or more contracts and could be funded by a group of like-mindedindividuals 

A DAO operates completely transparently and completely independently of anyhuman intervention including its original creators A DAO will stay on the network for as long as it covers its survival costs and provides a usefulservice to its customer base You can think of ethereum as aprogrammable, distributed network  

The fact that ethereum is by its very design both fraud and tempering resistant meansthat it offers a new range of solutions to everydayproblems that are currently solved at great expense Voting machines, domain name registration registration of legal documents, medicalsoftware transfer of goods, of services, of smartproperty between individuals contracts between individuals, reputationsystems and financial derivatives all those applications can be build on a networkwhere users stay in control their funds and their personal information, at alltimes Ultimately, 

Ethereum is not here to undermine or to strengthen any existing system it's a third way, beyond voice versus exit There are of course challenges ahead of suchan ambitious project that's why we've assembled a team ofworld-renowned experts to help us build ethereum includingNeil Koblitz the co-creator of the elliptic curvecryptography used in bitcoin as well as Ralph Merkle,

 one of theinventors of public key cryptography We're currently in pre-alpha stage butdevelopers can already try their hands at our proof of concept builds which arerapidly iterating towards a version one due in the last quarter of this year Our most recent release includes easy to build interfaces for applications  which themselves will be decentralized on a tamper-proof network A good place to start for somebody who wants to learn more about ethereum would be to consult the whitepapersthat describe our protocol in detail and are available on our website at ethereum.org We're also on reddit, Twitter, IRC Facebook, Google+ and all the links wereposted in the description of this video 

What on earth is Ethereum?

 I mean, I keep hearing about it all the time, I’ve seen it’s the second largest cryptocurrency around but I just can’t seem to wrap my head around it. Is it as revolutionary as Bitcoin?

 Can it actually change the world as we know it? If you want to have a better understanding of Ethereum, but are tired of explanations that sound like complete technical gibberish, stick around… Here on Bitcoin Whiteboard Tuesday, or should I say Ethereum Whiteboard Tuesday we’ll answer these questions and more. Before we get into Ethereum we need to do a quick recap about Bitcoin, since it’s the basis from which Ethereum was born. By now you probably know that Bitcoin is a form of decentralized money, and if you still have some questions about what that means or how it works, then you might consider revisiting our original video, “what is Bitcoin”. 

Before Bitcoin was invented, the only way to use money digitally was through an intermediary like a bank, or Paypal. Even then, the money used was still a government issued and controlled currency. However, Bitcoin changed all that by creating a decentralized form of currency that individuals could trade directly without the need for an intermediary.

 Each Bitcoin transaction is validated and confirmed by the entire Bitcoin network. There’s no single point of failure so the system is virtually impossible to shut down, manipulate or control. Pretty neat huh? Well, now that we know that money can be decentralized, what other functions of society that are centralized today would be better served on a decentralized system? 

What about voting? Voting requires a central authority to count and validate votes. Real estate transfer records currently use centralized property registration authorities. Social networks like Facebook are based on centralized servers that control all of the data we upload to them.

What if we could use the technology behind Bitcoin, more commonly known as Blockchain, to decentralize other things as well? The interesting thing about Blockchain technology is that it’s actually the by-product of the Bitcoin invention. Blockchain technology was created by fusing already existing technologies like cryptography, proof of work and decentralized network architecture together in order to create a system that can reach decisions without a central authority. 

There was no such thing as “blockchain technology” before Bitcoin was invented. But once Bitcoin became a reality, people started noticing how and why it works and named this “thing” blockchain technology. Blockchain is to Bitcoin what the Internet is to email; a system on top of which you can build applications and programs. 

A currency like Bitcoin is just one of the options. So this got people very excited, and they began to explore what else can we decentralize. However, in order for a system to be truly decentralized it needs a large network of computers to run it. 

Back then the only network that existed was Bitcoin and it was pretty limited. Bitcoin is written in what is known as a “turing incomplete” language which makes it understand only a small set of orders, like who sent how much money to whom. If you want to create a more complex system, you’ll need a different programming language, which means a different network of computers. Imagine for a second you wanted to build your own decentralized program, just like Bitcoin, at home.

 You’d need to understand how Bitcoin’s decentralization works, write code that mimics the same behaviour, get a huge network of computers to run this code and so on…. And that is a lot of work. Enter Ethereum.

  Ethereum was first proposed in late 2013 and then brought to life in 2014 by Vitalik Buterin who at the time was the co-founder of Bitcoin Magazine. Ethereum is the Do It Yourself platform for decentralized programs also known as Dapps - decentralized apps. If you want to create a decentralized program that no single person controls, not even you even though you wrote it, all you have to do is learn the

 Ethereum programming language called Solidity and begin coding. The Ethereum platform has thousands of independent computers running it meaning it’s fully decentralized. Once a program is deployed to the Ethereum network these computers, also known as nodes, will make sure it executes as written. Ethereum is the infrastructure for running Dapps worldwide. It’s not a currency, it’s a platform. 

The currency used to incentivize the network is called Ether but more on that later. Ethereum’s goal is to truly decentralize the Internet. Wait? The internet is centralized? I thought the Internet already was decentralized and that anyone can start their own site. While in theory that might be true, in practice Amazon, Google, Facebook, Netflix and other giants control most of the world wide web as we know it. There’s almost no activity on the web that happens without some sort of intermediary or 3rd party. But once the concept of digital decentralization was demonstrated by Bitcoin, a whole new array of opportunities became available. 

We can finally start to imagine and design an Internet that connects users directly without the need for a centralized 3rd party. People can “rent” hard drive space directly to other people and make Dropbox obsolete. 

Drivers can offer their services directly to passengers and remove “Uber” as the middleman. People can buy cryptocurrencies directly from one another without the need for an exchange that can get hacked or steal your money. Ethereum allows people to connect directly with each other without a central authority to take care of things. It’s a network of computers that together combine into one powerful, decentralized supercomputer. 

Ok, So now you know what Ethereum does but we haven’t touched upon HOW it does it. Ethereum’s coding language, Solidity, is used to write “Smart Contracts” that are the logic that runs Dapps. Let me explain... In real life, all a contract is, is a sets of “Ifs” and “Thens”. 

Meaning a set of conditions and actions. For example, if I pay my landlord $1500 on the 1st of the month then he lets me use my apartment. That’s exactly how smart contracts work on Ethereum. 

Ethereum developers write the conditions for their program or Dapp and then the ethereum network executes it. They are called smart contracts because they deal with all of the aspects of the contract - enforcement, management, performance, and payment. For example, if I have a smart contract that is used for paying rent, the landlord doesn’t need to actively collect the money. 

The contract itself “knows” if the money has been sent. If I indeed sent the money, then I will be able to open my apartment door. If I missed my payment, I will be locked out. However smart contracts also have their downsides. Going back to my previous example, instead of having to kick out a renter that isn’t paying, a “smart” contract would lock the non-paying renter out of their apartment. 

A truly intelligent contract on the other hand, would take into account other factors as well, such as extenuating circumstances, the spirit with which the contract was written and it would also be able to make exceptions if warranted. In other words, it would act like a really good judge. Instead, a “smart contract” in the context of Ethereum is not intelligent at all. It’s actually uncompromisingly letter strict. It follows the rules down to a T and can’t take any secondary considerations or the “spirit” of the law into account like what commonly happens with real world contracts. 

Once a smart contract is deployed on the Ethereum network, it cannot be edited or corrected, even by its original author. It’s immutable. The only way to change this contract would be to convince the entire Ethereum network that a change should be made and that’s virtually impossible. This creates a very serious problem since unlike Bitcoin, Ethereum was built with the ability to create really complex contracts, and complex contracts are very difficult to secure. With any contract, the more complicated it is, the harder it is to enforce as more room is left for interpretations, 

or more clauses must be written to deal with contingencies. With smart contracts, security means handling with perfect accuracy every possible way in which a contract could be executed in order to make sure that the contract does only what the author intended. Ethereum launched with the idea that “code is law”. 

That is, a contract on Ethereum is the ultimate authority and nobody could overrule the contract. Well, that all came to a crashing halt when the DAO event happened. “Dow” or DAO stands for 

“Decentralized Autonomous Organization” which allowed users to deposit money and get returns based on the investments that the DAO made. The decisions themselves would be crowd-sourced and decentralized. 

The DAO raised $150M in Ethereum currency, ether, when ether was trading around $20. While this all sounded very good, the code wasn’t secured very well and resulted in someone figuring out a way to drain the DAO out of money. Now you could say that the person who drained the DAO was a “hacker”. But some would argue that this was just someone who was taking advantage of the loopholes he found in the DAO’s smart contract. This isn’t very different than a creative lawyer figuring out a loophole in the current law to effect a positive result for his client.

What happened next is that the Ethereum community decided that code no longer is law and changed the Ethereum rules in order to revert all the money that went into the DAO.

 In other words, the contract writers and investors did something stupid and the Ethereum developers decided to bail them out. The small minority that didn’t agree with this move stuck to the original Ethereum Blockchain before its protocol was altered and that’s how Ethereum Classic was born, which is actually the original Ethereum. 

We’ve covered a lot up until now and the last thing I want to talk about is Ethereum as a currency. We’ve already established that Ethereum is basically a large bunch of computers working together like one super computer to execute code that powers Dapps. However this costs money - Money to get the machines, to power them up, store them and cool them if needed. That’s why Ether was invented. 

When people talk about the price of Ethereum they actually are referring to Ether - the currency that incentivizes people to run the Ethereum protocol on their computer. This is very similar to the way Bitcoin miners get paid for maintaining the Bitcoin blockchain. In order to deploy a smart contract to the Ethereum platform, its author must pay to do so. 

That payment is made in the form of ether. This is done so that people will write optimized and efficient code and won’t waste the Ethereum network computing power on unnecessary tasks. Ether was first distributed in Ethereum’s original Initial Coin Offering back in 2014. Back then it cost around 40 cents to buy one Ether. 

Today, one Ether is valued in hundreds of dollars since the use of the Ethereum network has grown immensely due to the ICO hype that started in 2017. Still Confused? Don’t worry; we’ll get more into Ether and mining in a later video. Ethereum’s network and Ether are a whole new rabbit hole that we’ll cover but I think this will do for now as an intro to Ethereum. 

This concludes this week’s episode of Ethereum Whiteboard Tuesday. Hopefully by now you have a better understanding of what Ethereum is - A network of computers working together to replace the centralized model of programs and companies which run the Internet today. You may still have some questions. 

If so, just leave them in the comment section below. And if you’re watching this video on YouTube, and enjoy what you’ve seen, don’t forget to hit the like button. Then make sure to subscribe for notifications about new episodes. Thanks for joining me here at the Whiteboard. For 99bitcoins.com, I’m Nate Martin, and I’ll see you… in a bit.