In order to understand Ethereum, we need first to discuss blockchain technology and some of its general background.
Blockchain has proven to be by far the most disruptive technology of our generation. Ethereum is simply a type of blockchain technology. And of the different blockchains available today, Ethereum happens to be the most promising blockchain of them all.
Why blockchain technology has become so popular
It’s hard to skim through a group of technology blogs or articles today without coming across something about blockchain. Most of them have something to say about how blockchain technologies are going to change everything.
Even though many claims that are being made are somewhat far-fetched, the underlying message is valid. This new blockchain technology is going to be a game-changer in both the local and global economies.
When blockchain was first unveiled in 2008, it gained notoriety immediately across the globe. Many believe this had a lot to do with the financial meltdown of the banking industry in 2007 through 2008 when trust in traditional banking plummeted.
Understanding the effect of Ethereum
In the beginning, blockchain was looked upon as basically a new kind of electronic currency. However, when Ethereum came along, it became apparent that blockchain would evolve into something much more than a new electronic way to make online transactions.
The Ethereum blockchain wasn’t just a new technology; it also provided a whole new range of thought. It has allowed businesses and individuals to conduct business without dealing with the trade-related obstacles that have existed for centuries.
As Ethereum circulated throughout the blockchain community, its potential was gradually realized. It became apparent that it could be used for a variety of applications across many businesses and organizations.
Bitcoin laid the foundation
Bitcoin was the very first blockchain technology application. It was considered revolutionary and will forever be seen as the first primary digital currency that became widely used. The new term, cryptocurrency, was created as a result of Bitcoin’s popularity.
The crypto part of ‘cryptocurrency’ pertains to the cryptographic hashes used to ensure the blockchain’s integrity. A shared ledger in the system retains a copy of all cryptocurrency transactions after being verified by all nodes – nodes are certain members within a given blockchain.
In this manner, Bitcoin has developed a permanent record of all exchanges within their cryptocurrency. Since account owners are only identified and labeled by an address, Bitcoin users remain anonymous.
Even though Bitcoin addresses are not connected directly to people, several exchanges do have records of the identities that pertain to these addresses. Eventually, a cryptocurrency will be exchanged for a real currency. This conversion point in the process is where law enforcement typically gets involved whenever they are tracking criminals within a cryptocurrency medium.
The birth of Ethereum
Bitcoin’s soaring popularity brought about a revolutionary new way of looking at blockchain technology. Suddenly, researchers started coming up with more and more ways to apply blockchain technology that went beyond the scope of cryptocurrency.
Then in 2013, a man named Vitalik Buterin, who is a co-founder of Bitcoin Magazine, posted a whitepaper that called for new ways to implement blockchain that would provide greater functionality. This whitepaper led to the Ethereum blockchain.
After this new blockchain idea gained significant interest and attracted both financial and technical support, the Ethereum Foundation was created and promptly created Ethereum. Incidentally, the Ethereum Foundation is a Swiss non-profit organization.
The security of Ethereum
From the start, Ethereum could do way more than exchange cryptocurrency. Its creators designed it to be different than the rest.
Ethereum’s core components are the ether and the smart contract. Ether happens to be its native cryptocurrency, but tokens can also be created to exchange many other value forms as well. Smart contracts are what provide the execution environment where security and data integrity exists across all nodes.
This assures users that executed code on one node will execute precisely the same way on every other node. This guarantee provides the capability to deploy an extensive range of applications across environments that had been previously untrusted.
The flexibility of Ethereum
It is Ethereum’s foundational guarantees that pave the way for many kinds of value exchanges. This is because all concerns about issues such as censorship, fraud, or the nefarious involvement of an uninvited third party have been eliminated.
Therefore, when executing a transaction using an Ethereum application, there’s no need for a broker or middle man to act on your behalf. And no longer will you need a bank or financial institution to provide that element of trust that you need for significant transactions.
Ethereum provides the means to process transactions rapidly, without seeking approval from outside authorities, for a mere fraction of the cost.
As you can see, Ethereum is considered as a robust, decentralized application that can be easily expanded to a broad range of capabilities. Its scope extends way beyond what existed before blockchain technology.
For many generations, critical transactions required the assistance of a third-party authority to enforce integrity and provide an aura of trust. Ethereum now offers a way to revolutionize that entire process, as it already includes data integrity, as well as disintermediation. We only see the tip of the iceberg in terms of its future possibilities.