Ethereum is an open source blockchain network that allows for the peer-to-peer transfer of money as well as the ability to create decentralized applications (dapps). It’s native cryptocurrency ether (ETH) is used to power transactions and execute applications through smart contracts.
Ethereum was launched in 2014 by 8 founders, including Russian-Canadian programmer Vitalik Buterin who originally proposed the idea.
There’s a lot to unpack in the information above so lets start with some definitions.
What is a Blockchain?
A blockchain is a database that records and timestamps transactions into “blocks” of data. Each block is linked to the block before it, creating a permanent, immutable chain of records. This chain of records, called a ledger, is shared across many computers (or nodes), creating a single source of truth.
What is Peer-to-Peer?
Peer-to-peer refers to performing transactions between one person to another. With Ethereum, money in the form of cryptocurrency can be transferred between two people without an intermediary like a bank. The transaction is completed directly on the blockchain.
What are Decentralized Applications?
Decentralized applications, or dapps, are computer applications that run on a blockchain network instead of a centralized server. Dapps are different from traditional apps because they are not controlled by a central organization like Apple or Google.
What are Cryptocurrencies?
Cryptocurrencies, or crypto, are a form of digital cash that can be used like money for goods and services. In addition to Ethereum’s native cryptocurrency ETH being used like cash, it also acts like digital oil. Like a car that requires gas to run, ETH must be spent to perform transactions within dapps.
Properties of the Ethereum Blockchain
Many properties make the Ethereum blockchain unique and different from traditional networks and monetary systems.
Ethereum is decentralized. No single person, company, or entity controls the Ethereum blockchain. The network is maintained by thousands of anonymous miners and nodes spread out across the globe.
Ethereum is open source. Anyone can join or leave the network and also develop applications on top of the network freely, without permission. Code is shared publicly, transparent, and can be audited by anybody.
The Ethereum blockchain cannot be hacked. Through cryptography and distributed ledger technology, transactions that occur are permanently recorded onto the blockchain and cannot be tampered with.
Ethereum’s blockchain enables developers to program applications, games, and blockchain projects right on top of it. Projects use the cryptocurrency ETH to power transactions within these applications through smart contracts.
What Are Smart Contracts?
Ethereum.org, the public resource for the Ethereum community, defines a smart contract as the following:
A “smart contract” is simply a program that runs on the Ethereum blockchain. It’s a collection of code (its functions) and data (its state) that resides at a specific address on the Ethereum blockchain.
Smart contracts enable users to interact with decentralized applications without any middleman involved.
What Can Ethereum Smart Contracts Do?
Specific actions can be executed without an intermediary because rules are coded right into a smart contract. The smart contract acts like an agreement between two parties. Applications such as earning interest on cryptocurrencies or trading digital assets are possible.
DeFi lets users “stake” cryptocurrencies to earn interest, similar to how you deposit cash into a savings account. Creators and brands can also create NFTs to showcase their digital artwork through smart contracts on the Ethereum blockchain.
Another use case is stablecoins, cryptocurrencies that are pegged 1:1 with traditional currencies like the US dollars. By placing US dollars on the blockchain in the form of a stablecoin, money can be transferred globally in seconds with minimal fees and price volatility.
What is Next for Ethereum?
Ethereum’s community, application, and network is continually growing. Upgrades are in the works to provide more scalability, security, and sustainability for the blockchain. ETH 2.0 (Eth2) is set to increase speeds, reduce network congestion, and reduce the energy needed to operate.