What is Ethereum?

Basic information about Ethereum and description of its working process, problems of the Internet and the way Ethereum tries to solve them as well as the explanation of smart contracts.

New cryptocurrencies are appearing almost every day, but only a few have a lasting impact. Ethereum is one such cryptocurrency, it has risen to the top of the pile with its name often mentioned in the same breath as Bitcoin. Is Ethereum similar to Bitcoin? Well, sort of, but not really.

Before you can understand Ethereum, you may first need to understand the Internet. Described in simplistic terms, the Internet is just a vast amount of files distributed over many computers. Websites are simply documents, pictures, videos, and code that are stored on someone else’s computer.

What’s wrong with the Internet?

The today’s Internet, however, is largely a centralized structure, meaning most of those files are stored on big data centers such as those of Amazon, Google, Microsoft, and so on. People and businesses rely on these companies to keep their important information safe. This presents a threat as bad people can potentially hack into servers, get access to data and make a big mess.

Another issue arising from server-client architecture is the fact that these big companies are effectively in control of information. They are the ones who can censor or promote it, and give or forbid access.

What does Ethereum offer?

Ethereum aims to solve these problems by dedicating a blockchain for all these files. To understand how this works, let’s go back to Bitcoin. Satoshi Nakamoto invented a system (a consensus mechanism) where independent computers сooperate to produce, store and update a history of transactions. The ethereum network uses these new consensus mechanisms to run and maintain self-executing programs, or decentralized applications (dapps). This means that we will probably see decentralized versions of Youtube, Netflix, App Store, AirBnB, etc.

How does Ethereum work?

Instead of servers and data centers, Ethereum distributes data over its network of nodes — thousands of volunteers from around the world that maintain the operation of the Ethereum Virtual Machine. EVM is a software that runs dapps. EVM is a Turing complete machine: it can solve any computational problem, and applications can be as complex as one may need them to be.

What are smart contracts?

You may have also heard that Ethereum is a smart-contract platform. A smart contract is basically a piece of code that executes itself once appropriate conditions are met. Smart contracts can be strung together to create these very dapps. Up until the invention of blockchain, smart contracts remained only a concept proposed by Nick Szabo.

Perhaps the most important of Ethereum’s problems is scalability. Due to its design, Ethereum has an inherent flaw: each node has to independently do the same calculations as others. This puts serious restraints on the speed of the network. But Ethereum is still young and solutions for these problems can be just around the corner.


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