What is Ethereum?

14 Jun 2018
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Ethereum, according to its creators, is a “decentralized platform that runs smart contracts.”

However, most people think of Ethereum as a digital currency, similar to Bitcoin or Ripple. While it’s true that Ethereum has agreed-upon value and is often traded for cash or used to pay for goods and services, there is much more depth to Ethereum than meets the eye. Since its presale in August 2014, the digital currency has gained such high visibility in the market thanks to the bountiful applications of the Ethereum network.

More than a digital currency

The average value of a single ether—the digital currency based on the Ethereum network, often abbreviated via its ticker, ETH—is $779.20 at the time of this writing. (You can check the current figure here.) Ethereum also has its own wallet, called Ethereum Wallet, which anyone can download for free and use to store ETH and other network assets.

Similarly, most major wallets of all varieties—hot, cold, etc.—support ETH because it is the digital currency with the second highest market cap in the world, surpassed only by Bitcoin. Ethereum’s market cap is currently more than double that of Ripple, which holds the number three slot on the leaderboard.

How did Ethereum achieve such a high market cap? It did so by being more than a digital currency. Ethereum’s claim to fame is its capacity as a shared global infrastructure. Anyone with suitable programming skills can build their own applications and ecosystems on the Ethereum network, harnessing the decentralization and immutability facets of blockchain technology.

This is in stark comparison to the centralized nature of the Internet. Centralization, which opens doors to hackers and other malicious actors who intend to steal personal and proprietary data, has been described as the “original sin” of the Internet by Brian Behlendorf, creator of the Apache Web Server.

Ethereum applications remove the middleman, increase security, and lower downtime via decentralization. Everyone using an application does their part to “host” it, thus removing any single point of failure, barring poor coding. Ethereum utilizes “smart contracts” in order to autonomously complete the necessary processes to run an application, ecosystem, or organization. ETH tokens monetize the network and enable developers to run their distributed applications, known commonly as DApps.

In short, developers can build their own applications, including digital currency tokens, on top of the Ethereum network blockchain. There’s no limit to the type of projects that can be built, and they range from serious to fun and lighthearted. For example:

BitClave — distributed smart contracts for connecting consumers and businesses

Gnosis — decentralized, automatic, and transparent prediction markets DApp that automatically disburses payments to winners and can be used to make predictions on literally anything

ETHERNAUTS — a game about aggressive space exploration

CryptoKitties — a hugely popular game  of collecting and breeding digital cats, some of which have sold for more than $100,000

Smart contracts

Because smart contracts are such an integral part of Ethereum, and differentiates Ethereum from other blockchain projects, it is important to discuss what smart contracts are and what they do. Smart contracts, sometimes called self-executing contracts, are pieces of computer code that enforce agreements and outline the contract’s rules and penalties.

BlockGeeks describes the concept like that of a vending machine, wherein you insert digital currency and out pops your escrow, license, or whatever other option you chose. Smart contracts also eliminate middlemen—such as banks, lawyers, and bookies—while upholding agreements in a trustless environment in a trackable, irreversible way.

Let’s use eSports betting as an example. Imagine that you bet $5 that the red team will win, your friend bets $5 that the blue team will win, and you enter a smart contract together. If the red team wins, the smart contract will automatically verify and enforce your agreement, sending your friend’s money to your account. Your friend cannot back out of the bet or quibble about how the blue team’s star player couldn’t make it to the event. The contract is enforced without any need to call in a third party (like a lawyer or judge) to settle the bet.

Of course, smart contracts can be used for far more than betting, but the basic principle is the same. Usually, more than one smart contract is working at once within a given transaction.<Add a sentence like “to learn more about smart contracts, visit our post” and link what are smart contracts post>

Ethereum Virtual Machine (EVM)

The Ethereum Virtual Machine, or EVM, is the runtime environment for smart contracts. This environment is off the main chain and can be thought of in part as a learning environment. As mentioned previously, anyone can build their own decentralized applications. The EVM is a place where companies and developers can test their products. It’s a space where they can try new, creative smart contract strategies without impacting the main chain, which runs live applications.
This sandbox type of environment allows people to play with the technology and to learn and grow towards a more decentralized world. The more EVM is used, the more it helps Ethereum become an increasingly useful and valuable network. The EVM also converts smart contracts to “bytecode” that can be read by the network.