Beginners Guide to Ethereum: What is Ethereum (ETH)?

As you become more experienced in the cryptocurrency and blockchain technology world, it’s inevitable that you will hear about Ethereum. So, what is Ethereum, and how does it work? 

Simply put, Ethereum is a blockchain-based, open-source, decentralized public software that is used to run its own cryptocurrency, Ether. Ethereum was initially created to build a centralized, global computer to replace the current client-server models. It aimed to give people back control over their data through a democratized and private networking environment that is available to everyone around the world. 

Ethereum is an open-source, public platform based on the blockchain, which gave birth to the second-largest cryptocurrency in the world – Ether. 

Ethereum can also be defined as a distributed computing platform that uses blockchain to replace any internet third party that stores data or keeps track of complex financial instruments or transactions. 

Origin of Ethereum

While several innovators played a role in founding Ethereum, most of the credit generally goes to Vitalik Buterin, who initially described it in a white paper in late 2013, intending to build decentralized applications. 

Buterin was 17 in 2012 when he was first introduced to Bitcoin by his father. His interest in technology grew, and he co-founded a publication called the ‘Bitcoin Magazine’ in which he suggested improvements to the Bitcoin platform. 

After years of his suggestions being ignored by the Bitcoin community, Buterin partnered with Gavin Wood to create the Ethereum platform in 2015. It was then that the implementation of the new “world computer” was set. 

The Reason Behind the Creation of Ethereum

Ethereum was built to create a “world computer” that would decentralize the existing client-server models for starters. Often, this draws a comparison to Microsoft’s role in building the Windows operating system, which ultimately enabled companies to create software that made personal computers more user-friendly. In a similar way that Microsoft ushered in personal computing, Ethereum was meant to usher in the next chapter of our connected lives. 

Basically, Ethereum is designed to give you back control of your data. In an Ethereum network, there is no single entity that has control over your information. The goal behind this is to make this sort of democratized and private environment available to everyone around the world. Given how much of our lives are spent on our phones, computers, and tablets and the sheer amount of information that we pour into each of our devices (both online and offline), this is of the utmost importance in regards to regaining control over our data and privacy. 

As part of the typical online experience, private organizations collect and store user information on servers to deliver the desired service or monetize the experience they offer. Unfortunately, this model is highly susceptible to hackers who can pinpoint servers’ locations and structure actions to harm the private organization and its customers maliciously. Ethereum offers users a way to harness the power of the internet without giving up too much information to other online websites and services, such as Google, Facebook, or even your online banking app. 

How Does Ethereum Work?

Ethereum operates by decentralizing a universal network of computers using blockchain technology. The network assembles and controls smart contracts—apps that are, in theory, free from any third-party intrusion or censorship since the blockchain is highly resistant to tampering. 

This removes the need to share personal information with private organizations to securely store and ethically use Ethereum. 

At the heart of its advanced technology, the common focus is establishing a technological foundation that enables developers to openly create secure and scalable applications that can transform many areas of our daily lives, business, and government. 

The two main components that deliver this scalability, openness, and security are: 

Smart Contracts

smart contracts

Ethereum blockchain has been designed such that a transaction cannot occur if certain conditions aren’t met. These conditions are known as smart contracts. Once a contract is written, it cannot be edited, making the platform trustworthy. You don’t have to worry about trusting anyone on the Ethereum platform since no transaction will happen if pre-set conditions are not met. 

Do not think of smart contracts in the legal sense, though they can include judicial matters. Think of them as lines of code to execute an action. If the pre-approved set of conditions are met, the smart contract can execute the command; if not, then it will fail to do so. 

A smart contract differs from traditional business software in that it can involve many players located anywhere in the world. However, the actual smart contract is housed on its creator’s server and is not distributed throughout the network. 

Decentralized Apps (dApps)

The second main component of Ethereum that ensures stability, security, and scalability are decentralized apps, commonly referred to as “dApps,” which is short for decentralized applications. These apps don’t run on a traditional centralized server and instead run on a decentralized server like Ethereum. dApps form part of the core design and beliefs of Ethereum. Solidity is Ethereum’s coding language, which is used to build dApps. Think of solidity as being a bit like JavaScript, and it encourages learners and users to build new and exciting apps on the Ethereum platform using the token system. 

A token is a new digital asset created using smart contracts on the Ethereum blockchain and can be used as a digital currency. Ethereum hosts multiple digital currencies such as Tether, Chainlink, BNB, and Ether (its native currency). 

What Is Ether?

Not only does Ethereum offer a foundation for next-generation applications and servers, but it is also hosting the second most valuable cryptocurrency by market cap, Ether (ETH)

Before we go further, it’s important to know the difference between Ethereum and Ether (ETH). Simply put, Ethereum is a system, while Ether is the currency. To get anything done on the system, you will need Ether. Ether kind of ‘fuels’ the system, and every transaction requires a certain amount of Ether. The bigger the transaction, the more Ether you need. 

The role that currency plays in the Ethereum ecosystem is similar to how credit cards work. Once you swipe your credit card, banks use codes to determine where the money will need to be transferred. In this same manner, Ethereum creates a string of letters and numbers, which encompass a private and public key for security through a process known as cryptography. 

To spend Ether coins, you have to enter your identification number, whereas, if you want people to send you Ether coins, you need to give them your wallet address. In a nutshell, this sounds just like any credit card out there or even the PayPal transaction system. However, what makes Ethereum transactions different is its blockchain foundation that provides security and privacy. Given that all transactions occur on the blockchain, they are much safer and cannot be tampered with, unlike traditional financial systems. 

In Short…

The transactions that we do each day through traditional banks and credit cards put our personal information, identity, and money at serious risk. Ethereum solves these challenges through decentralization, where hackers are unable to focus efforts on a single target and smart contracts. 

The easy way to sum it up: Ethereum puts you back in control of your data and money.