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Maya Mandzikasvili

11 December 2018

Cryptocurrency How To Opinions

What Is Ethereum? A Guide for Dummies


December 11, 2018 | AtoZ Markets - Ethereum or ether are two names for one cryptocurrency and a functional decentralized environment. Ethereum can hardly be called Bitcoin 2.0, as it is something different. However, at the starting point we could call Ethereum as Bitcoin younger brother as it was built with reference to this cryptocurrency. This article was written as a guide to Ethereum.

Why Is It Called Ethereum?

You might be wondering, why Ethereum was called that way? Vitalik Buterin says in that regard: “I was browsing a list of elements from science fiction on Wikipedia when I came across the name. I immediately realized that I liked it better than all of the other alternatives that I had seen; I suppose it was the fact that sounded nice and it had the word "ether", referring to the hypothetical invisible medium that permeates the universe and allows light to travel.”

Each logo that represents a certain brand has a hidden meaning. It could be the main feature of the product, the company’s name or the main credo of the corporation. It seems that there is no secret in the Ethereum logo. George Hallam, a representative of the external relations of Ethereum, once said that there is no hidden meaning behind the logo of Ethereum - it is just an octahedron in a Platonic solid. The logo was designed by Richard Stott, the Creative Designer of Ethereum. “We don’t need to explain what we do, we just need to explain why we do it “ the Ethereum designer said in one of his interviews. The octahedron is unique among the Platonic solids as the only member of that group to possess mirror planes that do not pass through any of the faces”, Stott added.

Who Are the Founders of Ethereum?

The main Ethereum co-founders are Gavin Wood and Vitalik Buterin

Vitalik Buterin, a Canadian developer with Russian origins, is the main ideological inspirer of Ethereum, the digital coin that is said to have been born in 2013. Buterin became interested in blockchain in 2011 while he was releasing his Bitcoin Magazine.

“The idea to create Ethereum did not come immediately”, as Buterin recalls. “At first I tried to promote it in the project for which I worked, but I was told that I needed a year for implementation, then I quit. I remember walking in San Francisco, thinking, and then after a while I wrote a white paper and shared with my friends and they shared my ideas with others” In 2014, Vitalik and his colleagues began a fundraising project for the development of their platform.

Eventually the Ethereum ICO collected 31,191 BTC, and attracted the attention of banks and financial institutions. The platform was launched in July 2015, but it started to function practically in March 2016 after releasing the Homestead protocol.

How is Ethereum used?

Ethereum offers three different ways of usage: as a payment instrument, as an asset storage form or an investment asset. Ethereum allows to create decentralized projects and startups based on the blockchain and smart contracts. Smart contract is one of the foundations of Ethereum. It is an algorithm which allows to carry out contracts within the blockchain.

Smart contracts are built so that the execution of a particular action occurs only when certain conditions are achieved. Ethereum is also able to perform the same functions of Bitcoin, Litecoin, Dash or Ripple. This platform allows creating a wide range of projects such as charitable foundations and applications for sports betting or poker rooms. Ethereum platform is open so everyone can get access to it. An environment of the platform allows to create startup or application without having serious technical training.

How Does the Ethereum Smart Contract Work?

To better understand how smart contracts work, let’s imagine that there are Bob and Alice. Bob needs a website and Alice is a full-stack developer who can build it. Bob and Alice signed the contract for 20 ethers (ETH). On the Ethereum blockchain Bob has hardcoded the requirements and conditions for the soft of website he needs, so he arranged a smart contract conditions. This blockchain will act as an evaluator of Alice’s work after she submits the website to Bob for approval.

After Alice submits her work on the blockchain for evaluation, Bob reviews to check if the requirements were met, and the contract self-executes the payment to Alice. If the conditions are satisfied, Bob can not stop the payment. However, if the smart contract conditions are not met, Alice needs to continue working until that fulfills. That is why Ethereum is more than a currency to hold and invest in, as this kind of smart contract system has significant technological implications. The code written on the Ethereum blockchain, according to its founders, can not be altered, tempered, or hacked.

Ethereum platform uses the Proof-of-Work that requires the computational power of the participants for the safe operation of the network. Miners receive a reward for finding the block signature - all this is very similar to Bitcoin.

Ethereum platform accepts any programming language, including visual programming languages. Thanks to the Turing virtual machine (TVM) which compiles smart contracts into bytecode before sending them to the blockchain. It also uses cycles, which guarantee the performance of virtually any operation on smart contracts.

Hard Fork: Separation of Ethereum and Ethereum Classic

After the hacking attack which happened in June 2016 when 50$million were stolen from the platform, and the long debates that took place against the background of the incident, the Ethereum community decided to return the stolen funds by changing the blockchain code (hard fork). After this procedure, the funds turned up on a new smart contract that allowed owners to pick up their tokens. However, the consequences of this decision are not completely clear, yet. The fact is that Ethereum is based on the blockchain technology, which postulates the irreversibility and immutability of any transactions in the ETH network.