What is Ethereum?
This BlockBits summarizes the video What Is Ethereum? by 99 Bitcoins. If you find my summary interesting, I urge you to check the video out!
If you wish to understand blockchain technology, it's crucial that you familiarize yourself with Ethereum. Consider the creation of bitcoin and blockchain technology as means for revolutionizing banking (simple transactions). Ethereum builds on this and enables virtually any centralized system to be decentralized. Thus making the system more scalable, interoperable, and secure.
If you are new to blockchain and have not read my previous post What Is Blockchain?, I suggest you check it out prior to reading about Ethereum.
What is Ethereum?
Ethereum was founded in 2014 by Vitalik Buterin.
Ethereum is a platform to develop decentralized applications (commonly known as DApps).
Software developers can use the Ethereum programming language, Solidity, to create DApps on the Ethereum network.
Once a program is deployed to the Ethereum network, the nodes (computers) that make up the decentralized network will ensure the code executes as written.
Ethereum is the infrastructure for running DApps worldwide (it's not a currency like bitcoin). The currency used to incentivize the platform is called Ether (ETH).
Ethereum's goal is to decentralize the internet.
How Ethereum works?
Ethereum's programming language, Solidity, is used to write smart contracts which is the logic that runs DApps.
Think of smart contracts as a set of conditional statements (If, Then, etc.) that when met are executed on the Ethereum network.
As a basic example, if you have a smart contract that is used for paying rent, there would be no need for a landlord. The logic could be: if I pay rent, then I can open my apartment door.
The downside of smart contracts is that the logic is self-executing and letter strict. Therefore, the smart contract is limited by how well it was coded.
Once a smart contract is deployed on the Ethereum network it cannot be edited. It's immutable.
Lastly, Ethereum was founded as a solution to develop applications on, rather than exchange value (Bitcoin). Therefore, smart contracts are substantially more difficult to secure since these programs can be endlessly more complex.
The DAO and the Ethereum Fork
Ethereum operated on the logic that code is law. A contract on Ethereum is the ultimate authority.
This notion was challenged when the DAO (Decentralized Autonomous Organization) event took place.
The DAO allowed users to deposit money and collect returns based on the investments the DAO made. The decisions they made were crowdsourced and decentralized. However, the DApp was not secure and someone figured out a way to drain the DAO out of money (~$150M worth) by exploiting loopholes in the smart contract.
After this event, the Ethereum foundation determined that code was no longer law. They then remediated the smart contract to return people's money.
This change in belief led to a schism within the Ethereum community. Thus Ethereum Classic (ETC) and Ethereum (ETH) was created.
Ethereum as a currency
Ethereum is made up of a large network of decentralized computers. It costs money to run, store, and cool these computers that execute code powering these DApps on the network.
This is why Ether (ETH) was invented. When people refer to the price of Ethereum, they are actually talking about Ether.
Ether is used to incentivize people to run the Ethereum protocol on their computer as part of the network.
In order to deploy a DApp on Ethereum, its author must pay to do so with Ether. This incentivizes developers to deploy efficient and performant code.