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Ethereum is a decentralized platform for creating and using applications that run on blockchain technology.

Ethereum uses the same blockchain technology that is the basis of Bitcoin; however, unlike Bitcoin which has pre-defined operations, Ethereum is programmable allowing users to create their own.

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It’s this combination of blockchain technology and a built-in programming language that makes the Ethereum platform so unique. The impact of Ethereum could be far-reaching as it has the potential to facilitate so much innovation through decentralized applications.

Brief History of Ethereum

HistoryBefore we delve deeper into understanding Ethereum and its potential, knowing about its history and how it came to be, can help put things into perspective.

The idea of Ethereum was conceived by a 19-year-old Russian-Canadian programmer named Vitalik Buterin who released a white paper in 2013 describing in detail its design and rationale.

Vitalik had already been interested in Bitcoin and cryptocurrencies since 2011. He co-founded the news website named ‘Bitcoin Magazine’ where he published hundreds of articles and was also involved with the privacy-focused Dark Wallet project.

It was during this time that Vitalik came up with the idea of a single blockchain that could be reprogrammed to create custom decentralized applications rather than having to develop a whole new blockchain.

In January 2014 Vitalik formally announced Ethereum at the North American Bitcoin Conference in Miami and started working with Dr. Gavin Wood who he went on to co-found Ethereum with.

In July 2014 they launched a 42-day public sale of Ethereum tokens known as ‘Ether’ raising more than $18 million, which was the most successful ever crowd sale at the time. The Ethereum platform went live and launched a year later on June 30, 2015, allowing developers to start creating and running decentralized applications.

Is Ethereum a Cryptocurrency?

Cryptocurrency

It’s easy to become confused as Ethereum will often be discussed as a cryptocurrency, but it is much more than that. Ethereum is a platform for creating and using decentralized applications that run on blockchain technology.

Ether, or ETH, is the currency used to pay for the computational resources needed to run an application within Ethereum. Ether helps ensure that developers write quality applications that are not wasteful as these will cost less to run. It also ensures the network remains healthy by compensating those who contribute resources.

For those interested in cryptocurrencies for investment purposes, it’s Ether that can be bought, traded and has seen the phenomenal growth in value. Ether has increased in value by more than 3000% during 2017 so far and has a market capitalization of over $28 billion. Ether has become the second biggest cryptocurrency by market capitalization, with the largest being Bitcoin currently at $80 billion.

Ether’s increase in value has been driven by a surge in its demand. This demand has come from the increasing adoption of Ethereum by developers using Ether to run their decentralized applications, as well as by speculators purchasing Ether for investment/trading purposes. It must be noted that the value of Ether, like any cryptocurrency, can go down as well as up.

Programmable Blockchain

Programmable BlockchainThe blockchain was first invented by the mysterious Satoshi Nakamoto who used it as the technological basis of Bitcoin (the peer-to-peer electronic cash system).

A blockchain is a distributed computing architecture that utilizes a peer-to-peer network of computers known as nodes. Every node in the network executes and records transactions at the same time. Each verified transaction is combined with other transactions to create blocks of data for the ledger. A new block of data is then added to the existing blockchain.

It’s this decentralized system of facilitating transactions that makes blockchain so robust. A blockchain cannot:

  • Have a single point of failure
  • Be controlled by a single entity

The original use of blockchain by Satoshi Nakamoto was explicitly to facilitate the transfer of Bitcoin tokens between individuals. Vitalik Buterin’s vision for blockchain technology was different, offering much more flexibility to its users.

Ethereum is a single blockchain with a built-in programming language. It serves as a platform where users can create, use and run many different types of decentralized applications. This has led to Ethereum being described as ‘The World Computer’ where just like with conventional computers the potential uses depend in part on the creativity of its users.

Platform for Decentralized Applications

As previously mentioned, Ethereum is a decentralized platform for creating and using applications. But, what are the benefits of these decentralized applications and where are the prominent areas they could be utilized?

Here are some of the key benefits of decentralized applications:

  • Fault tolerance – Systems use redundancy to remove the risk of accidental failure. If one element goes down the network still works, this means applications can run with zero downtime.
  • Attack resistance – There is no single point of failure, as the applications run on the blockchain. This makes them impervious to denial-of-service (DDoS) attacks.
  • Tamper & corruption proof – Applications run precisely as programmed removing the possibility of fraud, censorship or third-party interference. This makes it more difficult for an individual or group to act for its own benefit at the expense of everyone else.
  • No middlemen – This removes exuberant fees and allows users to interact directly with each other. This can lead to greater transparency, trust, and privacy.

Centralized applications are closed networks that build trust with firewalls and security teams, whereas decentralized applications use blockchain technology to build trust through open networks.

Here are some areas where decentralized applications are likely to bring value:

  • Finance – Peer-to-peer financial applications that are fully transparent and trustworthy.
  • Cloud computing – Rent computing power from data centers and servers offering their unused resources through a marketplace on the blockchain.
  • Messaging – Peer-to-peer encrypted messaging that doesn’t rely on centralized servers. Send payments and smart contracts within the chat.
  • Cryptocurrencies – Create your own digital token that is tradable. Retailers could issue crypto-tokens of value instead of loyalty points, which could then be traded for other tokens of value you desire – like air miles or Ether.
  • Distributed Governance – Governance applications could be used to facilitate online voting. Blockchain would keep track of all the votes in a completely secure and transparent process.

Examples of decentralized applications in development –

  • Golem – Aiming to create a global market for idle computer power. Anyone will be able to rent out their computing power on the Golem network to make money.
  • Augur – The Augur project combines the power of a decentralized network with prediction markets to create an accurate forecasting tool.
  • Aragon – Aragon aims to disintermediate human trade and allow you to manage organizations using the blockchain.

Bottom Line on Ethereum

The future of Ethereum depends on how widely adopted and powerful the network becomes as well as the creativity and talent of developers who use the platform. Ethereum indeed appears to be heading in the right direction, gaining the attention of many large corporations and institutions.

The Enterprise Ethereum Alliance currently has over 150 members that support and back Ethereum related developments. Members include heavy hitters like Intel, JPMorgan, Microsoft, BP and even the Indian Government.

No one can predict for sure what impact Ethereum will have, just like in the 1990’s no one knew how much the internet would impact the world. It’s still early days for Ethereum, but it certainly has the potential to be a revolutionary platform.

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Darren Brazer
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Managing Editor, Tech Journalist, and Financial Market Analyst. Darren has over four years of experience as a market commentator and two as a journalist. As Darren's experience in the blockchain industry has grown, so has his ability to spot stories, build industry contacts, and maintain a factually accurate standard of reporting.

Darren started at [blokt] as a journalist, and due to his incredible attention to detail, he progressed to an Editor position. This was followed shortly after by his promotion to the Managing Editor position. He is responsible for maintaining our editorial process and guidelines for journalists, and for ensuring our editorial policy demands high professional and ethical standards from our writers.

Darren has previously held positions at investopedia.com, ics-digital.com, and icmarkets.com.

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