If you’ve been paying attention to the tech world over the past few years, you’ve probably heard of Bitcoin. Bitcoin, and other cryptocurrencies like it, are based on blockchain technology.
Blockchain is a decentralized way of storing information that makes it tamper-proof and secure. Now, there’s a new kid on the block called Ethereum, and it has the potential to change the way we decentralize the web.
What is Ethereum?
Ethereum is a decentralized platform that runs smart contracts. Smart contracts are programs that run exactly as programmed without any possibility of fraud or third-party interference.
Ethereum is not just a platform but also a programming language (Turing complete) running on a blockchain that helps developers to build and publish distributed applications. The applications on Ethereum are running on its platform-specific cryptographic token, ether.
Ether is like a vehicle for moving around on the Ethereum platform and is sought by mostly developers looking to develop and run applications inside Ethereum. According to CoinMarketCap, Ethereum has the second largest market cap after Bitcoin in CoinMarketCap.
How Does Ethereum Work?
Ethereum takes decentralization even further than Bitcoin. While Bitcoin blockchain records transactions of the cryptocurrency bitcoin, Ethereum blockchain focuses more on running the programming code of an application.
That’s because rather than miners working to earn bitcoins as a reward for validating transactions, they work to earn ether which is used to pay for transaction fees and services on the Ethereum network.
In this system, decentralized apps don’t need middlemen who take fees from users; instead, they connect buyers and sellers directly in peer-to-peer fashion by using smart contracts in which both parties agree upon beforehand in order to enforce terms of service automatically without resorting to 3rd party arbitration which can be costly.
When an app runs on the serverless decentralized infrastructure of Ethereum, it becomes completely immune to any form of censorship, fraud, or third-party interference—a huge advantage compared to today’s centralized apps where everything from your personal photos (Instagram) to your professional emails (Gmail) reside on corporate servers over which you have zero control.
Applications of Ethereum
Because of its unique features discussed above, many believe that Ethereum has great potential as a platform for creating Decentralized Autonomous Organizations (DAOs). A DAO is an entity that lives on the internet and exists autonomously without any single leader.
They are sort of like organizations or companies that are owned by shareholders who vote using their stake in order to make decisions about how the company should be run—except in this case shareholders own DAO tokens rather than stocks.
One popular example is The DAO which was launched in 2016 with great fanfare only later to get hacked and lose one-third of its funds due mainly due to human error rather than flaws in its underlying code or security protocol.
But despite this high-profile setback, many still believe that DAOs offer great promise as a way forward for society given their transparency (no CEO hiding misdeeds under layers of bureaucracy), safety ( hacking would require attacking all computers running the software simultaneously), and low barriers entry (anyone with an idea can launch one).
While still in its early stages, Ethereum shows great promise as a platform for decentralized applications that could one day revolutionize how we interact with the internet by eliminating middlemen and giving users back control over their data.
Only time will tell whether it will live up to its potential but definitely, one worth keeping an eye on!