NOTE: I’m not a financial or legal advisor. I just have a passion for software technologies and believe in Blockchain’s future. I don’t recommend you putting all your life savings in Bitcoin or any other cryptocurrency.
If you want to know what is Ethereum and how it works and what it can be used for, without going deep into the technical abyss, this guide is perfect for you.
Ethereum 101
At its simplest, Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy dApps or decentralized applications.
Another Bitcoin?
Like Bitcoin ethereum leverages the Blockchain technology to power its network. Think of Blockchain is to Bitcoin, what the internet is to email. It just an electronic system, on top of which you can build applications. Currency is just one application.
Another Cryptocurrency?
Ethereum could be considered just another cryptocurrency but that is not necessarily the core power of Ethereum. The biggest value add of Ethereum is that it’s a Turing-complete “programmable blockchain” that allows developers to build all sorts of distributed apps (DApps) and technologies. It powers developers with the ability to build smart contracts. It’s a contract that self-executes, and the contract handles the enforcement, the management, performance, and payment.
DApps
The Ethereum network can be looked at as a “decentralized appstore” where anyone can publish their DApps. DApps don’t require any middle man as it connects users and providers directly. For instance, if twitter was decentralized (resistant to censorship and rollbacks) it would mean that once you tweet, it can’t be erased, not even by twitter itself. DApps as a concept it is still in its early growth stages and ever evolving.
Types of DApps
The Ethereum white paper classified DApps into three types.
- Token Systems: Applications where money is involved
- Financial derivatives and Stable-Value Currencies: Applications that manage money
- Identity and Reputation Systems: Applications that includes voting and governance systems
- Decentralized File Storage
- Decentralized Autonomous Organizations (DAO): Virtual entity with a defined number of shareholder and members. The members would collectively decide on how the organization should allocate its funds which could range from bounties, salaries to even more exotic mechanisms such as an internal currency to reward work.
Features of DApps
- Open Source: Governed changes where it is decided by the consensus, or a majority, of its users.
- Decentralized: All records of the application’s operation are stored on a public and decentralized blockchain.
- Incentivized: Validators of the blockchain are incentivized by rewarding them accordingly with cryptographic tokens.
- Protocol: The application community must agree on a cryptographic algorithm to show proof of value.
Raising Funds - The Common Use-Case
The Ethereum platform enabled many projects to raise capital for their own Ethereum-based projects through Initial Coin Offerings (ICOs). ICO is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. This use case increased Ethereum’s value, reaching around half of Bitcoin’s market cap in 2017.
The State of Ethereum
- Price: $716.38 USD
- Market Cap: $69,058,973,730 USD
- Circulating Supply: 96,399,650 ETH