Crypto 101: What is Ethereum?

The very short video above is about six months old, but still a decent primer for someone who’s heard about Bitcoin but is just learning about Ethereum.

Bitcoin wanted to be cash.

Ethereum wanted to be anything.

Bitcoin came into the world nine years ago as a truly bold vision: to harness the power of the blockchain in order to revolutionize the monetary system. It was designed explicitly to achieve this end – and to do very little else.

Ethereum came into the world a few years later – inspired by Bitcoin, but with an even bolder vision. Ethereum wasn’t competing to be simply “cash”. Instead, it was envisioned as a programmable platform bounded by developer imaginations, rather than design limitations.

Common Ground

Both projects started as “whitepapers” and eventually mushroomed into gigantic communities. Bitcoin’s anonymous whitepaper author(s) went by the name of Satoshi Nakamoto – and has long-since disappeared. Ethereum’s whitepaper author, Vitalik Buterin, is still actively involved in Ethereum’s development and community. Regardless of either visionary’s level of involvement – neither project could be completely controlled by any single group or individual.

“Control” of either project requires community consensus, because, for the networks to function, all participants on the network must agree to the same rules. This is a feature of their common decentralized, distributed, blockchain underpinnings.

The blockchains, networks, and software code that run these networks are all open and auditable to anyone with an internet connection. Anyone can contribute to these projects on many different levels – and many people are.

Ethereum’s Logic

Bitcoin is both a network and a cryptocurrency token. The network’s sole purpose is to shuffle around ownership of its tokens in a secure and trustless manner. Doing that effectively is not as trivial as it may sound, but the fact remains – that’s all Bitcoin can do. If Alice wanted to send Bob some amount of her valuable tokens in a trustless manner, she could certainly use Bitcoin.

Ethereum has a network and a token similar to Bitcoin’s – its token is called Ether. To shuffle value around the Ethereum network, you use Ether. Unlike the Bitcoin network, though, the Ethereum network’s capabilities don’t end with simple value transfer. By allowing user-programmable logic, value transfers don’t necessarily have to be kept simple – transfers can be smart.

If Alice wanted to send Bob her valuable tokens in a trustless manner with some “strings attached” – maybe he could only use it to pay his landlord, or maybe he could only withdraw a small amount per day – Alice could do that on the Ethereum platform. If Alice wanted to set aside some tokens that Bob could only access on Thursdays around lunch, after he submitted a particular phrase from Shakespeare… she could do that, too. She couldn’t program these logical conditions on the Bitcoin blockchain.

Sets of conditions like these are functionally computer programs executed on the Ethereum platform. They are often referred to as “smart contracts”. Several smart contracts combined with a user interface… and voilà, there you have a distributed application (dApp). The program can be written to be unalterable – and, since it lives on a blockchain, it’s not feasibly stoppable.

Anybody can do that on Ethereum. Nobody can do that on Bitcoin.

Ethereum aims to take the promise of decentralization, openness and security that is at the core of blockchain technology and brings it to almost anything that can be computed.

-Vitalik Buterin

Move Ether. Move Anything.

The exciting part about a programmable platform is that almost anything is possible. Alice doesn’t have to use the Ethereum platform just to send everyone in her family valuable Ether – she can use the platform to let them cast votes on where to have the next family reunion. She can send them each a unique digital token redeemable for a dozen of her famous home-made cookies.

Zoom out a little – Alice doesn’t have to be a person at all. Alice can be a corporation that uses the Ethereum platform to immutably account for its revenues and expenses, to securely tally shareholder vote results, and to transparently track company inventory. Bob can be an advertiser for Alice’s products – and be automatically paid every time he refers someone to her online store.

Zoom out a little more – Bob can be nothing more than a smart contract that automatically matches open advertising slots with advertisements provided by companies like Alice. Bob need have no human overhead – and could donate all profits automatically to charity immediately after every successful referral.

That’s not science fiction – that’s the power of a programmable platform. Anything can be represented on and moved by such a system. That’s what Ethereum can do right now.

The Demand for Ether

No matter how the Ethereum platform is used, interactions on the platform require a fee to be paid for the computing resources involved in the interaction or execution of code. The more complicated the task – the more resources required – the higher the requisite fee. The fee can only be paid in Ether.

As the demand for access to the Ethereum platform grows, so too will demand for Ether. All other things being equal, when demand for Ether rises, so will its price on the open market.

The Ethereum platform is growing in popularity – faster than it can effectively process all that it is being asked to do, in fact. Developers are working hard on various solutions aimed at scaling the capacity of the platform.

Ethereum wanted to be anything, and it can be…

…Now it just has to be able to accommodate everyone.

I’m passionate about blockchains. I’m excited about decentralization, autonomous organizations, cryptocurrencies, and uncensorable dApps.

I’m also overwhelmed – with questions about these cutting edge technologies. I want to understand the tech, the politics, and the implications of the blockchain revolution.

Most of all, I want to share what I discover – because broader understanding will lead to greater participation, more rapid adoption, and, subsequently, a better world.