Ethereum is an open source platform to execute Decentralized Applications. Six years after the advent of Bitcoin, the programmers all around the world saw immense possibilities with blockchain apart from being a store of value. One such developer Vitalik Buterin, developed a platform built on blockchain to execute programs. Vitalik was the founder of the Bitcoin Magazine. Soon, he saw the through the immense potential of Blockchain and developed a blockchain platform. It was no different than any other open source software like BitTorrent, however the underlying blockchain technology, like Bitcoin, warranted Proof of Work (PoW), it has since 2016 put forward a plan to shift to PoS (Proof of Stake) which will implement virtual mining of Ether tokens.
Proof of Work (PoW) is an energy and time consuming process whose output is the result of the underlying program usually associated with transfer of value. The coins are hence generated by a mining process. Proof of Stake (PoS) is a blockchain architecture that replaces mining with forging, i.e. securing the transaction by staking a certain amount of Ether Token and earning rewards from transaction fees.
The vision behind building the Bitcoin Blockchain was disrupting the banking system of holding value centrally and maintaining a separate ledger, to a system of transparency and decentralization. It was also seen as the most potent replacement of Paypal and SWIFT network.
Vitalik’s vision with Ethereum was different as he wanted to replace the cloud servers, present day crowdfunding platforms, centralized distributed processing of financial data and execution. Currently, the giant internet companies have secured user data on their private secure servers. These include Log in ID and passwords, account numbers, passphrases, trade secrets, trademarks and patented papers, customer preference data and so on. Ethereum stores and processes the data which include Ether (ETH) Token public ledger which is a small part that resembles the blockchain.
There is a transaction fees or a fees required to be paid to the network for processing the programs. It is like a cloud computer whose processing units are not owned by different entities but the users are the end owners. Currently, everything we save on the web is usually saved in data centers of giant computer companies like Amazon, Microsoft, Google and so on. The Ethereum Network proposed to save vulnerable data securely. It is also provides ability to make secured deals or ‘smart contracts’ that together with a graphical interface is called a Decentralized Application.
There are some terms that need acquaintance before completely understanding Ethereum. These terms coined by developers are only used to define the process and its variables. They are:
Ether: It is the price paid for fueling the system. Ether (ETH) is the token that is paid to the miners for lending their processing powers to run the program on the Ethereum platform. ETH can be exchanged any where around the world to an address holder in minutes.
Gas: It is the quantitative equivalent of the fuel required by the system to process decentralized programs. Ethereum also keeps an account of the Ether (ETH) in each account and the incentive or result of the decentralized applications are usually settled in Ether (ETH).
Smart Contracts: It a computer program that runs via the Blockchain i.e. third party decentralized verification. The output of the program usually involves transfer of value. It can be used to create share issue, escrow accounts, crowdfunding platforms, ICO, etc.
Dapps: Dapps is short for Decentralized Applications. The smart contracts are implemented on graphical interface using HTML, PHP and CSS which then is called the Decentralized Application. For example, a deal that requires an escrow account like P2P transfer of data or value, the program would hold the mortgage item or sale product transfer until the dealers confirm payment or show proof.July 2015 - is when Ethereum came to life! Click To Tweet
Ethereum was developed by July 2015, it was the first blockchain based introduction that offered functionality different than Bitcoin’s store and transfer of value. Ethereum was the platform that paved way for developing applications by programming them and running them on Ethereum. It is the second largest coin in terms of total and daily market volume. There has been various attacks on Ethereum exposing its vulnerability, it has also gone through a hard fork resulting in the formation of the ETC chain, which is highly popular in China. In 2017, again a program called cryptokitties clogged the network with their virus resulting in delayed transactions. These attacks have exposed the scalability and congestion issue. There are core developers including Vitalik Buterin who are continuously working on the Ethereum platform to increase it’s ability to process and store programming transaction. It also aims to evolve to become eco-friendly and energy efficient by adopting Virtual mining or PoS (Proof of Stake) algorithm.