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Everything You Wanted To Know But Didn't Know To Ask About Ethereum

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Everything You Wanted To Know But Didn't Know To Ask About Ethereum

The brave new world of cryptocurrencies and block chains can certainly feel like a foreign landscape for those stepping onto virtual soil for the first time.  

The future of how money is stored, exchanged, and invested — not to mention the broader transformation of the global financial system — reads to many like a far-fetched Sci-Fi novel.  And it is, especially when you consider the predominant ways in which money has flowed through economies for centuries.  Add in the different types of cryptocurrencies currently in circulation (over 900 and counting), and you have a recipe for dizzying confusion.

While bitcoin holds the first-to-market distinction and has become the standard bearer by which all cryptocurrencies are measured, a handful of new options present a tight coupling of a blockchain model and cryptocoin with near limitless applications.  Leading this pack is the Ethereum platform and its ether cryptocoin.   

Ethereum was conceived by Russian-Canadian programmer Vitalik Buterin in late 2013.  A team of developers constructed the platform for nearly two years before an experimental release was launched in July of 2015.

To understand Ethereum and its capabilities requires a firm grasp on blockchains.  Invented by a pseudonymous person or group under the name Satoshi Nakamoto, blockchain was introduced in 2008 as the transaction recording and control mechanism for bitcoin.  

The business and technology worlds have since discovered a treasure trove of uses for blockchain beyond cryptocurrency management.  This is because blockchain creates a platform offering decentralized storage of data across many computers on a network like the public internet.

In the Ethereum implementation of blockchain, all participating computers on the network have copies and histories of the data.  When the data changes, i.e., a transaction occurs, these computers must agree the transaction is valid.  The computers then update their data copies accordingly, ensuring that all data across the network is in a current and consistent state.  

Simply put, the Ethereum blockchain functions as a digital ledger system to record the balances, inflows, and outflows of data — or money, in the case of cryptocurrency.  It’s a mass-distributed, large-scale electronic version of the handwritten checkbook ledger you may have kept in yesteryear.  You can also think of it like a computerized card counting system in that it tracks each transaction and reflects when your account, or hand, is in a favourable state.

The advantages of storing and transacting data with blockchains over traditional databases is increased security, integrity and availability.  Data is encrypted and rendered tamper-proof to malicious hackers or human error.  

Similarly, requiring all computers in the blockchain to approve a transaction guarantees the integrity and authenticity of the data.  Distributing the data and transaction validation process across multiple computers ensures that there is no single point of failure in the blockchain.  If a computer goes down, the data, ledger, and current state of the system can be made whole again from the other computers in the blockchain.

Inside the Ethereum blockchain are intelligent, executable units called smart contracts.  The parameters governing how smart contracts behave and what they do are defined by their creators.  They can communicate with other smart contracts, store data, or send and receive cryptocoins.  The smart contracts are responsible for enforcing the trust and required actions of the parties involved in a transaction, much like a traditional contract.  

For example, a smart contract can manage the process of purchasing a new car.  Say you’re looking for a car and buy one at a dealership.  Instead of the typical paperwork and payment routine, the car dealership issues a digital smart contract with the purchase terms and conditions to oversee the transaction.  This smart contract then monitors the necessary sequence of events to complete the car purchase.  You remit payment in cryptocurrency and the smart contract sends you the keys.  

If the vehicle is financed, the smart contract can even enforce events over time.  Say you miss a payment installment or two on the car loan.  The smart contract knows this and can revoke your access to the car.  Each event in the smart contract relationship is validated and tracked in the Ethereum blockchain.

You might say Ethereum’s approach to blockchain is more transparent or “open source” than other implementations.  Solidity and Serpent, two programming languages for Ethereum, allow developers the ability to leverage the blockchain by creating custom applications and smart contracts.  

Code written in Solidity and Serpent executes in Ethereum Virtual Machines (EVMs), which essentially act as the Ethereum client software communicating on the blockchain network.  The Ethereum blockchain thus becomes fully malleable in order to serve very specific functions in industries from crowdfunding to microgrid energy distribution.  

Undoubtedly, blockchains, smart contracts, and the boundless functionality of Ethereum will become more prevalent in society as industries and individuals embrace it.  We’ve entered the age where, if you can dream it, the Ethereum blockchain can help you do it.  

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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