Lesson 5: What is Ethereum and Smart contracts ?

Lesson Learning objectives : What is Ethereum ? What are Smart Contracts ? What Ethereum brings to the Cryptocurrency Ecosystem ? This lesson address these important topics in a simple and efficient way, to allow the participant to understand quickly Ethereum and Smart Contracts


 

What is Ethereum 

Description 

Ethereum white paper was published by Vitalik Butin in 2013 with a formal launch in 2015, in order to solve and improve gaps within Bitcoin. Due to Bitcoin limited scalable capacities as Bitcoin was design to be a peer to peer currency developers quickly face a problem either improve Bitcoin code or create a new blockchain platform.  As such, is in order to fill the gap Ethereum was created.     However, it’s important note that Ethereum is at the same time a decentralized platform for cryptocurrency applications (Dapps) and a cryptocurrency token (Altcoin). In order to understand Ethereum properly, as previously mentioned, we can split it in two components; Decentralized Platform for Dapps and Cryptocurrency with a tradable value.

 

Ethereum as a Decentralized Platform 

Overview 

In a nutshell, Ethereum is a decentralized platform which allows developers to build, launch, and run decentralized applications  through the Ethereum network without having to create and deploy an entire new Blockchain for each application. Ethereum brought the possibility to create thousands of new applications all of the same platform. The mechanism which allows developers to create and launch applications through the Ethereum network is named Smart Contracts.

Smart Contracts

Im simple words, a Smart Contract are programs which automatically executes themselves in the way their program by their creators (developers). Through this mechanism developers can create Decentralized applications (Called Dapps – e.i online Casino application) or even decentralized autonomous companies called DAO. Smart contracts also allows the transfer of money within the platform by allowing funds to be sent to smart contract addresses. As an example when a new cryptocurrency is launched (View lesson number 7 of this course What are ICOs and IEOs for more information), should a person wishes to participate in the initial public offering (ICO) following the registration they will have to sends their funds to the smart contract address, when the ICO is over and the distribution takes place they will receive the purchased token (cryptocurrency) to an Ethereum wallet which provides Ethereum addresses such as MetaMask, as the new cryptocurrency runs on the Ethereum network.

 

Governance

Even is Ethereum  is a decentralized application, the governance of it is slightly more centralized than Bitcoin. As an example and in simple words, a fraud this occur with a DAO (decentralized autonomous companies) in 2016. Ethereum governance team decided to roll back the chain, however as this decision wasn’t making an unanimous consent a fork occurred which lead to the creation of Ethereum classic. However, if we compare this to Bitcoin as previously mentioned in lesson number two it is not possible to roll back Bitcoin chain as Ethereum did.

 

Ethereum as Value 

Furthermore, other to the main reason of Ethereum to be, Ethereum also has a monetary value which is provided by the market (offer and demand) through the exchanges. As such, Ethereum is frequently simply traded on exchanges in order to make trading gains.

 

 

 

 

Back to: Course 1: What are Cryptocurrencies?
Lesson Details
Length
10 minutes
Complexity
Easy