Ethereum lately is the subject with a lot of hype. Few praise it as the world’s computer or the new internet and few criticize it as a platform which enables a widespread of scams and ponzi schemes.
It is time to take a closer look and analyze the subject at what Ethereum is all about? What enables it ?and Its role in future?.
Like any other blockchain Ethereum is a programmable blockchain. It is based on a peer-to-peer network protocol which consists of many computers across the world.
Rather than providing its users the ability to use the pre-defined operations such as the bitcoin transactions, Ethereum allows its users to run any code they want pretty much. This code is made available for others to interact with by storing on the blockchain and this is referred to as the smart contracts.
In Bitcoin’s network the computers (nodes) maintain and update the blockchain. But in Ethereum, these nodes also run the Ethereum Virtual Machine (EVM). The EVM or Ethereum Virtual Machine is a supercomputer which combines all the computing power of the nodes in a network.
This computing power of all the nodes is used to run the user-submitted code called smart contracts on the blockchain. To execute the smart contracts, the EVM charges a very small amount of transaction fee which is in exchange for the computational power that which is used by the smart contracts. This transaction fee is called as gas and is paid in Ether that is why Ether should not be really seen as a cryptocurrency, but rather as oil which runs the network.
As said earlier, Ethereum allows its users to deploy the smart contracts on the blockchain. A smart contract can be defined as a self-executing piece of code, which executes the agreements defined between various parties.
Nick Szabo was the first person to conceive the idea of ‘smart contracts’ in 1994. He reasoned that the smart code perfectly defines a series of relations, parameters and its actions.
Smart contracts in Ethereum are written in Solidity, which is an Ethereum specific programming language. The smart contracts are then uploaded to the blockchain where they continue to exist.
As we know the blockchain is secure and immutable, the users can fully trust that a smart contract on Ethereum will execute as intended and required.
The self-execution results in the counterparty risks and the moral hazards are essentially removed from the equation, as the contract enforces their own provisions.
These Smart contracts at present are used for a wide variety of different transactions. They are mostly suited for simple transactions, where the obligations of both the parties can be boiled down to an easily verifiable set of requirements.
For example in financial products like the derivatives, futures, options etc., The simple consumer transactions or The Internet of Things data exchange, automatic payments of musicians or The content creators per minute of ‘use’ of the intellectual property. In future for example, the smart contract acts as an insurance against the drought for farmers.
Blockchain, which gives the potential to provide an efficient, fast, secure and reliable transacting of value promises to upend the business models and disrupt industries.
Blockchain technologies at present are pushing us the challenge on how we can have a structured society, defined value and a rewarded participation. This is why blockchain in Ethereum is referred to as the enabling technology of the internet, or the value of internet.