When we hear the word “Ethereum” we typically associate it with a cryptocurrency – like Bitcoin. While that definition isn’t entirely incorrect – it’s important to understand that Ethereum is much more than just a simple cryptocurrency, it’s actually an open software platform built on blockchain technology that enables developers to build and deploy decentralized applications.
Within the ethereum platform, is a cryptocurrency called ether that is used to power applications built on the Ethereum blockchain.
To be fair, the entire concept of Ethereum vs. Ether can get very confusing very fast. We’ll explore the differences between ethereum and ether in a later module; for now let’s focus on the basic building blocks of what makes Ethereum so cool, and perhaps so revolutionary.
Let’s Start With Some Simple Definitions
Ethereum aims to change how the internet works, because, for the first time it allows online computer systems to run without using ANY third party. Ethereum lets software applications run on a network of many private computers ( also known as a distributed system).
What Is A Distributed System?
Similar to most websites, information is stored on a server, which is basically just a computer with a database in it that contains the site’s information. If that computer is damaged, all the data and the website, vanish. With blockchain technology, that same database is distributed among a vast number of people’s computers, so that all information in the database is public and the database can’t really be shut down as long as computers are still contributing to it.
In short – this means centralized corporate mega-computers and cloud servers are replaced with a large, decentralized network of many small computers that are run by volunteers (people like you and me) from all around the world.
Here’s An Analogy:
If you’ve ever downloaded a song or file off of a system like Napster, Limewire, Bit Torrent etc. – then you’ve already used a distributed system. The users have the songs downloaded on their computer upload them to the network so other users can download it from them. But instead of downloading the whole song from one person, you download pieces of the song from multiple people – hence the term file sharing.
So the big breakthrough behind Ethereum is that any user can use this new, distributed network to create and run decentralized applications. No permission is needed because third parties are no longer required.
What Is A Blockchain?
Blockchains are a way for many different people or computers to agree on something even though they don’t know or trust each other. By using special math and careful rules, everyone can agree on a list of the things that have happened. For example in Bitcoin people can agree on a list of all the payments that have been made, and they can use that list; also known as a ledger, to know how much money everyone has at a given time. That type of money is called “cryptocurrency” or “digital currency” because the money is tracked by computer, just like your online banking.
Ethereum uses the same idea, but instead of just keeping track of payments, you keep track of computer programs. These computer programs can still be used to track money, sure. But they can also be used for so much more, like loans/banking, regulatory compliance, auctions, or even deciding who has won an election!
So What Is Ethereum?
Simply put, Ethereum aims to completely reinvent how the internet functions. Ethereum’s vision is to create a “World Computer” – a huge network of many private computers that run various internet applications without any third parties.
But Why Remove The Third Parties?
Removing third parties has many benefits. For example: since Ethereum is a computer network run by the community of users, it means that personal information of users will no longer be stored on the central servers of big companies, waiting to be hacked, sold, and disrupted – so it’s safer!
In addition, decentralization means that no user or group of users can be excluded from using applications, so people from all countries and backgrounds are free to use and participate without approval or permission. Even the Ethereum applications themselves don’t need permission to exist, which means they cannot be removed or censored from any app store.
It’s an open system and anybody with an internet connection is welcome!
Putting It All Together
It’s hard to say what all Ethereum will be used for because it can be used for anything you can write a computer program to do. But if there’s a situation where you want to keep track of something, and it would be a problem if someone could hack or manipulate the results, it’s a good bet that Ethereum can help!
The results will look like regular websites or mobile apps, but will be completely uncheatable. As long as it’s built right, not even the person who makes the app will have the power to break the rules they agreed to.