What is Ethereum?

As the #2 cryptocurrency by market cap, Ethereum has proven to the world that it provides utility to a wide range of users.

Ethereum is a decentralized and open-source blockchain platform with smart contract functionality. Ether (ETH) is the native cryptocurrency of the platform and is the second-largest by Market Capitalization right after Bitcoin (BTC). Ethereum was invented in late 2013 by a Russian-Canadian programmer and co-founder of Bitcoin Magazine Vitalik Buterin.

Use of Ethereum (ETH)?

ETH was modeled after Bitcoin. So just like BTC and BCH, ETH a decentralized digital currency can be used as Peer-to-Peer (P2P) “permissionless”.

The P2P means your transactions do not depend on an intermediary or a central provider to b processed. Instead, you enjoy the free transactions infrastructure to send and receive ETH to whoever you want – whenever you want – without asking for permission.

And just like Bitcoin and the whole Cryptocurrency concept, your identity isn’t attached to your wallet – you remain anonymous and not putting your identity at risk.

What’s a smart contract?

Think of smart contracts as the code that allows for “programmable money.” They are executed transparently and automatically along with the “if this, then that” model.

For use cases that exist entirely in the digital world, smart contracts allow people to bypass intermediaries altogether. A simple example would be a smart contract that governs a trust fund. Here, the contract could be set up to automatically make payments on the first of each month, thereby eliminating the need for lawyers and managed escrow accounts.

Another, slightly more complex example would be a smart contract that governs the issuance of digitized securities. Here, the smart contract can be set up to, for instance, automatically pay dividends to holders of digitized securities. This eliminates the need for rent-seeking central clearing houses in status quo securities markets. In a ‘permission environment (where, for example, whitelisted digital wallet addresses are tied to verified identities) a smart contract for digitized securities can also ‘bake in’ compliance to regulations such as that no single person holds more than 10% of the issued securities.

By automating processes using code, smart contracts can reduce regulatory overhead, leading to more efficient capital markets.

What’s a DApp?

A growing number of applications are being created using smart contracts deployed on the Ethereum network. These are known as decentralized applications or DApps. Importantly, DApps are permissionless, meaning anyone is free to use them.

For a simple example of a DApp, imagine a dice game. To play, you send ETH to a smart contract that keeps your bet if you lose, or pays out if you win. Since the contracts that define the game are open source, we can verify, for instance, that the house has a 1% edge.

We can also inspect the contract to ensure that the random number generator is indeed random. This transparency makes the game ‘provably fair,’ unlike traditional casinos which are inevitably plagued by opacity due to their inherent lack of transparency. Also, since identities aren’t required to interact on Ethereum, anyone in the world can play our decentralized dice game without restriction.

Credits: Bitcoin.com