Ethereum Case Study – Understanding What, Who, Why, When, and How - Part 1 (What)

A couple of posts ago, I did a case study on Ripple. It was a great personal exercise, as it helped me understand Ripple a lot better. Although, not a expert, it helps frame one’s understanding of each cryptocurrency and provide some context or framework about whether one should invest or avoid. As someone who is still trying to get up to speed on the whole Cryptocurrency space, I wanted to share some of the things that I’ve been learning about Ethereum.

What do we know about Ethereum? Here is what googling on the internet produced. Note, I’m sure most of you who have been watching CNBC, MSNC, Money, Coindesk, and all other media channels already know about Ethereum but to those that have been living under a rock, like myself (and those who are not in the know)….

Question: What is Ethereum?

Summary:
• Launched in 2015, the value of ether (ethereum's currency) has increased rapidly. It suffered a set back before Christmas 2017, suddenly dropping from $850 to around $690 - a drop of about 20 per cent. Since then it has continued to show intense volatility, hitting highs of $1400 in January before slumping to less than $750. - its back now around $866

• Bitcoin vs. Ethereum: While bitcoin aims to disrupt PayPal and online banking, ethereum has the goal of using a blockchain to replace internet third parties — those that store data, transfer mortgages and keep track of complex financial instruments.

• As much as Ethereum and bitcoin do share some similarities though, the two platforms have different goals. Where bitcoin is strictly a digital currency, designed to function as a means of payment or a store of value, Ethereum takes a grander approach. Ethereum functions as a platform through which people can use Ether tokens to create and run applications and, more importantly, smart contracts.

• In short, ethereum wants to be a 'World Computer' that would decentralize – and some would argue, democratize – the existing client-server model.

• With ethereum, servers and clouds are replaced by thousands of so-called "nodes" run by volunteers from across the globe (thus forming a "world computer").

• The vision is that ethereum would enable this same functionality to people anywhere around the world, enabling them to compete to offer services on top of this infrastructure.

• For example, going through a typical app store, you’ll see a variety of colorful squares representing everything from banking to fitness to messaging apps. These apps rely on the company (or another third-party service) to store your credit card information, purchasing history and other personal data.

• Your choice of apps is of course also governed by third parties, as Apple and Google maintain and curate or sensor the specific apps you download.

• Take the example of an online document service like Evernote or Google Docs.

• Key Point - Ethereum, if all goes according to plan, would return control of the data in these types of services to its owner and the creative rights to its author.

• Key Point - The idea is that one entity will no longer have control over your notes and that no one could suddenly ban the app itself, temporarily taking all of your notebooks offline. Only the user can make changes, not any other entity.

• At its simplest, Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications.

• Until relatively recently, building blockchain applications has required a complex background in coding, cryptography, mathematics as well as significant resources. Previously unimagined applications, from electronic voting & digitally recorded property assets to regulatory compliance & trading are now actively being developed and deployed faster than ever before. By providing developers with the tools to build decentralized applications, Ethereum is making all of this possible.

• At its simplest, Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications.

Is Ethereum similar to Bitcoin? Well, sort of, but not really.

• Like Bitcoin, Ethereum is a distributed public blockchain network. Although there are some significant technical differences between the two, the most important distinction to note is that Bitcoin and Ethereum differ substantially in purpose and capability.
o Bitcoin offers one particular application of blockchain technology, a peer-to-peer electronic cash system that enables online Bitcoin payments. While the Bitcoin blockchain is used to track ownership of digital currency (bitcoins),
o the Ethereum blockchain focuses on running the programming code of any decentralized application.

• In the Ethereum blockchain, instead of mining for bitcoin, miners work to earn Ether, a type of crypto token that fuels the network. Beyond a tradeable cryptocurrency, Ether is also used by application developers to pay for transaction fees and services on the Ethereum network.

SMART CONTRACTS
• KEY PART OF ETHEREUM – It is creating SMART CONTRACTS

• What is a smart contract? Smart contract is just a phrase used to describe computer code that can facilitate the exchange of money, content, property, shares, or anything of value. When running on the blockchain a smart contract becomes like a self-operating computer program that automatically executes when specific conditions are met. Because smart contracts run on the blockchain, they run exactly as programmed without any possibility of censorship, downtime, fraud or third party interference.

• Smart contracts are contracts written in code, which the creator(s) upload to the blockchain. Any time one of those contracts is executed, every node on the network runs it, uploaded to the blockchain; thus, it is stored in the public ledger, theoretically tamper-proof.

• Smart contracts are essentially structured as ‘If-then’ statements.When certain conditions are met, the program carries out the terms of the contract.

• As an example, say you want to rent a car from a service that uses Ethereum. A smart contract is generated, stipulating that if you send the required amount of funds, then the service will send you a digital key to unlock the car. The process is carried out on the blockchain, so when you send the Ether tokens, everyone on the network can see that you did so. Likewise, when the rental service sends you the key to unlock the car, everyone will see it. In this scenario, the contract might state that if the service does not send you the key, the tokens are refunded.

• Since every computer on the network is keeping track of this transaction through the blockchain, there is no way to tamper with it. If someone altered the details of the contract, every copy of the digital ledger would note it.

• Every program on Ethereum uses a distinct amount of processing power. This is why every contract and program on Ethereum is given a cost in “gas.” Gas is a measurement of how much processing power the program will require, and the higher the gas requirement, the more Ether tokens the user will need to spend.

• KEY POINT - One of the commonly cited advantages of smart contracts is that there is no need for “middlemen” like lawyers or notaries. In theory, this means that you can carry out transactions without the waiting times inherent to paper filings, and without paying fees to whoever would typically oversee such a transaction. This is particularly important for people living in countries where the legal system is corrupt, or woefully inefficient. - Think Venezuela, Cuba, African countries like Zimbabwe, and China etc.

• Of course, the automation means that, if something goes wrong — if, for example, there is a bug in the code of the smart contract — the blockchain will still carry out the terms of the contract, which could be problematic.

• While all blockchains have the ability to process code, most are severely limited. Ethereum is different. Rather than giving a set of limited operations, Ethereum allows developers to create whatever operations they want. This means developers can build thousands of different applications that go way beyond anything we have seen before.

Key Takeaways:
• “[Blockchain] is to Bitcoin, what the internet is to email. A big electronic system, on top of which you can build applications. Currency is just one.”

• Ethereum is not like Bitcoin. They are not cousins. They are quite different

• Ethereum speaks to a larger community in that it has a direct impact on Applications that we download on our smartphones, iPads, and other uses (echo, Alexis, etc)

• Ethereum has a larger and more potential to impact the various industries, and could potentially exceed Bitcoin. A large reason for this is due to the Smart Contract offering that Ethereum does for all potential users. I think this is a truly valuable proposition.

• Although Bitcoin is currently utilized as a peer-to-peer offering, Ethereum can be a game changer in that firms can decentralize data storage. Imagine taking out Amazon, Google, Facebook, Apple out of the data storage business. All personal information can be controlled by yourself and no one else. Its pretty compelling.

• Smart Contracts are essentially Artificial Intelligence, in that once you set it up, they can fulfill orders and agreements (if all the information and actions have been satisfied). You can create online business and have all of it setup and work independently without much interference. It’s a very powerful concept.

Next Post, I’ll dig into more about Ethereum’s Virtual Machine, which is built on the Smart Contract. Also, we’ll talk about Ethereum’s hard fork, Ethereum classic.

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