With the introduction of Bitcoin and Blockchain technology, the world of cryptocurrency finally began to realize it’s potential as a decentralized money system that is safe, secure and hardened against fraud. As the technology has developed, so to have other applications involving blockchain. Ethereum is one of the spin-offs of cryptocurrency but it is so much more.

What Is Ethereum?

Ethereum at it’s most basic level is an open source software that uses blockchain technology to frame and develop its architecture. Ethereum takes the technology behind cryptocurrencies like Bitcoin and applies it to applications and programming. With Ethereum, you are introduced to the concepts of decentralized applications and other devices like smart contracts and smart code.

Is It Like Bitcoin?

Ethereum has comparisons to Bitcoin, they both use the blockchain infrastructure and both have ‘miners’ that complete the transactional verification work, but those are the only comparisons. Ethereum is the base technology behind ether, which is a comparable cryptocurrency to Bitcoin and follows the same functions, but Ether is an application that Ethereum powers, Ethereum itself is not a cryptocurrency. Ether is the second most popular cryptocurrency by volume currently and is a strong competitor in the crypto marketplace.

How Does Ethereum Work?

Blockchain technology works by distributing the processing load to thousands and hundreds of thousands of people, who lend their computer resources to process mathematical formulas and write them to a public ledger. Each computer running Ethereum software runs it on an Ethereum Virtual Machine, or EVM. The virtual machine is responsible for executing the programming commands and interacting with the basis of Ethereum, Smart Contracts.

Smart Contracts Explained

Smart contracts are the primary usage of Ethereum for the time being. A Smart Contract has no set definition that is agreed on, but in essence, it is a code that is executed once a specific set of circumstances are met. In some cases, it is taking the place of a real, legally binding contract. As an example, if a mortgage agreement was a smart contract, the conditions of the mortgage being released from one financial institution to another would need to be satisfied before the funds would be transferred. Once satisfied, the smart contract code is executed. This is all done through code and computers so it leaves no room for human error and can be done almost instantly. Imagine walking into a bank and walking out with a house, like it was a restaurant. This is smart contracts from a perspective of a replacement for formal contracts.

On the other spectrum is smart contract code. Smart contract code is used to meet conditions which then set off a chain of causality to make another application work. An example would be an Ethereum-based application that monitors electrical substations. A smart contract could be created that increased or decreased usage at a home based on the smart devices and monitoring in the home. This would give a more precise usage of electricity and could impact the costs.

Why Invest?

Up to this point, our world has tended to be centralized, and power to decide and execute contracts lied in the domain of large institutions like banks and corporations. The distributed nature of the block chain is removing that central authority. While Bitcoin is the current poster child for blockchain technology, it’s a product that developers have created using platforms like Ethereum. Only the imaginations of developers will limit what we can achieve going forward.