What is Ethereum? Many people are asking this question, but not many people have the answers – or at least, not answers that are comprehensible to the average reader. We’re going to simplify things and explain, step by step, what Ethereum is and how it works. If you’re new to the cryptocurrency world, don’t worry, we’re just going to cover the basics.
The first thing to establish about Ethereum is that it is a form of online currency – cryptocurrency. Users are transferring it from one place to another, and every transfer, transaction, and storage place is tracked by the Ethereum online network. Ethereum takes things a step further by turning the way we normally store things online on its head. This explains how.
How does the normal online storage system work?
Any information that you put on the computer – passwords, financial information (including credit card data and transaction history), personal data, etc. – is collected and stored in the online world through clouds and servers owned by companies such as Google or Apple. This method enables these companies to secure all of your data so that you don’t have to do so yourself.
However, this method also leaves your data vulnerable to attack or infiltration without your knowledge. It can be changed, stolen, or leaked by outside sources out of your control, leaving both you and the third-party storing your information without much of a defense.
This is what is known as a centralized design for the Internet. Cryptocurrencies are a way of decentralizing the Internet, and so that is what Ethereum, at its simplest, is attempting to do.
How does the Ethereum Storage System work?
As it stands now, people’s information is controlled by third parties in the system described above; Ethereum is looking to keep that control in the hands of its users.
By using a blockchain, Ethereum will replace the use of internet third parties that control user information. This blockchain will allow developers to create and distribute decentralized applications – meaning that no central authority will be able to hold the information creating those applications; only the actual users will.
The clouds and servers of the centralized system will be replaced by thousands of “nodes”, which are run by volunteers all around the world. This will allow people to have control over their own information, but will still allow them to also have the ability to obtain that information whenever they like.
Not everybody is for this decentralizing system (of Ethereum or any other cryptocurrency). Those cynical of the decentralized system predict downsides and remind everyone that it is still a new industry, with lots more to learn. It is still unclear whether the applications of a decentralized system will prove to be useful, capable, or, most importantly, secure.
What does the Ethereum Blockchain do?
Ethereum’s blockchain structure is a shared record, through the multitude of nodes around the world, of a complete transaction history for the user – everything that the user does with Ethereum, or stores via Ethereum, is tracked by the nodes. The network for Ethereum is made up of these nodes, and the basic unit of Ethereum is the account of transactions stored by these nodes.
This means that Ethereum’s network is made up of a thousand computers, all processing the same program at the same time.
This is what allows Ethereum’s nodes to store the most recent state of the user’s information, or transactions. The network keeps track of all the up-to-date information, including the user’s balance of Ethereum and where it’s all stored.
The Ethereum blockchain tracks this information at its most updated, and is maintained and updated by the many nodes connected to the network. So, rather than a third-party keeping track of information, the Ethereum blockchain aims to have the user keep this ability for themselves, through the use of the network of nodes.
How is Ethereum Exchanged?
Ethereum is exchanged through the use of its crypto tokens, which are called ether. Ether is designed to be used as the payment method for hosting and accessing apps on the Ethereum blockchain (and it is these ether transactions that the blockchain keeps track of).
Just as with any other token of a cryptocurrency, ether has a value and can be bought or sold for an equivalent value of Fiat or other cryptocurrencies. Ether is also completely dependent on supply and demand, and it is therefore extremely volatile. However, it is this volatility of ether’s value that makes it an ideal asset for trading.
Ethereum is exchanged, or tracked, in a similar way to actual money (but less like money, ether value may be worth more or less depending on the day, thus affecting how much of it must be transferred). Whatever the current value of ether is at the time of the transaction will be transferred between accounts, the way you would transfer money from one bank account to another.
Due to the up-to-date transaction tracking that is done by Ethereum’s network and placed in the users’ hands, users (or, as they are actually called, miners) can ensure that no one is double spending their ether (and therefore their money).
Ethereum has demonstrated good growth in its value as of late, and this increase can be attributed to a number of different factors. There are many different developments currently taking place with the Ethereum platform, which is positively affecting its future potential and boosting the present trading activity of ether.
What’s the most important thing to take away about Ethereum?
Ethereum is looking to decentralize the online world. It wants to take away the control of personal data, such as passwords, financial information, and transaction history, from third-party users, and put that control back with the original users.
Ethereum uses blockchain technology to do so. Through a network of nodes coming from across the world, ether transactions are tracked and stored, with up-to-date values, amounts, and locations, ready at the ether miner’s hands.
Transactions occur as they would at a bank, transferring from one account to another. The value of ether fluctuates, so it may be worth more on some days than it is on others.
Ethereum is growing in popularity as a cryptocurrency. Many companies and start-ups have already adopted Ethereum as a way to complete transactions, and the number keeps on growing.
Why should you Invest in Ethereum now?
First and foremost, investing in Ethereum is going to be much cheaper than investing in Bitcoin. This means that you could get more Ether for the same amount of money than you would Bitcoin, which could benefit you when Ethereum climbs, as it has been doing since the start of this year. While Ethereum is a cheaper cryptocurrency than Bitcoin, it is still a highly popular one. People are buying it, and they are selling it. This is driving the price, perhaps not as fast as Bitcoin, but steadily.
Of course, any cryptocurrency is going to have its ups and downs, but Ethereum has had a relatively consistent growth this year. Since the beginning of the year, Ethereum has seen an increase of almost 8,300%, going from $8 to its most recent price of $706. Ethereum’s growth may be due to its ability to be bought on Coinbase, which is now the most popular app on the Apple App store.
If you would like to learn more about Ethereum and how it works, click here.
Featured Image: DepositPhotos/ bestforbest
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