A Simple Explanation of Ethereum

Ethereum is developed in 2015 by Vitalik Buterin as a platform for digital contracts. In Ethereum included is the Cryptocurrency “Ether”. Ether can be used to do financial transactions, like in other cryptocurrencies. Ethereum is to this day, the second biggest cryptocurrency. But Ethereum has some interesting and important advantages over Bitcoin. When the project around Ethereum started, it recieved around 18 Mio. Dollar in crowdfunded capital.

Design

Ethereum is based on a Blockchain and is used to do digital contracts, also called “Smart Contracts”. Similar to Bitcoin, Ethereum doesn’t need any central administration or bank. Ethereum is not only focussed on returning the control about financial transactions back to us, but also on contracts. Every user of Ethereum has his own public adress, which he can pass on to recieve Ether for example. The secret, private key is used to send transactions or to sign contracts, similar to a signature on a document.

This is how a public Ethereum adress looks like:

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Ether can be split up into smaller parts, to make transactions more precise. It is possible to send only half of an Ether or a quarter. The smallest possible unit is 0.000000000000000001 Ether and is called “Wei”. Therefore every Ether can be split up in 1000000000000000000 (one trillion) Wei.

Smart Contracts

A Smart Contract is used to make secure and fast contracts between to partys, without a real signature or a complicated process on paper. Even more important, there is no central administration of these contracts and no third party is making profit out of this.

The Blockchain of Ethereum is not only capeable to store transaction, but also small computer programms which can check certain conditions and execute instructions. An example would be a contract about a licensed software, which is only valid when a monthly payment is made to a specific account. There are many of other applications of the Smart Contracts of Ethereum, like the energy-supply and its accounting, publishing and paying for apps or as a safe payment for other services. Another important application is to store our private data more secure and trustful.

Ethereum is designed with the technology of Smart Contracts not only to solve a lot of problems of today, but also to solve some of the future problems. The flexibility and the possibility to extend the Blockchain with small programms is the foundation for this.

Mining

The calculation of new blocks in the Ethereum network needs a lot of computational power. Everyone who is using their onw computer to support the system is getting rewarded with Ether. The mining reward of Ethereum is 5 Ether for every new block. The blocktime, the time to calculate a new block, is with 10-15sec a lot faster than Bitcoin. Ethereum has no limitation of total units. In the future the Ethereum-network has to increase the difficulty of the calculations to ensure the stability of the system.

Features

Ethereum as a platform for Smart Contracts has a lot more potential for the future than only Cryptocurrencies like Bitcoin. Ethereum is not only a currency, a tool to manage financial transactions, but more a platform which offers a lot of solutions to future problems.

Downsides

Ethereum is a lot newer than Bitcoin and the future developement of Ethereum is not completely clear. With more possibilities of extension, are coming more problems to the platform. A bug in the Smart Contracts in June 2016 was the cause for a lot of Ether beeing destroyed. The network fixed the bug, but decided to split the project into two projects. Ethereum which is beeing continued as the main project and “Ethereum Classic” which is not supported by the developers anymore.

How can I get Ether?

At first you have to create your own Ether-account, a “Ether-Wallet”. After that, Ether can be bought from websites like www.anycoindirect.eu.

Another way would be to use your computer to join a mining-network. Everyone who shares their computer to mine new Ether will be rewarded. But usually the low performance and the low efficiency of personal computers is not even worth all the energy costs.

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