An Exhaustive Explanation of Ethereum
This is a continuation to my guide of Cryptocurrency for all the non-techies out there. I began this guide with my article, Comprehending the Confusion of Cryptocurrency, explaining the importance of cryptocurrency and detailing the most crucial information for understanding how cryptocurrency works. In this article, I will be diving deep into the Ethereum Virtual Machine, and how this blockchain network will be changing the world.
There are many different kinds of cryptocurrencies out there. The most popular one right now, that I’m sure you have heard about, is called Bitcoin. Bitcoin’s blockchain was created only to support the currency itself. The second most popular cryptocurrency is the Ethereum blockchain, otherwise known as the Ethereum Virtual Machine. Ethereum’s long term goal is much different than of Bitcoin. While they both support their own coins, Ethereum’s being called ether, ETH, or simply ethereum, Ethereum’s blockchain is much more programmable. This means that it can allow more programs and applications rather than just hosting a coin, which means a lot for the future of cryptocurrency.
The Ethereum Virtual Machine
The Ethereum blockchain works just as any other blockchain network. New blocks are added onto the chain to process ether transactions and to mint new ether coins. In addition to this, the Ethereum Blockchain has a network of decentralized applications as well as programs called smart contracts.
Smart Contracts
Smart contracts are a crucial part of how the ethereum platform operates. Smart contracts, also called self-executing contracts, blockchain contracts, or digital contacts, are self-executing contracts that have the terms of agreement between the buyer and seller directly written into lines of code. This program runs itself when the predetermined conditions are set, automating the workflow. They can be used to exchange money, shares, or anything of value in a transparent, conflict-free way. More importantly, all participants can be immediately certain of the outcome without the need for a central authority or legal system like a lawyer. Since these would be recorded onto the blockchain, any runnings of a smart contract are traceable and irreversible.
These contracts work by following “if/when, then” statements in the code at a specific address in the blockchain. There can be as many stipulations as the participant would like to ensure the task will be completed successfully. These stipulations would be the “if/when” statements. The “then” statements would be what the needed outcome is, agreed upon by the participants. Once the stipulations, outcomes, and options for all possible exceptions or disputes are determined, the contract can be programmed, or created by a template from an online service. Once a condition or stipulation is met, the contract is immediately executed. Since all of this occurs digitally, there is no paperwork to be processed or filed. The blockchain is then updated when the transaction is complete, meaning the action cannot be changed or deleted, and the participating parties are the only ones who can see the results. Smart contracts are a clean and easy way to define the rules and penalties, but also to automatically enforce the obligations agreed upon.
The Process of Transactions
The users on Ethereum’s network are called ethereum accounts. These accounts can complete transactions or execute smart contracts. In order to do this, there is a fee (or pricing value) that must be met, called gas. These fees are payments to compensate for the computing energy used by the miners who process and validate transactions. The exact price of gas is completely based off of supply and demand between the network’s miners. If the gas price does not meet their expectations, they are able to decline processing that transaction. Gas is priced in small fractions of ether called gwei. Similar to how a penny is the smallest denomination of the U.S. Dollar, gwei is the smallest ether denomination. There are one billion gwei to one ether.
Smart contracts are a type of ethereum account, but they are not controlled by a user. Although, they do have a balance and are able to send transactions over the network. These contracts are deployed to the network and user accounts are able to interact and run them. The user would submit a transaction that executes a function that is defined on the contract. Anyone is able to create a smart contract, they would just need to know how to code in the specific language and have enough ether to deploy the contract. The deployment of the contract is considered to be a transaction, so there would be a gas fee just as if it were a normal transaction. Any smart contract is open to the public on the Ethereum network and able to be used. Contracts are even able to call or deploy other contracts. As well as using smart contracts, ethereum users are also able to use a diverse range of decentralized application on the Ethereum Virtual Machine.
Decentralized Applications
Decentralized applications, otherwise known as “DApps”, are digital programs that run on the Ethereum blockchain network, instead of a single computer. A normal web app, like Uber or Twitter, runs on a single computer system owned by an organization. It has full control over the app and how it works. There might be multiple users of the app, but there is only one organization in control. DApps are different because they are run on the blockchain network where no one is in control of the app. Users are able to consume content as well as provide it.
These applications can be used and created for an array of purposes, from gaming and social media, to financial resources. Anything posted to any of these applications cannot be deleted, just like other uses of the blockchain. The benefits to decentralized apps are that they have much more protection for the users privacy than normal web apps, there is a lack of censorship since blocks cannot be deleted or changed, and there is much more flexibility for what could be done in the future. Smart contracts are also often used between two users on a decentralized application platform.
NFTs or Non-Fungible Tokens
I am sure that you have heard the phrase “NFTs” a lot recently, and trying to understand what they are can be complicated and confusing. Understanding the basics of cryptocurrency that I covered in the previous article will help a lot with your understanding of NFTs.
Non-fungible tokens are cryptographic assets on the Ethereum blockchain, which can be digital artwork or any real world assets represented digitally. They each have unique identification codes and metadata that differentiate them from each other. Non-fungible means that they cannot be replicated, traded or exchanged at equivalency for one another. There cannot be an exact duplicate of a NFT. They could be the same digital artwork, but the identification codes and metadata are always different. This is unlike other currencies because one U.S. dollar will always be equal to another U.S. dollar, and one bitcoin always equals another bitcoin.
Since NFTs are based on blockchains, they can be used to remove the middle man and connect artists directly with their audience. They also hold ownership details for easy identification and transfers between the token’s holders. Owners are able to add metadata, so an artist would be able to digitally sign their work. There is also a feature that is able to be enabled that the artist will get a percentage paid to them every time their NFT is sold or changes hands. If the artist’s work soars in value, they would be able to profit off of their work.
Currently, much of the NFT market place is centered around collectables like artwork, rarities and sports cards. Fine art collecting has been one of the biggest collectibles in the NFT marketplace in the past few years. While anyone is able to copy a digital file containing an art piece as many times as they would like, only the one who actually owns the NFT has any ownership of the work. It could be an art piece where there is only one real copy, or it could be like a trading card where there are many different copies of the same work.
The owner of an NFT would have basic usage rights like being able to post the image or being able to set it as their profile picture. NFTs also work as any other speculative asset where they can soar in value, and the owner is able to make a profit off of it. They are able to be sold for different kinds of cryptocurrency or even USD. The future of NFTs has just begun, and it will only continue to get more exciting.
Conclusion
The Ethereum Virtual Machine has a lot to offer us now and in the future. Understanding the basics of everything that the Ethereum blockchain has to offer now will make the understanding of the future uses much easier. Being able to grow with the network as it becomes something we use in our everyday lives will be something only a small percentage of people will be able to say they did.
