A Beginner’s Guide To Ethereum, The Next Bitcoin


​Ever since Craig Wright said,but couldn’t prove, he was mysterious Bitcoin creator Satoshi Nakomoto, the world of cryptocurrency has been relatively silent. To most, it’s abunch of people with too many graphics cards creating value from nothing in order to anonymously spend money around the web.

So, you’d be forgiven if you saw the price of Ethereum jump some 2,300 percent this year, and assumed this was more internet hype once again mixing with the volatility of magic internet money. So, just what is this Ethereum thing? Will it really make our current monetary system obsolete? Are we all gonna be rich? The answer is, well, just maybe.

So Wait, It’s Just Like Bitcoin, Right?

Well, sort of. Both Bitcoin and Ethereum run off of a technology called blockchain. As you might remember from past cryptocurrency explainers, a blockchain is just a public record of actions. For Bitcoin, it’s a public record of bitcoin transactions, in which computers connected to the blockchain are constantly verifying those transactions and are rewarded with bitcoin of their own. It all has this recursive logic to it, which can be a little confusing! ButConsensys, a blockchain venture capital firm, lays it out simply enough:

All bitcoin transactions are broadcast to the entire network, and these transactions are collected by miners who verify those transaction’s validity (essentially using the method described previously) and include all valid transactions into a “block.” The contents of the block are then hashed with an incrementing random number (called a “nonce”) until the resulting output contains a certain number of leading zeroes. The network dynamically adjusts the requisite number of leading zeroes (or the “difficulty”) so that a block is mined every 10 minutes on average. Because the results of hashing algorithms are unpredictable, finding a valid hash which the rest of the network will accept requires both luck and CPU power.


Because of its nature, the blockchain is a decentralized public record of actions that cannot be tampered with by a single party. As far as technologies go, this is extremely useful. And because of bitcoin’s popularity, developers have been trying to build stuff on top of the cryptocurrency — known assmart contracts. Imagine if you could not only use the blockchain to transfer money, but also use it to dictate when and why that money is transferred. Instead of building an online store that supports bitcoin payments, you just… build the store on top of the blockchain. The issue, however, is Bitcoin doesn’t really support this.

Here’s where Ethereum and Bitcoin differ. Ethereum isn’t just a currency, it’s a computer. You can upload code to it, and for a price, it’ll run it. Here’s Tom’s Hardware on how that all works:

The Ethereum Virtual Machine (EVM) is a universal computer that gives developers the ability to operate and deploy nearly any type of application over the Ethereum network. The EVM decentralizes program operations in a transparent and secure blockchain network.

Imagine the internet as a series of nodes connected in the structure of a web. In this scenario, a server is a central node that many other smaller nodes (say, desktop PCs) connect to. Such a topology creates fail points that, if attacked, can take out large swathes of the internet, as was the case in the Amazon AWS outage earlier this year. By decentralizing and distributing information in identical, cryptographically secured blocks across its entire network, Ethereum eliminates those vulnerable fail points like the servers composing the backbone of our internet. For this reason, many are calling Ethereum the Web 3.0.

[Tom’s Hardware]

Ethereum Is… A Computer?

That’s right. This is the strength of Ethereum, or at least why it’s a bit more useful than Bitcoin, since all that computing power used to keep it running can not only verify transactions, but also run any and all code. Which, for folks who are betting on the internet and technology to eventually replace the systems society runs on — things like the global financial system, government and so on — is extremely useful. Here’s Motherboard on why:

[B]ecause the ethereum network also functions as a global computer thanks to smart contracts, this ether isn’t limited to being used as a currency. Rather, ether can be used to underpin any sort of computer application you can imagine. The use cases for the ethereum network are only limited by the imaginations of application developers. For example, people are developing apps for energy distribution,digital advertising, and a digital marketplace forunused computing power.


To supporters of Ethereum, it’s a crucial distinction. Ethereum is all about applications. In a way, the currency aspect is there just to “power” the applications — much in the same way money “powers” you to work. Sure, this all sounds very high-minded internet libertarian nonsense. But ConsenSys has a real-world example that might change your mind:

On the Old Internet we might have used something like PayPal to accept payments. PayPal would take a cut of every transaction, we would mail a copy of the album and then hopefully remember to mark off another sale in a spreadsheet such that when the one hundred and first person asked to make a purchase we would say no. The whole proposition is so rickety that it’s no wonder artists and fans alike pay premiums to transact through intermediaries like Ticketmaster and Bandcamp! Luckily, our drummer has some experience writing Ethereum smart contracts, so we decide to code up a simple “registry” to make this all happen.

The registry contract is simple. It is composed of three functions: purchase, provePurchase and claimAlbum. A fan sends the specified amount of Ether to the contract’s purchase function through a web page. If the amount sent is greater than or equal to the price specified, a counter is incremented and the sending account’s Ethereum address is recorded in an array as a struct with two fields: the address and an integer claimed set to 0. This transaction will fail (and refund the fan’s Ether) if incrementing the counter would leave it in excess of 100.


In other words, Ethereum is Bitcoin that can execute code. This means you have a fully-autonomous system that’s fully transparent, immune to attacks, and can run just about anything.

Okay, Who Built This Thing?

Unlike Bitcoin, we very much know the identity of the person who invented Ethereum: Vitalik Buterin. He may be a genius. To decide that for yourself, you should definitely read Backchannel’s excellent profile of him:

That vision has since become a rallying cry for a whole army of developers, whose involvement in the space amounts to a technological crusade for increased access, transparency, and accountability—all of which are fundamental features of any open, decentralized blockchain architecture. Their goal is to create a new economy in which anyone can participate on their own terms…

Over the last two years, as Ethereum has evolved from concept to code, so too has the mystery surrounding Buterin. The resounding chorus of the people working on Ethereum is that he is to be admired and adored, and they are more than willing to contribute to Buterin’s colorful, often hilarious hagiography. I’ve been told by various people that Buterin learned to speak fluent Mandarin in just a few months, that he’s an autistic wunderkind, that all of his worldly possessions fit into one suitcase, that he once ate an entire lemon without removing the rind, that he’s an android powered by the Ethereum network.


There Has To Be A Catch, Right?

Of course. Ethereum has yet to replace the global financial system yet. It’s also still kinda volatile, as rumors of Buterin’s death managed to send the currency off a cliff briefly this week, reports Quartz:

This is what market manipulation looks like in the age of cryptocurrencies and fake news. The hoax did reveal something interesting about cryptocurrencies: Unlike bitcoin’s creator, Satoshi Nakamoto, an almost mythical figure whose identity remains unknown, Buterin is the de facto public face of ethereum. He doesn’t control the network—it’s a piece of decentralised software that anyone can run or build on, just like bitcoin—but his status as its creator means that rumors like this one have a higher chance of taking hold in the markets.


A larger, problem, however is one that faces all cryptocurrencies: They require a lot of power to run. And the more popular a currency becomes, the more active miners, the more expensive it is to just keep it going. Here,Motherboard explains:

A new real-time index from Alex de Vries, founder of cryptocurrency analysis siteDigiconomist, shows that each ethereum transaction could now represent as much as 45 Kilowatt-hours (kWh) of electricity spent mining. That’s about as much juice as the average American household uses in a day and a half. For comparison’s sake, De Vries has estimated that a Visa transaction requires 0.00651 kWh. The entire network could be using as much as 4.2 Terawatt-hours (tWh), or slightly more than the country of Cyprus.



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