Ethereum is a blockchain-based Platform that includes a currency unit, a virtual machine featuring stateful user-created smart contracts and a Turing-complete contract language. Ethereum uses its currency unit – Ether, as payment to incentivize a network of peers to provide computational services defined by the smart contracts deployed, verified and automated through the blockchain. Smart contracts, on the other hand, are computer protocols designed with the exclusive purpose of verifying or enforcing the performance of a contractual agreement.
What Ethereum intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create “contracts” that can be used to encode arbitrary state transition functions, allowing users to create any systems that we have not yet imagined, simply by writing up the logic in a few lines of code.
Jeff Meyerson, a B.S. at Computer Science says:
“Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third-party interference.”
Ethereum was initially described by Vitalik Buterin as a “next generation” (or “Bitcoin 2.0”) platform.
Ether – The Ethereum Currency Unit
Ethereum includes a digital currency called ether. “Ether” is the main crypto-fuel of Ethereum, and is used to pay transaction fees. Ether is pretty similar to Bitcoin. Both are implemented so that no one can manipulate the currency supply and both are a purely digital store of value and means of exchange that cannot be counterfeited. Today, both have value because users expect them to have value tomorrow, and because they can do things traditional money can’t. And much like the email, both can be transferred around the world and used like digital cash.
The Ethereum Network
The stated purpose of the Ethereum platform is to “decentralize the web” by introducing four components:
- Static content publication
- Dynamic messages
- Trustless transactions
- Integrated user-interface
Each of these services is designed to replace some aspects of the systems currently used in the modern web, but executing it in a completely decentralised and pseudonymous way.
Ethereum is both a digital currency and a programming language. The combination of these two ingredients makes it very special. Since most agreements involve the exchange of economic value, or have economic consequences, we can implement whole categories of public and private law using Ethereum. An agreement involving transfer of value can be precisely defined with the same script and automatically enforced by the Ethereum network.
At a high level end Ethereum is pretty similar to sharing an Operating System like Windows or Mac, while it is constantly being updated and checked by all the computers within the network. It is so complex that we can even run programs on it, like payment processor, a chat application, or even a Facebook.
The difference between Facebook/Google/Whatsapp and applications on Ethereum is that these apps are still centralized. Since it is centralized, these companies dictate user terms and conditions, their policy, privacy, among many other things. Ethereum provides a decentralized alternative to this while delivering the power back to the users and making it more democratic.
Ethereum as Law enforcement
Ethereum presents and offers an alternative to law. A new kind of law that can be written by the parts involved while it is enforced and verified by the network. Agreements are ambiguous. And enforcement is hard. Ethereum solves these problems by using two special ingredients: a digital currency, and a complete programming language.
Ethereum allows for a certain program to be set up on the Ethereum platform and would live in the Ethereum database for ever. People may store any kind of program that can execute orders of any kind and responding to any type of parameters like dates, quantities, or anything else that happens in the real world. Since the Ethereum database is stored in thousands of powerful computers and laptops around the world collectively they may be described as a single computer because they all have the same database and can communicate between each other. Collectively they have so much computing power that by sharing it they may be an incredibly powerful multi-service data-center available to store, automate and enforce smart contracts.
Traditional law is a form of agreement. It is an agreement among people and their leaders as to how people should behave. There are also legal contracts between individuals. These contracts are a form of private law that applies to the participants. Both types of agreement are enforced by a government’s legal system.
In a world where private and public law can be perfectly observed and enforced, a lot becomes possible. You might imagine a town defining all its local laws in EtherScript. New laws and modifications could only be made by a voting system defined by the town Charter, also written in EtherScript. Residents could have perfect certainty about how laws apply to them and how they are enforced when choosing to live there.
Ethereum law will find a natural fit to agreements where items of value are digital. Control of ether itself and other digital assets like websites, software, digital content, cloud storage and the like, could be enforced most directly. But, in time, this could naturally spread into the “real world”. For example, cars of the future could have ignitions that respond to a digital key. If the EtherScript lease agreement is breached, the car won’t start.
The Ethereum protocol would not “support” any of the applications directly, but the existence of a Turing-complete programming language means that arbitrary contracts can theoretically be created for any transaction type or application. The Ethereum protocol was originally conceived as an upgraded version of a cryptocurrency, providing advanced features such as on-blockchain escrow, withdrawal limits, financial contracts, gambling markets and the like via a highly generalized programming language. By having introduced a programming language Ethereum protocol moves far beyond just currency.
Protocols around decentralized file storage, decentralized computation and decentralized prediction markets, among dozens of other such concepts, have the potential to substantially increase the efficiency of the computational industry, and provide a massive boost to other peer-to-peer protocols by adding for the first time an economic layer. Finally, there is also a substantial array of applications that have nothing to do with money at all.
The concept of an arbitrary state transition function as implemented by the Ethereum protocol provides for a platform with unique potential; rather than being a closed-ended, single-purpose protocol intended for a specific array of applications in data storage, gambling or finance, Ethereum is open-ended by design, and it is already extremely well-suited to serve as a foundational layer for a very large number of financial and non-financial protocols in the years to come.