Cryptocurrency has gained a lot of traction in the past decade, especially with the rise of Bitcoin. But more recently, a new rising star has entered the game — Ethereum. In fact, interest in this cryptocurrency is so high, forecasts speculate the price of graphics cards may be driven up, as miners attempt to generate as much currency as possible.
Founder Vitalik Buterin said to Wired Magazine, “When I came up with Ethereum, my first thought was, okay this thing is too good to be true and I’m going to have five professional cryptographers raining down on me and telling me how stupid I am for not seeing a bunch of very obvious flaws. Two weeks later I was extremely surprised that none of that happened.”
But what is Ethereum and what does this new blockchain technology mean for the future of cryptocurrencies? Here is a quick rundown.
A Quick Primer on Cryptocurrencies
Cryptocurrency is a type of digital currency created through the encryption process. Unlike a dollar bill or a quarter, which are physical assets, cryptocurrency does not have a physical form and, equally important, it isn’t issued by a central bank or government agency.
Cryptocurrency is basically data on the internet created through something called a “blockchain.” A blockchain is a digital ledger that is shared with many different computers. When a transaction occurs, that event is recorded into the “blocks.” However, for the transactions to be successfully recorded into the ledger, they must be validated by a preset number of computers within the blockchain network.
What makes cryptocurrency unique is that any person can view the complete history of each and every transaction, which creates complete visibility. However, unlike the popular cryptocurrency Bitcoin, Ethereum is not just a digital currency — it’s much more.
Why Ethereum Is Different
The fundamental structure of how cryptocurrency works works applies to both Ethereum and Bitcoin; however, each technology has a different goal. Bitcoin is strictly a digital currency, and mostly functions as a form of payment. Ethereum takes a different approach, and functions as a platform through which people can use tokens to create and run applications and create smart contracts. So, let’s stop there. You may be wondering, “What is a smart contract?”
The smart contract is one of the major differences between Ethereum and other types of digital currencies. It’s basically a contract, but instead of being written physically or in a digital format, it’s written in code. The creator then uploads the contract into the blockchain.
Progress on the terms of the contract is tracked and stored in the public ledger, which makes the details surrounding that contract tamperproof. But how?
The contract code is structured as “if-then statements.” For example, let’s say that you rent a vehicle from a company that uses Ethereum. A smart contract is generated and once you deliver the agreed amount of currency, the system automatically sends a digital key to unlock the car. This entire process is carried out on the blockchain and everyone can see what has been done. A few more benefits of this blockchain technology include:
- Safety: At the heart of all blockchain technologies are safety and security. This system prevents a third party from altering or changing the data.
- Censoring and corruption prevention: Ethereum and Ethereum Mining is based on a peer-to-peer network that is formed around specific principles that make censorship virtually impossible.
- Downtime and safety: Apps won’t go down or be “switched off,” but instead the data is always available because it runs on open-source software.
The benefit of Ethereum is that it allows for an alternative form of digital currency to be used, but also provides additional features that offer safety and security, such as building smart contracts.
Ethereum: Will It Stick Around?
At the beginning of summer 2017, Ethereum was trading at around $200, and growth is cited at an all-time-high of 3,600 percent during 2017. This has attracted major corporations, including JPMorgan Chase, Microsoft and other notable members to join the Enterprise Ethereum Alliance, which provides “resources for businesses to learn about Ethereum and leverage this groundbreaking technology to address specific industry use cases.” But will this technology continue to grow — or is the virtual currency becoming a passing trend?
Some say the most exciting applications of the blockchain technology have yet to be developed, which creates an exciting future for Ethereum and other cryptocurrencies. And in the end, it’s about using technology to think differently about the current systems, and expanding ideas about safety, security and innovation.