1. Why does Ethereum exist?
To understand Ethereum, we first need to know how the current Internet works.
Currently, when you provide personal information (such as your name and address) to a company online, the information is stored on their computer system (server).
Imagine all the information you store on hundreds of different companies and government servers: your name, phone number, bank balance, credit card records, text messages, emails, medical records, even your photos, etc… .
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There is a huge, invisible network of computer servers around you that is filled with all of our information.
Most of these computer systems are run by large technology companies such as Microsoft and Google, which run these systems on behalf of companies that have economic relationships with you.
This method is very convenient at present, but it also has two major drawbacks: First, the cost of running these systems is very high, and these costs will be passed on to you; secondly, your personal information in these systems is vulnerable to hacking.
Hacking attacks often occur because each server is like a big target filled with valuable customer information. All companies face this problem. The competition between them and hackers is endless.
Large hacking cases that have recently led to the theft of large amounts of customer information include Dropbox, Walmart, Starbucks, Facebook, Uber, Equifax and Google. As you can see, even the largest companies can't be hacked forever.
In 2013, programmer Vitalik Buterin and others invented a new technology called Ethereum to change the way the Internet works.
Ethereum is a revolutionary technology because it allows online computer systems to run without any third party (such as Google) for the first time.
There is a lot of benefit from not having a third party (like Google) to store and transfer information. Without a middleman, the operating costs of the computer system will be reduced, and it will be more difficult to have a downtime situation.
In addition, your personal information can become more private because the company no longer (forever) stores it on the server. Read this, you may have begun to understand why Ethereum can change the rules of the Internet game.
2. What is Ethereum?
Ethereum does not use computer systems (centralized systems) of large companies such as Google, but rather allows software applications to run on a network of many private computers (distributed systems).
As a result, the company's computers and cloud servers are replaced by a large, decentralized network of small computers from volunteers around the world (such as developers, miners, node operators, etc.) run.
Currently, when we browse any of the app stores, we see a long list of apps that rely on large companies to run and store your information: from banking to health to games, all of which use large central servers.
In addition, even if the application you choose is controlled by a third party (such as Apple and Google), if the company does not like an application, then the application is not likely to be available in its app store.
Ethereum's approach is the opposite: it wants to remove third parties in the way you access and use the application. In short, Ethereum makes the user community the master!
The main idea behind Ethereum is that anyone can use this new decentralized network to create and run decentralized applications (dApps). No need to go through the license, because there is no need for a third party.
Ethereum can be seen as a technology platform that allows anyone to run applications on this global network.
Because these applications no longer use a central server, they are called decentralized applications (dApps). In other words, no central authority is required to create and run these programs.
Incredibly, Ethereum is not controlled by Vitalik and the Ethereum core development team and is not controlled by any other person, company or government. It is run by the Ethereum user community. It is very important to understand this!
Ethereum users are located all over the world, and they volunteer to use their own computers to help run the Ethereum network. The information on this network is passed directly from one person to another, rather than from one person to another through a company. This is the so-called peer-to-peer system (P2P). This means that the Ethereum network does not have a central controller.
Incredibly, users in the Ethereum community can make this system work without knowing each other. You can use the Ethereum system online without having to meet or trust anyone. We will explain below how this is achieved.
Ethereum's vision is to create a "world computer," a vast network of many private computers that run all future Internet applications without any third parties, such as Google and Microsoft.
Ethereum is reshaping the way the Internet works. It deprives large technology companies of their power and control and hands them over to ordinary users.
There are many benefits to eliminating third parties. For example, because Ethereum is a computer network run by a community of users, your personal information is no longer stored on the central servers of large companies waiting to be hacked, sold, and destroyed.
Decentralization also means that anyone can use the Ethereum app. Anyone from any country or background can use them without approval or permission.
Even the Ethereum application itself can exist without a license. They cannot be removed or reviewed from any app store. This is an open system, anyone who can connect to the Internet can be used!
3. How does Ethereum work?
Imagine two people sending messages to each other using a smartphone.
Traditionally, these two individuals will use instant messaging applications operated by large companies such as WhatsApp, Facebook or Skype. Once you send a message, the message is actually sent from the sender (you) to the application company's server before it is received by the recipient.
Because these companies control traditional messaging applications, they also control and store all the information being sent, as well as any other personal information (such as photos you attach). All of this is stored permanently on the server.
This can be a problem if the company's servers are hacked, services are interrupted, or the company sells your information to marketers.
Now, suppose these two people are using a decentralized Ethereum messaging app.
The Ethereum system is not run by any company, but by a network of independent private computers from around the world.
When someone clicks the "send" button, the message is sent from the sender to the Ethereum network and sent from there to the recipient. During this time, your message is hidden from the Ethereum network.
Even if Ethereum uses a global public computer network, only senders and receivers can see their messages. The information sent is hidden from others by powerful computer code (encrypted). In addition, messages are never stored on any company's servers.
Both parties sending the message may not notice any difference between the traditional centralized application and the new decentralized application. From their perspective, the Ethereum application operates in exactly the same way as a traditional messaging application.
Decentralized applications can also run automatically, without any middlemen, because they use smart contracts.
Smart contracts incorporate pre-agreed rules into computer code and then automatically enforce them.
Smart contracts work like a vending machine that automates the rules: Do you invest $0.50? Don't give you soda. Have you invested $1? Soda is coming out! You invested $1, but the soda is sold out? Refund.
Most importantly, no one can change or manipulate smart contracts after the rules are pre-agreed – this ensures fairness for all parties. Smart contracts automatically determine who is paid under what conditions and how to resolve the dispute. They will execute automatically!
Imagine a ticket to a baseball game being sold through an Ethereum smart contract.
Since the contract is "smart", it can automatically take action based on certain events.
For example, a smart contract can be connected to a weather app and programmed to automatically refund when it rains on the day of the match. Is this amazing?
What makes a smart contract special is that no participant needs to build on mutual trust.
When the rules of a smart contract are pre-agreed and the contract is running, no one can change these rules to cheat. Smart contracts will automatically enforce these rules, and in any case, it will operate exactly as programmed. For example, in the previous example, the seller would not be able to change his mind to reject the refund.
In the absence of interference, all participants can trust smart contracts even if they may not trust each other.
Many Ethereum applications and smart contracts require currency exchange. Because Ethereum is completely digital, it requires a built-in digital payment method to achieve this.
In the Ethereum system, all payments are done using Ethereum (ETH).
The Ethereum platform and ETH work together in a way that requires ETH to pay for transaction costs each time an Ethereum Smart Contract is transferred.
Unlike traditional currencies such as the US dollar, ETH is 100% digitized, so ETH can be "stored" directly in the code of a smart contract. This allows smart contracts to automatically send and receive cryptocurrencies.
In addition to smart contracts, ETH is also used to pay for all volunteers (such as miners, node operators, etc.) who use their computers to help run the entire decentralized Ethereum system. Every volunteer gets ETH because they need to pay for electricity and use their hardware to help run the system.
ETH brings significant security to the Ethereum platform.
The Decentralized Application (dApp) pays a small ETH fee each time you run and use the Ethereum network. This prevents people from creating malicious, vulnerable applications to repeatedly run the Ethereum network and slow down the system. Due to the ETH cost, running a bad program will become very expensive.
This fee is called "gas" because it is the fuel for running the Ethereum app.
The combination of smart contracts and blockchain technology makes Ethereum a very valuable value because it no longer requires expensive third parties (such as Google and Microsoft) to run Internet applications and remittances.
With the blockchain, completely strangers can now use the app to transfer value (like currency) without any trust or any third party. This is the revolution brought by blockchain technology!
Ethereum has many exciting new applications, even though Ethereum is a new technology that is just beginning to grow.
Decentralized blockchain applications can take years to be as powerful and convenient as the centralized applications we use today. But Ethereum is developing rapidly, and it is just getting started!
4. What can Ethereum do?
This is a breakthrough new technology, and we are just beginning to see its impact. One thing is for sure: Ethereum will change the world!
The elimination of intermediaries will change many industries in the next few years and may bring some unemployment problems. But the negative effects may be offset by many positive effects.
For example, Ethereum technology can save millions of people time and money while giving them more direct control over their personal information and applications.
- Application Scenario 1: P2P Market
Through Ethereum, consumers can pay directly to the seller without the need for a middleman. For example, imagine artists selling music directly to their fans instead of using middlemen like Apple and Amazon, so that music can be cheaper and artists can still get a bigger share.
Ethereum Smart Contracts automatically ensure that all parties involved act, pay and receive products as agreed. Once the download is complete or the package is delivered, Ethereum can automatically pay the seller.
In a typical market, Ethereum can actually eliminate two intermediaries: the cost of goods on the platform (such as eBay and Etsy), and the transaction fees charged by credit card processors (such as Visa and MasterCard).
- Application Scenario 2: P2P Insurance
With Ethereum, you can create smart policies that can be automatically sold and managed on a peer-to-peer system. For example, imagine smart car insurance, which automatically charges a small fee based on the actual mileage of the car. Insurance can be cheaper and more personalized.
Ethereum Smart Contracts can use a variety of real-world data to improve how insurance works. They can increase the premiums of drivers who often speed and violate traffic rules, or automatically discount drivers with good driving records.
These policies can eliminate traditional insurance providers (such as Geico and Progressive) and provide lower premiums and ultra-fast payouts for effective claims.
- Application Scenario 3: Smart Grid
Through Ethereum, solar panels will automatically be able to buy and sell energy to the grid. The system can intelligently sell the remaining energy during peak hours to get the highest price. In the winter, the system can purchase additional energy as needed.
In a city's shared network, Ethereum smart contracts can automatically buy and sell solar energy between users. By allowing people to work directly and automatically, Ethereum can eliminate traditional energy suppliers. It can create a cleaner, more reliable, and cheaper P2P energy exchange that can even make money for you.
- Application Scenario 4: Personal Health
Ethereum can create a health tracking platform that monitors and rewards health-related behavior through connected smart devices such as Fitbit or Apple Watch. For example, people can get together and make smart contracts that reward those who achieve their goals.
Imagine that the Ethereum Smart Contract was created by a community of users who support each other. When an exercise goal is reached, the reward can be automatically issued from the pool of funds. For example, cities can build bonus pools to motivate a healthier population.
- Application Scenario 5: Sharing Economy
With Ethereum, people can turn what they own but rarely use into property that generates income. For example, imagine that if someone else can use your car, electric drill or lawn mower when you don't need it, you will automatically get paid.
If someone borrows your car to go to the mall, or borrows your lawn mower for 30 minutes, or even rents a room for a few days, you can create an Ethereum smart contract and automatically charge them. Imagine if a shared economy system like Uber and AirBnb was running through a decentralized P2P system, no company would charge an intermediate fee.
. . .
Now you know what makes Ethereum so unique.
This is a smart contract platform that allows completely unfamiliar people to securely exchange digital information and assets (such as money) through a decentralized application (dApp) – none of which needs to be built on trust! There is also no need for third parties (such as Google) to exist.
Ethereum is revolutionary because it gives you complete control over your digital applications and information. It is this power that makes it so successful.
Every day, people are creating new ways to use Ethereum (there are now more than 1,000 Ethereum apps). Many people have realized that a new way of dealing with property and contracts has arrived.
The goal of Ethereum is to change the Internet forever and let you control everything. It has developed very quickly and is just beginning!