Ethereum was conceived in 2013 by programmer Vitalik Buterin. It was built as an open-source, decentralized blockchain with smart contract functionality. That’s a lot of lingo in one definition. Let’s dig in.
Open source means that no permission is needed to build on the platform. The software that developers build on the Ethereum blockchain is called “dApps”, short for Decentralized Applications.
We can think of Ethereum as being the “www” of any website on the internet: Ethereum is the base layer, whilst the rest of the URL serves as the application built on top of it, e.g., finmeup.co.za.
Decentralization means that individuals can trade directly with one another without the need for an intermediary. Connecting directly to one another is called a “peer-to-peer” network. No single point of authority, no single point of failure.
The system is virtually impossible to shut down, manipulate or control. Decentralization is a system for the people, with everyone having little control instead of one entity having all the control.
A blockchain is a public record of all transactions that have taken place on a network. All transactions will be verified and stored in data “blocks” using cryptography.
Each block can store up to a certain number of transactions before a new block is created, with every new block containing a zip version of the previous one and receiving a new block ID called the “Hash”.
If any information in any block must be changed, all the blocks must be changed. It was originally referred to as the “chain of blocks” but was later adopted simply as “blockchain”.
Smart contracts are coded contracts that automatically execute when specific terms/conditions are met. Using basic code, it functions on the “if-then” rule. If X happens, then execute Y
For example: If the Springboks beat New Zealand by more than 8 points this weekend, then I will send you 1 Ether.
When the conditions in a smart contract are met, the Ether will be transferred immediately and automatically. By using smart contracts, we essentially remove the middleman from the equation.
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