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Based in New York City, Katherine is an early-stage investor at Notation Capital. Her interests are in crypto, tech, law, and other areas of her life that she finds interesting.

What is Ethereum? [Video + Transcript]

Hey everyone! Welcome to episode 4 of Talk Blockchain to Me. Today, I want to focus on something that has gained increasing popularity and traction in the blockchain space: Ethereum.

If you have been following my YouTube channel, by now you have some basic understanding of what blockchain technology is, what bitcoins are, how they relate to each other, and how they work. If you haven’t watched them, hit up the links in the description!

 

So, if you invest in cryptocurrency, you know that Ethereum, as of today, is the second most popular cryptocurrency that is being traded in the crypto space. But Ethereum is so much more than just a digital currency.

Before I launched into specifics, let’s first rewind and go back to looking at the origins of Ethereum.

In November of 2013, which is four years after Satoshi Nakamoto published the bitcoin whitepaper, a 19 year old Canadian named Vitalik Buterin published a paper online titled: “A Next Generation Smart Contract and Decentralized Application Platform”, where he introduces the invention of Ethereum.

So, like the bitcoin network—or the bitcoin blockchain– Ethereum is also a form of a public distributed technology blockchain. In other words, it is an open network which is managed by its users. There is a bitcoin blockchain, and there is an Ethereum blockchain.

But that is where the similarities end. Remember in my last video, I described Bitcoin as a peer to peer electronic cash system—which means that it is pretty much just used for digital payment. Ethereum actually goes beyond that, and what makes Ethereum so unique is its purpose, capability, and technology.

Before the invention of Ethereum, if a developer wanted to build an application on the blockchain, they really couldn’t do it, unless they wanted to develop a brand new platform.

What makes Ethereum so flexible is the innovation of the Ethereum Virtual Machine (EVM). This is a software that runs on the Etheruem network, and it allows for anyone to run any program on it, regardless of what kind of programming language you use. So in Ethereum, one blockchain fits all of the different computer program languages and can be tailored to allow for their development. Instead of having to build an entirely original blockchain for each new application, Ethereum enables the development of potentially thousands of different applications all on one platform.

In Vitalik Buterin’s paper, he writes, “ the intent of Ethereum is to create an alternative protocol [or, program with rules] for building decentralized applications…[and]  Ethereum does this by building what is essentially the ultimate abstract foundational layer.” With the understanding of the Ethereum Virtual Machine, we come to understand Vitalik’s intent a little better.

One important feature that Vitalik introduces to the Ethereum blockchain is called a “smart contract”. This was actually a concept that was first proposedin 1997 by a digital currency expert, Nick Szabo. So what exactly is it? When most people think ‘contracts’, what comes to mind are terms and conditions, paper and ink, and a signature that accepts the terms of the condition. Now let’s move this concept into the digital world. Basically, smart contracts are like little computer program boxes that contain a certain value, and only unlock it if certain conditions are met—this means, if [abc] happens, then [xyz] will happen. In fact, we already live in a world where smart contracts exist. Nick Szabo uses the example of a vending machine. If you think about it, vending machines are a little bit like automatic contracts. There is the understanding that, if you put $2 dollars into the machine, and the machine accepts it, then it will spit out the bottle of water you wanted. The process of contract enforcement, in this case, becomes automated. Now, to take that a step further, smart contracts that are on a blockchain provide for a more efficient way to enforce complicated contracts.

For example, when you buy a car and you take out a loan for it, you need to be paying your monthly payments in order to keep the car. Now, a lot of creditors face a common headache when people don’t pay their payments. The creditors will first have to review all those loan contracts, determine that the payments have been missed, then find a repo man, track these people down, and then confiscate their car. But the loan agreement as a smart contract would mean that any verified non-payments or missed payment would automatically trigger a process in which the lender can go after the collateral: in this case: the car. If we start to think more ahead of the future and think about stuff like self-driving cars, non-payments can automatically result in the car being deactivated. I know that this sounds a little sci-fi-y but think about other ways that this technology can be used. For example, supply chain management, or in markets where deceptive labor practices are rampant.

Vitalik Buterin made it so that smart contracts can be built on top of the Ethereum platform, which makes the Ethereum blockchain more useful since programs or application that sit on the Ethereum blockchain can interact with each other. This is why a lot of people call the Ethereum Blockchain “Bitcoin 2.0”, because it basically does the digital payment thing, BUT also includes add-ons for a lot of features that you cannot do with a Bitcoin network.

So there you have it, a super brief overview of the Ethereum blockchain, and why there are so many people and companies who want to invest in this technology. I will post the transcript to this video on my website, talkblockchaintome.com. As always, feel free to reach out to me via email  (talkblockchaintome@gmail.com) if you have any specific questions or suggestions.

In my next video, I will do an explainer on digital tokens and initial coin offerings, or ICOs, which is definitely an episode you do not want to miss. So stay tuned for that—and don’t forget to click here to subscribe! Until then, see you guys next time!

 

The above is a transcript of my latest YouTube video, which covers the basics of Ethereum.

 As always, all opinions published on this blog are my own and do not reflect the opinions of any institutions that I am affiliated with in any capacity. None of this should be taken as financial advice. If you are interested in investing in cryptocurrency, please consult with your financial advisor.

Please contact talkblockchaintome@gmail.com for any inquiries or reprint/use permissions.

What is an ICO?! ( Explainer: Digital Tokens, Token Sales, Initial Coin Offering)

What is Bitcoin? [Video + Transcript]