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Understanding Ethereum | Hokk Fianance

Understanding Ethereum | Hokk Fianance

Ethereum is the most promising and popular blockchain after Bitcoin. Its creators speak of it as the “first true global computer ”, which allows decentralized applications to be built on its platform.

Ethereum aims to build a web where the intermediaries between customers and the services they seek no longer exist. If I want, for example, to enter into a digital contract with you, why would I need a lawyer for this? Let’s agree on the terms of this contract.

In the Ethereum infrastructure, it cannot be modified or falsified since its security is guaranteed by a cryptographic protocol. We save lawyer fees while gaining security. This idea can be applied to other services like social networks, crowdfunding sites, eBay, Airbnb

What are the Differences with Bitcoin?

“Bitcoin’s blockchain was designed specifically for monetary applications, while Ethereum makes it possible to create all types of applications,” explains Ethereum founder Vitalik Buterin.

Ethereum, whose computer code is profoundly different from Bitcoin (it was written from scratch), was not built to compete for head-on with Bitcoin: rather, it is two different and complementary uses of blockchain technologies. We note the existence of ideological differences between the two communities that surround them: that of Bitcoin is more of libertarian inspiration, centered on the monetary field (inspired by the theories of Hayek in particular), while that of Ethereum aims more at creating a new web, decentralized, rather than a new currency.

Microsoft justifies its choice to use Ethereum for its Azure platform as follows: “While Bitcoin has many interesting uses as a cryptocurrency, Ethereum provides the flexibility that many of our customers are looking for. Ethereum has a vibrant community of developers who are enthusiastic and open to business applications”.

In practice, the participants of the Ethereum network do not just validate monetary transactions: they execute code from decentralized applications, known as “Dapps”. This code allows in particular the implementation of smart contracts, which constitute the heart of the potential of Ethereum.

Ethereum works with a cryptocurrency, ether, which has a very specific function: to pay for the execution of smart contracts, the operation of which can consume significant resources. Ether is therefore used to buy “gas” (petrol) to make these contracts work; if you run out of gas, the contract no longer works.

Schematically, the Ethereum source code can be compared to the operating system of a smartphone: from this code, various applications, known as Dapps (decentralized applications), can be developed. Thereby :

UjoMusic wants to allow artists to place their titles on a blockchain, define what share of each piece should go to such or such contributor of the title, and then collect the royalties automatically and without an intermediary, thanks to smart contracts.

Augur offers a decentralized prediction market platform based on the blockchain, again using smart contracts.

Transactive Grid wants to enable everyone to sell and buy energy credits from their neighbor, on a peer-to-peer basis.

Filecoin is a decentralized cloud storage service, which allows you to rent the free space of your computer to other users, or conversely to buy storage space on the Filecoin network, in a decentralized way

Golem will allow everyone to rent the unused computing power on their devices (computers, smartphones, etc.) for all types of applications (Big Data analysis in medical research, etc.).

Etc.

Beyond decentralized applications, Ethereum price and forms the basis of a new fundraising method, working with cryptocurrencies: the Initial Coin Offering (ICO).

Smart Contracts, a Central Element of Ethereum

Smart contracts are self-contained programs that, once started, automatically execute pre-defined conditions. They work like any conditional “if-then” statement. The benefits: increased speed, better efficiency, and confidence that the contract will be performed as agreed. These programs are able to overcome moral hazard problems and reduce verification, enforcement, arbitration, and fraud costs. They have many applications, particularly in insurance.

The advantage of implementing smart contracts in a blockchain is the guarantee that the terms of the contract cannot be modified. A smart contract that would not be in the blockchain would be a program whose terms could be changed during execution.

Smart contracts pose major legal and ethical challenges, whether in terms of legal liability or consumer protection and could constitute a key issue for States: it is even possible to imagine tax collection via smart contracts, as well as automation of social protection benefits.

Also read about: What is Ethereum?

What’s Next?

Ethereum is still under development and must be improved in particular in terms of its security, its scalability (scaling-up), and its user experience (ease of use by everyone).

In an effort to consume less electricity, Ethereum also intends to move from proof-of-work (a traditional bitcoin system where blocks are validated by the miner with the most computing power) to a system called proof-of-stake, less energy-consuming, the contours of which remain to be defined.

The ecosystem surrounding Ethereum has developed strongly in recent months, but we are still only at the beginning: startups that build Dapps are expected to grow even more strongly.

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