Short Summary of Ethereum Blockchain

Short Summary of Ethereum Blockchain

Think of Ethereum as a database. But it's not owned and operated by a single company. It's maintained by a peer-to-peer network. Anyone can download and view its contents.

This database stores transactions exchanged on the network. These transactions are verified by the network. This database and network are called the blockchain.

On the Ethereum blockchain, one can exchange its native currency, Ether. But more enterprising accounts do the verifying. They verify that the 10 ether I send to you is indeed in my account. No central database, no bank, no middleman.

Databases cost money to maintain. Google pays developers and electric bills to maintain their databases. Ethereum is no different.

To incentivize participants to verify transactions they are awarded Ether. This reward system ensures there's proper incentives to those who work to verify transactions which keep the network secure. No such thing as a free lunch.

But Ethereum goes one step further...

Accounts can write and execute code called Smart Contracts. These contracts can enforce contractual obligations, such as payment terms, liens, dividend schedules, without the need for a trusted third-party. The trust is in the code. Now, anyone can interact and exchange value using contracts without a centralized authority.

Any industry that benefits from decentralized databases will benefit from Smart Contracts: agriculture, healthcare, banking, e-commerce, property, mining, and the list goes on.

Smart Contracts separate Ethereum from other cryptocurrencies. Why? Because instead of having countless single-use networks, it becomes a general purpose platform for all of them. Developers need to create their own blockchain. They just write their application's logic in Smart Contracts on Etheruem. Ethereum becomes a global settlement layer.

So what?

So why do we care? Why would we transact on this network versus betting on, say, DraftKings?

  • Costs - We don't need Draftkings to save our bets, ensure money is available, and execute transfers on our behalf, and allow them to take their cut. We can do this directly on Ethereum with very low transaction costs.
  • Immutable - Data stored is immutable, meaning once its saved it cannot be altered. This makes is nearly impossible to hack.
  • Speed - Without a trusted intermediary being used for verification and clearances, contracts are executed faster. It also means they are typically cheaper.
  • Reliable - The network as a whole is extremely reliable. Individual applications are prone to errors, hacking, and fraud. Decentralized networks improved upon this.

For these reasons, the cryptocurrency ecosystem  will continue to grow and mature. Ethereum, positioned as a platform, is best positioned to capitalize on the entire ecosystem's growth.

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