Ethereum is a recently launched cryptocurrency platform (only two years old) that is quite literally giving Bitcoin a run for it’s money.
If you’re looking to find ethereum explained in simple terms, you’re in the right place.
What is Ethereum ?
Built on Ethereum Blockchain Technology, it enables a decentralised network of computers to exchange cryptocoins while recording and maintaining the entire history of the transaction. This ensures a cost effective, highly reliable environment that has no single point of failure.
The founder of Ethereum ,Vitalik Buterin, developed the blockchain technology to enable functionality that Bitcoin does not offer such as crowdfunding and smart-contracts, taking the possibilities of cryptocurrency into new realms in the commercial world.
There are many online videos that can assist in understanding the fundamentals of the Ethereum such as:
Although the core function of Ethereum is the exchange of cryptocoins, known as Ether, the bigger potential value lies in the smart-contract technology and its possible application across a variety of industries. Smart contacts allow for the same transactions that happen in the real world to take place in an online cloud environment using a decentralised public blockchain, where the terms and conditions of the contract are measured and on execution, the smart contract pays out.
The contacts are stored, tracked and executed cryptographically. The attached infographic outlines in a simple format the potential uses of Ethereum. http://decentral.ca/wp-content/uploads/2016/03/infographic.jpg.
The range of smart contract applications that people are investigating today is varied and exciting.
Ethereum Explained – How does it work?
The fundamental principle behind Ethereum is a system that is completely decentralised, creating what has been referred to as a World computer. Instead of a single server holding information, it resides with thousands of volunteers computers or nodes.
When the Ethereum program is used, thousand of nodes process the transaction and validate the new state of the contract. This process of validating the transaction is known as mining. The state of the contract is then updated and the terms of the contract executed upon as written by the original developer or creator of the smart contract.
Ethereum mining explained
So we know the process of validating the transaction is know as mining, but how does mining work and why would it be viable for people to volunteer?
In order for the transaction to be validated, computer resources are required that will calculate the transaction. Miners offer or volunteer their resources to create a block of valid transactions. Miners across the world compete to calculate and validate blocks first and submit their proof that the block is valid, known as proof of work. When a miner is first to validate a new block he earns Ether which holds value as a cryptocurrency. The more resources a miner has, the better chance he has of validating and creating a block and earning the coins. This has led to the creation of ethereum mining pools where miners combine their resources to validate blocks faster.
Mining requires dedicated hardware, or rigs, which can be very expensive to purchase and run.
An online calculator for miners can be accessed at https://www.cryptocompare.com/mining/calculator/eth?HashingPower=20&HashingUnit=MH%2Fs&PowerConsumption=140&CostPerkWh=0.12.
The potential application for Ethereum smart contracts going forward is almost limitless with significant possibilities in particular in the banking and properly markets when management of contracts is labour intensive, slow and vulnerable to human error.