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Ethereum (ETH) is a blockchain platform and combines the advantages of blockchain with automatically executable and programmable action chains called "Smart Contracts".
Ethereum expands Bitcoin's concept to include dynamic elements in the blockchain, thus striving to become the foundation of whole blockchain ecologies. The vast majority of current blockchain projects do not have their own blockchain today, but use Ethereum's blockchain as the basis. In addition, the Ethereum project has its own crypto currency called Ether (ETH).
Ethereum was conceived in 2013 by Vitalik Buterin, a Canadian Bitcoin programmer of Russian descent, and went into operation in 2015. It can be distinguished from Ethereum Classic (ETC), from which it split off in 2016 after a dispute among the developers over its content.
The currency unit of the Ethereum blockchain is called Ether. In the short time of its introduction, Ethereum has experienced an enormous influx of maintainers and users and its blockchain is the longest after Bitcoin's blockchain today with a size of 60 gigabytes.
How does Ethereum work?
Ethereum works best when compared to Bitcoin. The blockchain of Bitcoin and many of its imitators is a cryptographically entangled list of transactions, i.e. money transfers. This is the basic structure of any crypto currency.
On the Ethereum blockchain, on the other hand, there are additional dynamic elements attached, the so-called Smart Contracts. These are protocols and algorithms that are executed as "DApps" (Decentralized Applications) by a virtual runtime environment, the Ethereum Virtual Machine (EVM).
The blockchain is therefore no longer just a list of transactions, but also guarantees the authenticity and correctness of entire automatic transaction cycles and chains through the cryptographic procedures already described. Put simply, DApps and Smart Contracts function like machines that are triggered by a trigger, such as a money order in ether, to execute pre-defined actions. The variety of applications of this concept is enormous and currently not really manageable.
Potential applications of Ethereum and Smart Contracts
Numerous banks and corporations have already become aware of Ethereum and its Smart Contracts or are already using them. Members of the Enterprise Ethereum Alliance Launch Members of the Enterprise Ethereum Alliance / Source: entethalliance.org
For example, banks are already offering to trade derivatives on the basis of Ethereum transactions. The Smart Contracts run on all servers of the Ethereum network in real time and can be extremely complex from case to case. In addition, there is the computing effort for proof of work and mining.
Such a system will have considerable performance problems if it is very popular with large numbers of users. In addition, many critics doubt that such different things as sports betting, derivatives trading or e-government can be implemented meaningfully and reliably as smart contracts. But regardless of all objections, Ethereum is also a crypto currency that is mined and traded.
The price development of Ethereum is extremely dynamic: Already two years since its introduction and only 1 year after the spin-off of Ethereum Classic, the Ether is well above 280 Euro (as of November 2017). On the other hand, in the past there have been repeated price falls, which have almost devalued the currency within hours, only to return to the old level shortly thereafter.
Security gaps can also lead to problems: In the Ethereum Blockchain, the Smart Contracts are visible to all participants and security gaps in the respective code can be executed immediately, enabling attackers to execute malicious code before the bug is fixed.
Summary
In summary, Ethereum is perhaps the boldest vision in the crypto currency world today. The system's potential applications are not yet clear. The future of Ethereum remains extremely exciting.