A beginner guide to Ethereum

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I Like Read.cash

4 years ago

In community: Open For All(cc80)

What is ethereum

According to the Ethereum website,Ethereum is a decentralized platform that runs smart contracts.” This is an accurate summary but in my experience when first explaining Ethereum to friends, family, and strangers it helps to compare Ethereum to Bitcoin since a lot of people have at least heard about Bitcoin before. This beginner’s guide should help those who are new to Ethereum to understand the high level differences between the two.

Comparison

Simply put, Bitcoin can be described as digital money. Bitcoin has been around for about 6 years and is used to transfer money from one person to another. It is commonly used as cost savings and has become an important way for people to understand the concept of decentralized digital currency.

Ethereum differs from Bitcoin in that it allows for smart deals. Which can be described as highly programmable digital money. And imagine sending money automatically from one person to another. But only when certain conditions are met. For example, a person wants to buy a house from another person.

Donations involve multiple third parties with the exchange, including lawyers and escrow agents, which makes the process unnecessarily slow and costly. With Ethereum the work begins without the need for a third party to enforce a third party code so that the code of any part can automatically transfer the ownership of the house to the buyer and the funds from the seller to the seller.

The potential for this is incredible! Think of the numerous applications that act as a third party to connect you with others based on some set logic (e.g. Uber, Airbnb, eBay). Many of the centralized systems we use today could be built in a decentralized manner on Ethereum. With Ethereum you can make these transactions trustless which opens up an entire world of decentralized applications. Decentralization is important because it eliminates single points of failure or control. This makes internal collusion and external attacks impractical. Decentralized platforms cut out the middlemen which ultimately leads to lower costs for the user. There are a few decentralized applications I am particularly excited about.

Identity

There are many websites a person can create a digital identity on (e.g. Facebook, Twitter, LinkedIn). This is cumbersome to manage and at the end of the day you are not in full control of your information as it is still owned by a centralized entity. With Ethereum you can have a decentralized identity management system like uPort that allows you to be in full control of your data. There is no centralized server that has access to your private data, can get hacked, edit your information, or get shut down.

Right now in the US we have credit bureaus (e.g. Experian, TransUnion, Equifax) that other institutions like banks rely on to tell them your credit. Credit bureaus can put certain groups such as international and young people at a disadvantage. Lending Club, a peer to peer lending platform, addresses the problem of traditional financial services relying solely on FICO scores by offering additional data points like home ownership, income, and length of employment. Ethereum applications like uPort can go one step further by allowing you to control your own data, identity, and reputation.

The power of counting

Consider all of the spare computing power and storage a regular person might have on their computer. If it is not being used, then why not make it available to someone else? It is a similar concept to renting out a spare bedroom on Airbnb. An added benefit to using a decentralized application is that there are no centralized servers that are prone to censorship.

There are several projects in development to allow people to rent spare computing power and storage from those that have it. Filecoin allows people to rent out their computer storage to others and get paid for it. Similarly, Golem allows people to rent out their computing power. Ideas like these are not completely new. Since 2000, Folding@home has allowed volunteers to contribute spare computing power for scientific research at Stanford University. Now this concept can be monetized and applied to other industries, potentially lowering costs.

social media management

bronlinbd is a decentralized social media platform. There are no centralized servers so no single party has complete control over the content. This means that the platform is resistant to censorship. An added benefit of building a decentralized application for social media on Ethereum is that one can create a system that financially rewards high quality content. This is like Reddit but you can send small amounts of money to the poster instead of upvotes.

Rights management:

Decentralized applications may be used to bring transparency to multiple industries. For example SingularDTV offers an entertainment rights management platform which allows transparent distribution of funds to the creators, investors, crew, actors, and others involved in a project. There is no centralized party which can prevent a certain group from getting access to their funds because the terms are enforced by code. Everyone will get paid according to the terms discussed up front and no third party is needed to mediate.

Management company

A time consuming and often expensive aspect of starting a new company is allocating and managing shares. As companies grow and raise more funds they eventually need to issue and move shares around. Aragon is an example of a promising project that has an easy to use interface for managing the company’s cap table and raising capital.

Capital increase

One of the main uses of Ethereum is to sell funds from a global network of investors, so crowdsells reduce the barriers to entry for developers working on high-risk projects. Since the launch of Etherium in July 2013, we have seen an unprecedented amount of funding for decentralized application through crowdfunding. Etherium itself was financed through a mob that raised 18 18 million in Bitcoin and a project called DAO raised $ 160 million. Below are a few more notable gatherings: