What is Ethereum? A Beginner's Explanation in Plain English

What is Ethereum? A Beginner's Explanation in Plain English

What on earth is Ethereum? I mean, I keep hearing about it all the time, I’ve seen it’s the second largest

 cryptocurrency around but I just can’t seem to

 wrap my head around it. Is it as revolutionary as Bitcoin? Can it actually change the world

 as we know it? If you want to have 

a better understanding of Ethereum, but are tired of explanations that sound like 

complete technical gibberish, stick around… Here on Bitcoin Whiteboard Tuesday, or should I say Ethereum Whiteboard Tuesday we’ll answer these questions and more. Before we get into Ethereum we need to do a quick recap about Bitcoin, since it’s the basis from which

 Ethereum was born. By now you probably know that 

Bitcoin is a form of decentralized money, and if you still have some questions about

 what that means or how it works, then you might consider revisiting 

our original video, “what is Bitcoin”. Before Bitcoin was invented, the only way to use money digitally was through an intermediary

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 like a bank, or Paypal. Even then, the money used was still 

a government issued and controlled currency. However, Bitcoin changed all that by creating 

a decentralized form of currency that individuals could trade directly 

without the need for an intermediary. Each Bitcoin transaction is 

validated and confirmed by the entire Bitcoin network. There’s no single point of failure so the system is virtually impossible to

 shut down, manipulate or control. Pretty neat huh? Well, now that we know that 

money can be decentralized, what other functions of society 

that are centralized today would be better served on

 a decentralized system? What about voting? Voting requires a central authority to

 count and validate votes. Real estate transfer records currently use centralized 

property registration authorities. Social networks like Facebook 

are based on centralized servers that control all of the data 

we upload to them. What if we could use 

the technology behind Bitcoin, more commonly known as Blockchain, to decentralize other things as well? The interesting thing about 

Blockchain technology is that it’s actually the by-product of 

the Bitcoin invention. Blockchain technology was created by 

fusing already existing technologies like cryptography, proof of work and decentralized 

network architecture together in order to create a system 

that can reach decisions without a central authority. There was no such thing as

 “blockchain technology” before Bitcoin was invented. But once Bitcoin became a reality, people started noticing 

how and why it works and named this “thing” blockchain technology. Blockchain is to Bitcoin 

what the Internet is to email; a system on top of which you can build

 applications and programs. A currency like Bitcoin 

is just one of the options. So this got people very excited, and they began to explore 

what else can we decentralize. However, in order for a system to be 

truly decentralized it needs a large 

network of computers to run it. Back then the only network 

that existed was Bitcoin and it was pretty limited. Bitcoin is written in what is known as 

a “turing incomplete” language which makes it understand

 only a small set of orders, like who sent how much money to whom. If you want to create

 a more complex system, you’ll need a different

 programming language, which means a different 

network of computers. Imagine for a second you wanted to 

build your own decentralized program, just like Bitcoin, at home. You’d need to understand 

how Bitcoin’s decentralization works, write code that mimics the same behaviour, get a huge network of computers

 to run this code and so on…. And that is a lot of work. Enter Ethereum. Ethereum was first proposed in late 2013 and then brought to life in 2014 

by Vitalik Buterin who at the time was 

the co-founder of Bitcoin Magazine. Ethereum is the Do It Yourself platform 

for decentralized programs also known as Dapps - decentralized apps. If you want to create 

a decentralized program that no single person controls, not even you even though you wrote it, all you have to do is learn 

the Ethereum programming language called Solidity and begin coding. The Ethereum platform has thousands of

 independent computers running it meaning it’s fully decentralized. Once a program is deployed 

to the Ethereum network these computers, also known as nodes,

 will make sure it executes as written. Ethereum is the infrastructure

 for running Dapps worldwide. It’s not a currency, it’s a platform. The currency used to incentivize 

the network is called Ether but more on that later. Ethereum’s goal is to truly 

decentralize the Internet. Wait? The internet is centralized? I thought the Internet already

 was decentralized and that anyone can start their own site. While in theory that might be true, in practice Amazon, Google,

 Facebook, Netflix and other giants control most of the world wide web 

as we know it. There’s almost no activity on the web that happens without some sort of 

intermediary or 3rd party. But once the concept of 

digital decentralization was demonstrated by Bitcoin, a whole new array of opportunities 

became available. We can finally start to imagine and design an Internet that connects users directly 

without the need for a centralized 3rd party. People can “rent” hard drive space 

directly to other people and make Dropbox obsolete. Drivers can offer their services 

directly to passengers and remove “Uber” as the middleman. People can buy cryptocurrencies

 directly from one another without the need for an exchange 

that can get hacked or steal your money. Ethereum allows people to connect 

directly with each other without a central authority 

to take care of things. It’s a network of computers that together combine into one powerful, 

decentralized supercomputer. Ok, So now you know what Ethereum does but we haven’t touched upon HOW it does it. Ethereum’s coding language, Solidity, is used to write “Smart Contracts” 

that are the logic that runs Dapps. Let me explain... In real life, all a contract is,

 is a sets of “Ifs” and “Thens”. Meaning a set of conditions and actions. For example, if I pay my landlord 

$1500 on the 1st of the month then he lets me use my apartment. That’s exactly how 

smart contracts work on Ethereum. Ethereum developers write 

the conditions for their program or Dapp and then the ethereum network executes it. They are called smart contracts because they deal with 

all of the aspects of the contract - enforcement, management, 

performance, and payment. For example, if I have a smart contract 

that is used for paying rent, the landlord doesn’t need to 

actively collect the money. The contract itself “knows” 

if the money has been sent. If I indeed sent the money, then I will be able to open 

my apartment door. If I missed my payment, 

I will be locked out. However smart contracts 

also have their downsides. Going back to my previous example, instead of having to kick out a renter

 that isn’t paying, a “smart” contract would lock 

the non-paying renter out of their apartment. A truly intelligent contract

 on the other hand, would take into account 

other factors as well, such as extenuating circumstances, the spirit with which 

the contract was written and it would also be able to

 make exceptions if warranted. In other words, it would act like

 a really good judge. Instead, a “smart contract” 

in the context of Ethereum is not intelligent at all. It’s actually uncompromisingly letter strict. It follows the rules down to a T and can’t take any secondary considerations

 or the “spirit” of the law into account like what commonly happens with 

real world contracts. Once a smart contract is deployed 

on the Ethereum network, it cannot be edited or corrected, even by its original author. It’s immutable. The only way to change this contract would be to convince 

the entire Ethereum network that a change should be made 

and that’s virtually impossible. This creates a very serious problem 

since unlike Bitcoin, Ethereum was built with 

the ability to create really complex contracts, and complex contracts 

are very difficult to secure. With any contract, the more complicated it is, 

the harder it is to enforce as more room is left for interpretations, or more clauses must be written 

to deal with contingencies. With smart contracts, security means handling with perfect accuracy every possible way in which 

a contract could be executed in order to make sure that the contract 

does only what the author intended. Ethereum launched with the idea that

 “code is law”. That is, a contract on Ethereum 

is the ultimate authority and nobody could overrule the contract. Well, that all came to a crashing halt 

when the DAO event happened. “Dow” or DAO stands for

 “Decentralized Autonomous Organization” which allowed users to deposit money and get returns based on 

the investments that the DAO made. The decisions themselves 

would be crowd-sourced and decentralized. The DAO raised $150M 

in Ethereum currency, ether, when ether was trading around $20. While this all sounded very good, the code wasn’t secured very well and resulted in someone figuring out

 a way to drain the DAO out of money. Now you could say that the person

 who drained the DAO was a “hacker”. But some would argue that 

this was just someone who was taking advantage of the loopholes

 he found in the DAO’s smart contract. This isn’t very different than a creative lawyer figuring out 

a loophole in the current law to effect a positive result for his client. What happened next is that the Ethereum community decided that

 code no longer is law and changed the Ethereum rules in order to revert all the money 

that went into the DAO. In other words, the contract writers and investors

 did something stupid and the Ethereum developers

 decided to bail them out. The small minority that didn’t

 agree with this move stuck to the original Ethereum Blockchain 

before its protocol was altered and that’s how Ethereum Classic was born, which is actually the original Ethereum. We’ve covered a lot up until now and the last thing I want to 

talk about is Ethereum as a currency. We’ve already established that Ethereum is basically

 a large bunch of computers working together like one super computer 

to execute code that powers Dapps. However this costs money - Money to get the machines, to power them up, 

store them and cool them if needed. That’s why Ether was invented. When people talk about the price of Ethereum they actually are referring to Ether - the currency that incentivizes people to run 

the Ethereum protocol on their computer. This is very similar to 

the way Bitcoin miners get paid for maintaining the Bitcoin blockchain. In order to deploy a smart contract 

to the Ethereum platform, its author must pay to do so. That payment is made in the form of ether. This is done so that people will write

 optimized and efficient code and won’t waste the Ethereum network

 computing power on unnecessary tasks. Ether was first distributed in Ethereum’s 

original Initial Coin Offering back in 2014. Back then it cost around 

40 cents to buy one Ether. Today, one Ether is valued in

 hundreds of dollars since the use of the Ethereum network

 has grown immensely due to the ICO hype that started in 2017. Still Confused? Don’t worry; we’ll get more into 

Ether and mining in a later video. Ethereum’s network and Ether are a whole 

new rabbit hole that we’ll cover but I think this will do for now 

as an intro to Ethereum. This concludes this week’s episode of 

Ethereum Whiteboard Tuesday. Hopefully by now you have 

a better understanding of what Ethereum is - A network of computers 

working together to replace the centralized model of programs 

and companies which run the Internet today. You may still have some questions. If so, just leave them 

in the comment section below. Thanks for joining me here at the Whiteboard. For 99bitcoins.com, I’m Nate Martin, and I’ll see you… in a bit.