Ethereum in a Nutshell
Ethereum is a blockchain-based platform designed to run a network of decentralized applications (dApps). Essentially, the Ethereum network is a decentralized computer that provides the infrastructure for dApps; and ether, the native token of Ethereum, acts as fuel needed to power such dApps. An easy analogy is that the Ethereum network is a system of roads, dApps are cars, and ether is gas that powers the cars.
The dApps that run on the Ethereum network can perform a wide range of functions – almost anything you can imagine – from escrow contracts and full-featured banking and investing services to social media networks, games, resource sharing, identity verification, sports betting, and much more.
Most applications that we use today, like WhatsApp, Gmail, a Bank of America App, or Words With Friends are run through a centralized service – usually the company’s servers. To use these applications, we must trust the companies that create them – we trust them with our money, with our data, and with our personal information. And we must trust them to provide the services we want.
In contrast, just as Bitcoin allows us to make payments without the need of third parties, Ethereum allows us to use applications to interact directly with other people without the need of a trusted third party.
These dApps are basically programs that exist on the network. They can be created by anyone; they can be used by anyone – no matter their nationality, geography, income, or views; and they cannot be shut down as there is no central service that controls them.
Decentralized platforms such as Ethereum return control to the individual instead of the company, and they open up opportunities for efficiency, privacy, security, transparency, and creative innovation.
Major Use Cases
Ethereum’s primary purpose is to power a wide range of decentralized applications, as discussed above.
In addition, ether can also be used as a transfer of value or store of value; much like Bitcoin, ether can be sent directly from one person to any other, anywhere around the world, without using third parties like banks or governments as middlemen.
Smart contracts are pieces of code that are stored on the Ethereum network and automatically execute when certain conditions are met – allowing for more complex transactions then simply sending money from one person to another. They can range from simple to complex, performing functions such as escrow, betting, holding collateral until a loan is repaid, and much more. Smart contracts can be thought of as the building blocks of decentralized applications.
Decentralized Application and Organization Platform
The Ethereum network will not only allow for users around the world to access a variety of decentralized applications, but it also opens up the possibilities for decentralized organizations, decentralized governance of such organizations, and decentralized autonomous organizations. (Get a thorough overview from the creator of Ethereum.)
Major Factors Affecting the Future of The Network
There are a number of systemic (market-wide) factors that will affect most cryptocurrencies, but here are some other factors to watch that are more specific to Ethereum:
Evolution of Blockchain Platforms: While Ethereum is the first blockchain-powered dApp platform, several other promising platforms are in development.
And though I do expect multiple platforms to survive and thrive due to tradeoffs and competitive advantages that will make certain platforms better suited for different kinds of dApps (for example, some dApps will require higher throughput, others higher security, others increased privacy, and still others may require relationships with government authorities, etc), how Ethereum continues to develop and improve functionality will determine the range of dApps that are developed for the platform.
dApp Development & Success: Hundreds of dApps are already being built on the Ethereum platform, but for any platform to succeed in the long term, it will need killer dApps, or successful dApps that drive adoption of the platform.
Smooth Transition from PoW to PoS: Ethereum is planning to switch its consensus mechanism from Proof of Work to Proof of Stake in the future Casper update. A security breach or contentious hard fork could cause discord among the network community; on the other hand, a smooth transition will bode well.
Biggest Advantages Over Other Cryptocurrency Platforms
Ethereum already has a robust network and large community of users and dApp developers.
Ethereum has a significant head start as a first-mover in the blockchain platform category.
Achieving both political and architectural decentralization is a primary goal that Ethereum developers don’t want to sacrifice. Several other platforms are making trade-offs (such as DPoS to allow for scalability) that many believe will lower the level of political decentralization.
Lagging Behind in the Race to Scale: Since Ethereum’s primary use is to power dApps, high throughput is needed for multiple applications to run concurrently on the platform.
Projects such as sharding, Plasma, Raiden, and state channels all aim to increase scalability… but when will they be ready?
Basic Statistics & Tokenomics
The total supply of ether is 99.9 million and there was an issuance rate (inflation rate) of around 10% in 2017. The issuance rate is expected to drop to as low as 0.5% once the transition to Proof of Stake is complete.
The current block time (time it takes before a new block is created) is about 14-15 seconds and current network capacity is about 15 transactions per second.
Resources to Learn More
The following resources present great starting points to learn more about the Ethereum network and the dApps being built upon it:
Ethereum.org is the official Ethereum site.
Stateofthedapps.com provides a list of dApps being built on the Ethereum network.
Entethalliance.org is the official site for the Enterprise Ethereum Alliance, a group of organizations that are researching how to build enterprise-grade software on the Ethereum network.
Reddit.com/r/ethereum is an informal forum covering all things Ethereum.