How Can We Understand Ethereum?
A simple explanation of what Ethereum is: It is a platform. You can create codes, build smart contracts and run applications on the programmable platform. The cryptocurrency Ether (ETH) is like the fuel for running commands on the Ethereum network. An easy way to understand Ethereum is to view it as the Internet. The creation of the Internet doesn’t meaningfully impact what we do. But, the applications being created on the Internet platform change our lives. We’re talking about applications such as Google Search, Wikipedia, Amazon, YouTube, Twitch, Reddit and Netflix. These applications drastically improve the way we live. Likewise to the Internet, We can create and use applications on the Ethereum platform to leverage on its blockchain technology.
These benefits include automation which saves time, lower transaction fees, tighter security and instant accessibility.
Ethereum’s key feature is in its ability to utilise smart contracts. A smart contract executes a particular task when and if certain conditions are met. If Scenario A happens, then Scenario B will happen accordingly. Imagine you’re buying a can of Coke from a vending machine. You insert $1 and press the button next to the Coca-Cola logo. That button, which is matched towards the slot containing the Coca Cola cans, activates a lever to push out a Can of Coca Cola. The transaction occurs with no third party such as a cashier to facilitate the process. A smart contract is like a vending machine which eliminates the middleman. It is highly likely we’ll be replacing most of our middleman with a vending machine. It’ll improve the way we vote, the way we buy real estate and insurance, the way we store medical and educational records and the list goes on.
Why do I need to care about Ethereum? Is it better than Bitcoin?
In my humble opinion, the short answer is yes. Ethereum is better than Bitcoin. However, it is important to note that they have different roles. The role of Bitcoin is to focus on payments without a middle man, whereas the role of Ethereum is to focus on programs without a middle man. The value of Bitcoin is derived from its limited supply together with its nature of being a digital currency and a payment system at the same time. The value of Ethereum is derived from its ability to facilitate programmatic contracts across a distributed system.
The power of a smart contract is vast.
The execution of a traditional contract is often slow. We need to go through middlemen and intermediate layers which could take up to days or even weeks. Smart contracts can take mere minutes. Being automated and programmable, the functions would be self-executed under predefined conditions. There is no need for manual supervision or a trusted third party. This reduces unnecessary transaction fees too. Furthermore, smart contracts are readily available to anyone, anytime, anywhere.
As long as you have Internet access, you can review the archived transactions as and when you like.
A real-life scenario would look something like this: You’re at the airport and your flight is delayed. The night before, you had already bought a flight delay insurance which utilizes Ethereum smart contracts. The smart contract can be coded to be linked to the database recording flight status. Actions will be self-executed based on specific terms and conditions being met. You’re immediately compensated if the flight is delayed in excess of two hours. You don’t need to waste valuable time to bounce back and forth with a virtual assistant anymore.
This blockchain technology behind Ethereum doesn’t only apply to insurance claims, but it has the ability to massively improve all existing legal, financial and social agreements.
An example of Ethereum’s use-case is Decentralised Finance (DeFi). There is no need to go through middlemen like banks or brokerages to manage your finances, hence the term — Decentralised. You can utilize smart contracts to facilitate buying, selling, lending and borrowing of funds to anyone, anywhere, anytime. The smart contracts will automate agreement terms between buyers and sellers or lenders and borrowers. The exact terms and conditions will be coded in the smart contracts, and if the requisites are not met, the transaction will not happen. A simple example looks like this: If Tom sends 5 ETH (Ether) to Cheryl on 01.08.2021, Then Cheryl will send 7 ETH (Ether) to Tom on 31.08.2021.
Another example of Ethereum’s use-case is Non-Fungible Tokens (NFT). You may refer to How Can We Understand NFTs? to find out more about the properties of NFTs. Jumping straight into its utility, I believe the ticketing world has a lot to benefit from NFTs. Imagine if all tickets are minted as an unique NFT ticket, we no longer need to worry about being scammed of fake tickets. All parties, including organisers and attendees, can verify the authenticity of the ticket via the blockchain network. Furthermore, NFTs can be programmed as non-transferrable before the event, so it can’t be moved to another buyer. A NFT ticket can also be programmed to be resold as a collectible after the event ends. This means that after you’ve bought the ticket to watch Lebron James dominate for 2 hours, you can resell the ticket as a collectible. The NFT ticket can also be coded to allow the original creator/issuer to collect a percentage of the sale each time the NFT ticket is sold and resold.
The innovation of NFTs is already impacting various industries such as gaming, art and music.
Final thoughts: It is exciting to see how Ethereum isn’t necessarily gonna change the way we do things, but change how things are being done.