What is Ethereum (ETH)?

Ethereum is on everyone’s mind and after Bitcoin not only the most famous cryptocurrency, but also the cryptocurrency with the second largest market capitalization. But Ethereum is more than just a cryptocurrency – the technology behind Ethereum lays the foundation for Smart Contracts and dApps.

What is behind Ethereum? And how is Ethereum different from Bitcoin? To understand Ethereum, it first requires an understanding of the centralization of the Internet. Personal and financial data, as well as passwords are mostly stored in the cloud, which is a flowery description for server farms of big companies like Facebook, Google or Amazon. This centralized structure of the Internet is by no means only bad. Especially the centralized hosting services make it possible for many people and small businesses to reliably host good quality websites.

But the downside of centralization is vulnerability. There are countless examples of unauthorized access to data. At the same time, users often have to give hosting service providers more control over their own data than they would like. Ultimately, it is also questionable whether the classic client-server model represents a meaningful architecture in times of the Internet of Things.

The head behind the Apache web server, Brian Behlendorf, has therefore found drastic words: According to him, the centralization of the Internet on huge server farms, the original sin of the Internet. The internet, according to Behlendorf, was decentralized from the beginning. Using various tools, such as blockchain, this goal of decentralization is now to be achieved again.At this point, Ethereum comes into play. While Bitcoin is shaking up the financial system, Ethereum uses blockchain technology to eliminate middlemen on the Internet. With Ethereum, both data hosting and contract fulfillment monitoring should no longer be centralized by a few, few Internet giants.

Ethereum – with smart contracts to a decentralized computer

Ethereum wants to become a kind of decentralized computer to decentralize the existing client-server model.

Many blockchains, such as the Bitcoin Blockchain or the Ethereum Blockchain, are replacing servers and clouds with thousands of so-called nodes set up by volunteers. These nodes play an important role in maintaining the payment network: they check and store every block in the blockchain and also check the individual transactions handled by Ethereum’s own digital currency, Ether. In the world of Ethereum, people talk less about a digital currency than about gas or fuel needed to maintain the network.

The distinctive feature of Ethereum, however, are the Smart Contracts, which make the Ethereum network a decentralized computer. Smart contracts, as the name implies, are intelligent contracts or small programs that run on the Ethereum network, for example, to govern Ethereum transaction conditions. Unlike the Bitcoin network, the nodes in the Ethereum network are responsible for the processing of these contracts in addition to the tasks listed above.

These smart contracts enable the development of so-called dApps. dApps are decentralized applications that are not just open source but can be checked for correct operation during runtime. With these dApps, the vision behind Ethereum can be explained as follows: since everyone can ultimately operate a node, each one has the same functionality and can offer corresponding services set up on the infrastructure.