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A Simple Explanation for Ethereum

A Simple Explanation for Ethereum


Is there a simple explanation for Ethereum?  In this post, I will endeavor my best to explain Ethereum in a simple and straightforward manner.  The aim is to understand Ethereum even if this is the first time you have come across the terms and just got curious about it.

To get a simple explanation for Ethereum, you first need to have a little background about Bitcoin and Blockchain.  Both are buzz words that are frequently thrown together in the melting pot with Ethereum. So let us get to the basics.

A Simple Explanation for Ethereum starts with Understanding Blockchain and Bitcoin

One fine morning in 2008 the mysterious Satoshi Nakamoto had this fantastic dream of setting up a safe and secure Peer to Peer system of payments that would eliminate all the terrible third parties from the equation.  (Apologies to banks, financial institutions, and PayPal).

This “disruptive” system of effecting payments would work on an underlying technology what is known as Blockchain.  Blockchain is a “decentralized system” whereby CFO’s, CEO’s, CMO’s and all that jazz do not exist.  It is a system that belongs to everyone and records transactions securely.

The Blockchain system is run by “miners” who acquire immutable proof that a transaction has been affected and confirm it by “proof of work”.  This means that once they verify that a transaction has actually been done, they update all the “nodes” in every computer to verify that this transaction actually happened.  In turn, a miner receives a fraction of Bitcoin as payment for his work. The update creates a new block on the chain.

Therefore, Bitcoin aims at disrupting all types of online banking systems and provides a secure and safe way of transferring money from one peer to another.

One disadvantage of Bitcoin is its scalability.  Meaning the speed by which a transaction can happen.  So far when you compare the speed of a bitcoin transaction to a credit card payment, for example, you are looking at an instantaneous transaction with a credit card and a ten minute or more wait with Bitcoin.

Blockchain, on the other hand, has plenty more uses than just to support Bitcoin.  The system itself can be used to support any sort of record keeping.  And all this in a decentralized manner.  Meaning that no one “owns” the information and no one can tamper it or even block the use of it.

Explanation for Ethereum

So How Does Ethereum Differ from Bitcoin?

In this simple explanation of Ethereum, we must first understand the similarities and differences between Bitcoin and Ethereum in order to get to the bottom of this conundrum.

So here is where we meet the true to life Vitaly Buterin – who unlike Satoshi is not shy to show his young face.  At 23 this young genius decided to improve and simplify the process of creating Apps on Blockchain. Vitaly was working with Bitcoin magazine and was very well versed in the Blockchain technology.  This is where he saw an opportunity to develop Ethereum.

Let us say for the sake of simplicity that Ethereum is to email what Internet is to Blockchain.

The way in which all storage of information works thus far has been in a centralized system. Meaning that all your information, though in the cloud, is stored by say Google, Apple etc., These “culprits” gather masses of information about your habits.  Your browsing habits, your spending habits etc.,  They can also limit what kind of Apps you can actually download.  In short, they have monopolized your information for their own benefit.

Vitaly Buterin, in this simple explanation of Ethereum, decided to do away with all this.  He decided to create a “world computer” that would “decentralize” and “democratize” all information.   The vision of Buterin was to return all control of data to the persons who create the Apps and their authors.

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A Simple Explanation of Ethereum – What are Its Benefits?

The scope of Ethereum (unlike Bitcoin) is to replace internet third parties by using blockchain.  Therefore, with the use of DApps (Distributed Applications created by Ethereum) all types of data that is currently stored in a centralized manner can now be stored safely in a decentralized manner.  This is particularly beneficial for example data like deeds, property ownership, land registry files, medical data, share transfers etc.,  All these records can now be decentralized using Ethereum.

Prior to Ethereum, you would need to build an entirely new and original blockchain for each new decentralized App that you wanted to run.  The Ethereum platform has made it possible to create hundreds of thousands of Apps that run on the same platform.

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Ethereum has Its Own Currency Called Ether – This is not a Free Service

Explanation for Ethereum

Ethereum Platforms are not run for free.  And why should they be?  After all, this is a service and it requires payment.  The Ethereum platform is fuelled by Ether – the currency of Ethereum.

Ether was a token issued in 2014 in a pre-launch and the response was overwhelming. Its value since has risen from roughly $0.25c to $450 at the time of writing.  (Ether was offered @2k Ethers for 1 Bitcoin in 2014 – which at the time was valued at $550 circa).

Ether is used like Bitcoin as a digital currency in its own right.  However, it is also used as a propeller inside the Ethereum platform in order to run Apps. It is also used to monetize and pay for work done.

Bitcoin vs Ethereum

The pivot is mostly standing at the fact that the purpose of Bitcoin and Ethereum is generally different.

  • Bitcoin, the first virtual currency was created as an alternative gateway to regular payments.
  • Ethereum was intended to create Applications that go beyond the support of a digital currency.
  • Bitcoin was created to facilitate Peer-to-Peer Payments.
  • Ethereum was created to facilitate Peer-to-Peer Contracts.
  • Ether was developed as a token to propel Ethereum but is now a digital currency in its own right.
  • No one heads Bitcoin – it is diffuse. Ether is run by real figureheads – key people who answer questions when required.
  • Bitcoin and Ethereum have different cryptography.

A Simple Explanation for Ethereum Conclusion

The Ethereum decentralized App works on Blockchain and therefore benefits from its features and properties.  Here are the more salient points:

Immutable: No one can make any changes to data on the blockchain.

Tamper Proof and Above Corruption and Censorship: Blockchain network operates on the basis of consensus. Therefore information cannot be tampered with, corrupted or censored.

Secure:  Blockchain is secure from hacking and fraudulent activities.

Non-Existant DownTime:  Apps can be “removed” or shut down – nor will they need “downtime” due to maintenance.

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Explanation for Ethereum



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