What is Ethereum?

Ethereum is a worldwide network of interconnected computers (nodes) that impose, execute and validate programs in a decentralized way without requiring a server, memory, CPU power or any other computer function, since everything is provided by thousands of etheric nodes scattered throughout the world . In summary, ethereum is a global computer.

This global computer allows applications, called decentralized applications or DApps, through the use of intelligent contracts (code similar to simple JavaScript) to be executed exactly as they were programmed, without permission, without intermediaries, in an immutable way, without downtime , censorship, fraud or interference of third parties.

It further ensures the operation of ETH – the ethhereum digital currency that converts money into pure code – opening up many new opportunities, including machine-to-machine payments, one-click online trading, decentralized autonomous organizations and completely new business models.

The platform has aroused great interest among many brands of home products that are positioning themselves for what some have called a fourth industrial revolution.

The reasons may be apparent as you read this article, which deals mainly with high-level concepts. You can find some parts that are too advanced or too simple. That’s because this introduction tries to provide a comprehensive answer to the title question. As such, some parts can be useful even for experts.

To help you find potential sections that you may wish to omit, the decentralized digital currency is presented first in some detail, explaining the Nakamoto consensus and the chain divisions in their own subsections. You may find more interesting a specific aspect of the digital currency, the codifiable money, which has its own section. Next, the potential role of ethereum to create a future in which machines can act by retaining, transferring and accepting value is explained, which gives them a very primitive level of intelligence.

ETH – The decentralized digital currency

ETH is a new decentralized digital currency backed by the free market. Unlike coins issued by a central bank (such as dollars or pounds), or a central private company (none exist), ethereum is issued through open source code executed in a decentralized manner in thousands of nodes. That code determines which node gets eth based on a series of calculations called work proof: code-based solutions for useless mathematical problems that aim to demonstrate that the work was done by hardware such as GPUs, better known as “miners” for their ” Digging “through the useless code, hoping to hit the gold (the reward of 5 eth).

The more hash share (hardware) of the total network has a node, the more often they earn the reward, which is currently valued at around $ 60 and is automatically awarded to a single miner every ~ 17 seconds.

There are massive mining facilities stacked with hardware that only performs the function of “excavation”. Soon, that will change. All that will be required to “dig” is to run a node (only a downloadable software program) and block a certain amount of eth in a savings account in the same way to secure more than 85 million eth, which currently they are worth 1,100 million dollars.

For now, as “mining” requires a lot of initial capital investment and has some inherent risks due to its zero-sum game function, most tend to buy eth directly in exchanges such as Coinbase. Once purchased, the currency can be sent to anyone through the decentralized ethereum network that uses a chain of blocks: a chain of transactions that shows that Alice paid her and that in turn was paid for by Bob, who at his He paid Carl and so on until he came to one of the many emitting miners who created the eth through the process of “digging.”

Although the blockchain ledger is completely public, it does not contain names. Instead, it is made up of random letters and numbers called a public address. If the ownership of the addresses is revealed, it is possible to see who is paying whom, but the network itself does not reveal that property. Therefore, it is pseudoanonymous, comparable to an online nickname. If people learn your nickname, you can attribute all the comments you have previously made, otherwise it is just a random person who makes comments online. Similarly, if people learn their public eth address, they can see what transactions they have made, otherwise, it is a random address that performs transactions.

The consensus of Nakamoto

The final point regarding the appearance of the coin is its decentralized nature that was previously thought impossible because of the problem of double spending since anyone can copy and paste some code. Nakamoto demonstrated eight years ago that a currency can be decentralized by ensuring that such a code can not be copied through the use of cryptography. There are three main elements, a private key corresponding to a public key (address), work proof that validates transactions in an unreliable manner and, most importantly, what we now call the Nakamoto consensus.

The Nakamoto consensus is a solution to a computer problem illustrated by the tale of the two Byzantine generals. It tries to establish how an agreement can be reached while communicating through potentially malicious and hostile network actors who can betray the generals and thus inform the king or the enemy of their planned action, leading to failure. In regards to the code itself, Nakamoto described the solution as follows:

“They use a working test chain to solve the problem, and once each general receives the attack time that he hears first, he sets up his computer to solve an extremely difficult job test problem that includes the time of attack in his hash. The work test is so difficult, it is expected to take 10 minutes [~ 17 seconds for eth] to work all at once before one of them finds a solution Once one of the generals finds a proof of work, it transmits it to the network, and everyone changes their current work test count to include that work proof in the hash they are working in. If someone was working on a different attack time, switch to this one, because their chain of proof of work is now longer. ”

The above describes how the code itself works, simplified for 51% of miners decide, but is limited to only protect against double spending and other malicious or objectively dishonest behavior. It does not help in circumstances where there is a genuine requirement to update the network and, therefore, change the rules.

In those situations, everyone accepts often because of clear benefits, for example, it allows you to download the node faster without downtime, but, sometimes, there is a genuine dispute about whether an update should or should not occur, say if massive theft should be avoided. Here, Nakamoto’s consensus does not help because he is only concerned about avoiding double spending.

Chain splits

Where there is a genuine dispute – until now we have only seen 80/20 divisions in the opinion – one must take into account that it is the people who manage the nodes, and it is the people who manage the miners. People who do not agree with an update can split up and create their own chain of blocks and currency.

The interesting quality here is that all those who have eth before splitting into two blockchains have an equal amount in both chains. In these situations, people can “vote” directly by selling their eth in one of the block chains.

It is useful to keep in mind that these divisions can occur for any person, at any time, for any reason or no reason. After a deeper consideration, the implications here can be revolutionary in concept because it is the ultimate guarantor of the decentralized function of public block chains. No one can impose his will on anyone. No one can command anyone Everyone is completely free to decide their own rules.

If someone really cares about their rules, it’s a different question. Here, therefore, is the empowerment function of public block chains. Although the code could say that it is 51% of the miners or nodes, in practice and reality, it is actually 51% of the people that we must assume are honest.

Therefore, we can discern a rule. Where, objectively, there is malicious or dishonest behavior, such as an attempt at double spending, the Nakamoto consensus completely and successfully prevents it by cutting off the malicious actor from the network so that the code validates and applies the honest rules.

Where there is an honest and genuine dispute as to which rules should be applied in the first place, the Nakamoto consensus does not help since it applies only within a chain of blocks, not to a decision between two blocks where one of them is intentionally divided. , instead of accidentally.

This is a very complicated area, not yet fully understood experimentally, and currently under development. In a similar way to a sketch, we can say that the initial decision on whether to offer the option of two rules depends on the encoder or coders. There must be an initiator that offers both options. If it does, the decision of the miners is very influential, although more than the initiator depends on the details of the proposed rule change, since they protect the function within the chain to ensure that there is no double spending.

Logically, having an initiator and the miners agree that your chain will be dominant, although the other chain may continue, perhaps, in a less relevant way as far as the majority is concerned, but if that would really be the case it depends on the details of the proposed rule change and the surrounding circumstances.

Ultimately, the final decision is a kind of referendum in which the holders of the value decide to sell or buy a chain or fail to make a decision.

The interesting part here is that despite all these steps, the minority chain can continue to operate and have value. This function is an underestimated quality of public block chains, even for some individuals within the blockchain public space, because they miss the philosophical basis of blockchain creation.

Despite what some may have said previously in the early days of the blockchain, the foundations of ethereum, the currency, are not based on marginal thoughts, but on the main ideas of a Nobel Prize winner, Friedrich August Hayek, who spent much of his life studying money. He states in The Denationalization of Money:

“The past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, regulated by the market process … only competition in a free market can take into account all the circumstances that should be taken into account. ”

The genius of Nakamoto was to force the creation of money in the free market through a decentralized mechanism, which caused a checkmate movement to occur since it can not be closed except for the judgment of the market. Only by their judgment, eth lives or dies and if some parts of the market think it should be divided, the best managed currency rises through market competition, or, alternatively, its poor management or inferior quality courts the market’s punishment.

That is only one aspect, because ethereum is not just money. It is an improvement of money since it turns paper into pure code. Code that we can modify, sort through ifs, thens, while loops. Code that we can incorporate into our websites, our videos, our games, our cars, airplanes, trains, smartphones, refrigerators.

The potentials to

Ethereum – Codable money

Because eth is, in effect, just computer code, there are now many new things we can do with money that was previously impossible. Through Ethereum JavaScript, as the programming language of Solidity and Serpent, we can code programs called intelligent contracts that mandate our eth funds to operate in a certain way, making it possible for machines to retain and transfer value automatically.

A simple example is the flight delay. This is an ordinary website on the surface, but basically, through Metamask, it uses the blockchain to access the intelligent flightdelay contract, which is just code if / then, else, while, etc. What is unique is that this code does not have a centralized server, therefore, it does not require anyone’s permission to run. As such, it can be fully automatic, allowing machines or other unrelated code to communicate directly with the intelligent contract and automatically transfer or receive value. As this code is maintained and validated / executed on thousands of machines, it is almost impossible to manipulate or modify it in any way, which makes it much safer than a centralized database where an administrator can change the data at will.

In this example, the smart contract obtains a data feed for flights and, based on the mathematical algorithms established by the coders, determines the amount of money it will receive if the flight is delayed or canceled. Everything works by itself. There are no employees, administrators, there are no accounts, there is no registry, there is no third party, only a code that does everything.

Another use of Ethereum’s block and smart chain contracts may be authentication. By tagging sneakers, for example, or scanning high-end gowns, blockchain technology can allow owners to verify the authenticity and authenticity of a product, as well as enter property details and even personalized messages, address the trade in counterfeit goods and increase the applicability of the products. property rights.

In addition, it allows the creation of completely new commercial structures, such as Decentralized Autonomous Organizations or DAOs. As the smart contract may contain funds, investors do not need to transfer money in advance to the management class, but they can vote on the release of a certain amount of money based on the results. Replace the CEOs and the board of directors.

This is done through tokens. Ethereum, being full Turing, allows the creation of new coins (tokens) at the top of the ethereum network. Entrepreneurs can and do issue tokens in exchange for eth to create new projects ranging from music and other intellectual rights, fantasy sports, decentralized supercomputers, social networks, stable currencies, derivatives and coverage, automatic machine payments and innumerable innovations projects that are advertised daily.

Ethereum – The internet of things

As money becomes truly digital, that is, literally code, a series of activities that previously could not take place are possible. The most promising is machine-to-machine payment, better known as IoT.

The current monetary system requires bank accounts with authentication and verification through centralized third parties that depend on pins or other devices for security. Ethereum does not require accounts, only a public address or an intelligent contract address. It does not require third parties and, what is more interesting, while human beings need a private key to authenticate and verify public addresses, machines – that is, intelligent contracts – are authenticated and verified automatically by the global network of nodes of ethereum.

They have a public address, so anyone can send any amount of eth to the smart contract or the machine, but they do not need private key or require any external or input method to test the property of their eth for the network knows the rules of that specific code, knows how much eth it has, and knows if its transfer is within its own rules.

As such, it is impossible to steal the money from the machine, or to deceive them, since the intelligent contract responds only to its own code that needs to be verified by thousands of nodes, making it completely secure (unless, of course, the coder has made some mistake).

This opens many new opportunities. Machines can now contain and exchange value. In combination with sensors, cloud computing, data analysis, wireless technology and other advances in computing, it is now possible for your refrigerator, for example, to realize that it has run out of milk, so place an order automatically your local supermarket and pay them 0.1 eth. The machines of the supermarket, in turn, once the delivery time is reached, can automatically order and pay for a delivery vehicle. On the way, the car can stop at the gas station where the payment is automatically exchanged depending on the level of gas or electricity you may need, with the milk in front of the door when you get home.

This, in effect, gives the machines a very primitive level of intelligence, since they can think, although what we have told them to think through the intelligent contract code, to have memory through decentralized nodes or cloud computing , communicate through wireless technology and sensors and can act ordering and making or receiving payments.

All this is at a very early stage, but the many new opportunities that ethereum opens have ignited the imagination of thousands of developers working on numerous ethically based projects and more widely based on blockchain.

Through the Decentralized Autonomous Organizations, for example, it is possible to create a form of organization without the need for a CEO or board of directors, instead using a decentralized vote in what could be a new invention, and by itself highly transformative, in how the work coordinates.

With only cover (MetaMask), it is now possible to pay a newspaper 5 cents with no more than a click. With just a few codes, many intermediaries that require large resources in money and labor can be replaced by much more efficient and much cheaper systems.

While previously there was much debate about blockchain technology and, by association, ethereum, the transforming nature of this new invention has now been recognized at all levels of society, from the Fed, to the former presidential candidate with the Trump Administration having Many eth / blockchain followers in your staff.

Ethereum, specifically, opens a new frontier due to its smart contract functionality. This has made them the platform chosen by many family brands, including technology companies such as Microsoft and financial institutions such as JP Morgan, which modify the code of ethereum for use in private blockchains (comparable to intranet vs. internet in relation to public blockchains). .

Although it is still too early to say, most private blockchains seem to be based primarily on ethereum because of their greater security since the public blockchain is tested daily, which proves its solid security.

Nobody knows very well how the relationship between private and public blockchains will develop, but it seems reasonable to think that companies will consider it desirable to move from private blockchain to public as required. It is likely, therefore, that a network of mutated private blockchains will communicate with the public blockchain while everyone uses a central code or, to continue the metaphor, share a

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