Ethereum is more than a cryptoasset. It is a flexible open source platform for decentralized applications.
Open and flexible
In 2013, Vitalik Buterin published the Ethereum whitepaper, in which the developer presents his design for a new, flexible blockchain protocol. Ethereum is structurally different from the Bitcoin protocol and goes beyond the characteristics of an asset or currency.
The combination of programs running in a distributed manner on a network with the monetary component of a cryptocurrency laid the foundation for numerous decentralized applications (DApps) as well as their interoperability in areas as diverse as data storage, identity management and Decentralized Finance.
One of Ethereum's biggest difficulties is its lack of scalability. This led to the most significant evolution of the protocol to date towards Eth2, which is currently being implemented through the gradual implementation of various updates.
“We will either solve the scalability and consensus problems or die trying.”
Unrestricted and private
In order to use the Ethereum network, be it via own smart contracts or as a user of a decentralized application (DApp), a cryptocurrency is required. On the Ethereum Blockchain, this is Ether, which is used to pay for transactions on the network. Users manage their Ether via a wallet. This is a special software that acts as an interface to the network.
The transaction costs are an incentive to develop efficient programs. At the same time, they hinder the execution of malicious programs because every action on the network costs money. This system is similar to an e-mail system, where minimal fees are charged for sending messages. Simple spam programs that randomly send a huge number of messages would simply be too expensive in this case.
In addition, the network finances itself through transaction costs. Models in which users pay for supposedly free services with their personal data are not necessary. Nor is it possible to restrict access because of certain personal data. This ensures a high level of privacy, equal treatment of all users and points in the direction of a free Internet.
“Most of systems still depended on some central node to which everything had to be connected (...). I wanted the act of adding a link to be trivial. If it was, then a web of links could spread evenly across the globe.”
As with Bitcoin, the Ethereum network consists of a large number of computers communicating with each other without a central authority. Bitcoin symbolizes a decentralized, redundantly stored ledger in which the entire transaction history is stored. This structure is called a distributed ledger.
In the Ethereum network, on the other hand, not only simple transactions can be executed. It offers the possibility to execute almost arbitrarily complex programs, the smart contracts. In this way, even extensive, multi-step processes that integrate external data sources and user input can be mapped. The Ethereum network therefore stores not only transaction data, but the states of the entire network.
The programmability, in conjunction with the Ethereum network's native token, the Ether, enables the mapping and extension of existing economic processes. The sector Decentralized Finance is the best-known example of the decentralization of originally centrally controlled processes.
“The only way to control chaos and complexity is to give up some of that control.”
Foundation of the Web3
With the first web server, its inventor, the English physicist Timothy Berners-Lee, created the world wide web, a service on the Internet, in 1992. In the first version of this network, the Web1, there was mainly static content referenced by hyperlinks. Over time, the web2 evolved, allowing user interaction and corresponding to what many perceive today as "the web".
While the Internet is a free and decentralized structure, the Web is a highly centralized service. This led to the vision of the Web3, in which core services that are currently centrally organized, such as the Domain Name Service, are decentralized and users' data is protected.
Platforms such as Ethereum can serve as the basis for a decentralized Web3. Numerous DApps already demonstrate the functionality of anonymously usable, decentralized applications. They range from trading sites and gaming platforms to stablecoin and lending protocols. All these applications are open to all users and function without a central authority.
“Decentralization will prevent shocks from spreading throughout the system, like firebreaks in the forest.”