Ethereum is an open-source, public, blockchain-based distributed computing platform and operating system featuring smart contract functionality. It supports a modified version of Nakamoto consensus via transaction based state transitions.
In 2013, there was another breakthrough...
A new blockchain platform called "Ethereum" was developed. It introduced a Turing-complete programming language into blockchain and opened up a new world of possibilities.
To understand how it works, think of Bitcoin as the Calculator app on your phone, And Ethereum as your phone's operating system which allows you to have many apps with many features. One of the main features built into Ethereum's functionality are called "smart contracts" - transaction protocols that essentially collapse payment and execution of an agreement into the same thing.
Instead of contracts being written on a piece of paper and signed in black ink, the world of Ethereum allows them to be written in computer code and executed when certain conditions are met. For instance, imagine if you want to place a $20 bet that a certain sports team will win a game. You can write a smart contract, and when the game is over, it checks the score and automatically send $20 worth of Ether (ETH) from loser to the winner.
Because the smart contracts run on decentralized Ethereum client nodes, you no longer have to rely on a third-party, like a sports book service, to facilitate this type of transaction. As a result, middlemen, and their fees, are eliminated.
The best part is that this is just the beginning.
Ethereum developers can also create their own applications which don’t rely on a central third-party authority. This is why they’re called decentralized applications or "DApps".
They run on a custom built blockchain, an enormously powerful shared global infrastructure which can move value around and represent ownership of property. All without any risk of downtime, censorship, fraud or third-party interference.
However, Ethereum had one major drawback. Because their smart contracts needed a centralized third-party for verification, it made them vulnerable to hackers.
Take the sports bet example. In the world of Ethereum, the source for where the smart contract gets the score of the game (i.e. a sports website that lists scores of games) is called an "oracle". A hacker or even an insider employee could hack into the oracle (e.g. like ESPN.com), where the contract checks the score, and change the score in their favor. Not much to worry about when it’s a $20 bet. However, it becomes a critical point of failure when you consider some transactions as high as $200,000 or more.
To get around this, multiple "oracles“ are used to build what is called "consensus"; meaning the smart contract must check with multiple oracles and they all must agree on the score of the game, for instance. That way, the contract is only executed when there's consensus and all third-parties show the same score.
Since the advent of Ethereum, there has been rapid-growth and creation of DApps and technologies related to cryptocurrency.
They’ve revolutionized how people transact online - a market which is worth $11 trillion a year.
Even in this early stage, blockchain technologies have had a major impact on the world.
