Ethereum: More Than Just Cryptocurrency, a Global Distributed Computer

Ethereum: More Than Just Cryptocurrency, a Global Distributed ComputerWhile the terms Bitcoin and Ethereum are often mentioned together, they are actually very different. The only thing they have in common is that they are both crypto assets built on blockchain technology

Ethereum: More Than Just Cryptocurrency, a Global Distributed Computer

While the terms Bitcoin and Ethereum are often mentioned together, they are actually very different. The only thing they have in common is that they are both crypto assets built on blockchain technology. However, unlike Bitcoin, Ethereum is more than just a digital currency. It has other features that make it a powerful distributed computer.

To understand Ethereum, we need to first understand how blockchain works. If you are already familiar with Ethereum or have read my Ultimate Guide on Understanding Blockchain (link at the end of this article), you can skip this section.

Blockchain: A Transparent and Immutable Database

Simply put, a blockchain is a database. It stores a specific type of growing data and has a unique feature: once data is stored on the blockchain, it cannot be modified or deleted. Every record on the blockchain is permanently stored.

This database is not maintained by a single individual or organization but by thousands of people who hold copies of the database. To understand how they keep these copies synchronized, imagine a network of ten people. Each person has an empty folder and a blank page. Whenever any important event occurs on the network, such as a transaction, it is broadcasted to all users. Each person will record these announcements on their pages until the page is full.

Once the page is full, everyone must seal the page content by solving a mathematical puzzle. This ensures everyone has the same content and that this content can never be modified. The first person to solve the mathematical puzzle will receive some cryptocurrency as a reward. The sealed page is added to the folder, and a new page appears. This process continues in a loop, forming the blockchain.

Over time, these pages (blocks) containing important records (transactions) are added one by one to the folder (chain), forming a complete database (blockchain).

What Does Blockchain Store? Ethereum's Unique Value

Blockchain can store any type of data, and the type of data stored on the blockchain gives it value. For example, Bitcoin's blockchain stores records of financial transactions, making it a currency similar to the US dollar or British pound.

However, Ethereum is different. It is not just a currency like the US dollar, the British pound, or Bitcoin. It has a broader range of applications. The real value of Ethereum lies in the fact that it is a massive computer!

Ethereum Computer: A Slow but Powerful Distributed Computing

While the Ethereum computer runs incredibly slowlyabout 5 to 100 times slower than an ordinary computerand is expensive, it has extraordinary capabilities. This "Ethereum computer" is like a rare 90s smartphone that can only perform a few trivial tasks.

However, Ethereum is so popular because it is a distributed global computer. Each node (computer) runs software called the Ethereum Virtual Machine (EVM).

Ethereum Virtual Machine: The Engine for Executing Smart Contracts

The Ethereum Virtual Machine can be seen as an operating system that can understand and execute software written in a specific programming language used by Ethereum. These software/applications are called "Smart Contracts."

Every node runs the same version of the Ethereum Virtual Machine, ensuring that every node has the same software and data. To perform any operation on this global computer, you need to pay a fee. This is not in traditional currencies like the US dollar or the British pound, but in the form of the network's own cryptocurrencyEther.

Smart Contracts: Automating Trust and Execution

On Ethereum, both human users and smart contracts can be users. Smart contracts can do everything human users can do, and even more. Within the network, smart contracts act the same as other human users. They can send and receive Ether just like they can send and receive other currencies.

However, unlike human users, smart contracts can execute predefined computer programs that perform various operations when triggered.

For example, we can use a smart contract for a simple bet. Let's say we bet on tomorrow's weather. I think tomorrow will be sunny, and you think it will rain. We agree that the loser must pay the winner $100.

The traditional way would have many problems:

1. Mutual Trust: If we are strangers, trusting each other is a big risk.

2. Legal Contracts: It is too expensive and impractical to enforce the contract through legal means.

3. Mutual Friends: Seeking help from mutual friends brings trust issues. What if the friend runs away with the money?

Smart contracts solve all these problems. It's like seeking help from mutual friends, but implemented through code. We can write software that the Ethereum Virtual Machine will execute, collecting $100 worth of Ether from each side. The next day, the software will open the API of a weather app, check the weather, and transfer the total $200 worth of Ether to the winner.

Once a smart contract is complete, it cannot be edited or modified. Therefore, whatever is specified in the contract will be executed.

Transactions on the Blockchain: Recording Smart Contract Execution

Every time a smart contract is executed, it is recorded on the blockchain. Each block contains three types of transactions:

1. Ether transfer between human users: Similar to Bitcoin transactions, such as directly transferring Ether to a friend.

2. Ether transfer with no recipient: This means the purpose of this transaction is to create a smart contract, and the software code will perform actions like other users on the network.

3. Ether transfer between users and smart contracts: When users want to execute a smart contract, they need to interact with the smart contract and pass execution instructions to it.

No matter what event occurs, it will be broadcasted throughout the network and recorded by everyone. Each node will execute the received smart contract to keep the Ethereum Virtual Machine's state synchronized with the rest of the network.

Gas: Paying for the Execution of Smart Contracts

Executing a smart contract requires a certain fee, which is paid to the node that actually uses memory, hard drive, computation, and electricity to execute the smart contract. To calculate the cost of the smart contract, each statement has a specified cost. For example, a statement using node memory will incur a specific cost, while a statement using node hard drive storage will incur an additional cost.

The unit of these specific costs is called Gas. Ultimately, Gas is converted to Ether at a certain exchange rate. When executing a smart contract, you need to set a maximum Gas consumption to prevent the program from entering an infinite loop, wasting node resources.

The Future of Ethereum: The Power of Decentralization

Overall, Ethereum is more than just a cryptocurrency for trading. Its real value lies in its purpose: allowing people who own Ether to leverage a distributed global computer powered by thousands of nodes.

Although the decentralized distributed computer is slow and expensive, it is more secure than faster but centrally controlled servers. To enjoy the low cost of using a centralized computer, we have to give up control. If the central computer fails or is hacked, all users connected to it will be affected. A decentralized computer will only have problems if all nodes fail, so it can run continuously.

Ethereum has tremendous potential and can revolutionize many fields, including:

• Finance: Decentralized financial systems, such as decentralized exchanges and lending platforms.

• Gaming: Creating more interactive and transparent gaming experiences, such as crypto collectibles and in-game assets.

• Supply Chain: Increasing supply chain transparency and efficiency, such as tracking the origin of goods and materials.

• Healthcare: Protecting patient privacy and improving the security of healthcare data, such as medical records and genetic data.

• Voting: Establishing more secure and transparent voting systems to prevent fraud and manipulation.

As technology continues to evolve, Ethereum's applications will become even more widespread. It will be a major force in driving social progress and changing the world.

This article is intended to provide an in-depth understanding of Ethereum and is not investment advice.

Please remember that the cryptocurrency market is high-risk. Please conduct thorough research and consult with professionals before investing.

Thank you for reading!