Ethereum ETH

Market Cap $ 15.512 Bn (#2)
24h Volume $ 4.638 Bn
Chg. 24h: -0.15%
Algo. score 3.9/5  (#55)
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Ethereum project purpose and description

Ethereum clarity of purpose

Ethereum purpose and aspects

Ethereum offers a decentralized platform to build dApps, run smart contracts and generally act as a supercomputer. Its platform aims to be censorship-resistant and open for all

Ethereum additional differentiation against competition

Ethereum is currently the biggest dApps and Smart contracts platform

What is Ethereum?

Ethereum is a one of a kind decentralized platform which operates using what is called SMART CONTRACTS. Smart contracts are software that is pre-programmed to run automatically without issues as relating to censorship, interference, fraud, or downtime.

These smart contracts operate on a blockchain technology built according to a well defined specification. The blockchain is a compelling and widely known technology with the ability to transfer value from one destination to the other, yet, representing the possession of a property.

Ethereum gives developers the room to create their market, store information, validate and initiate payment, transfer funds and numerous other options yet to be invented without the presence of a third-party.

Ethereum was brought to live through one ether presale around August 2014 by her fan base around the world. The Ethereum Foundation, a non-profit organization in Switzerland, developed the platform alongside intellectuals around the globe with Vitalik Buterin, a 19-year-old developer leading the team.

Ethereum’s intent was to create a better means through which applications could be developed without the interference of a third party and to provide a distinct pair of tradeoffs, useful for a wide variety of decentralized apps. Thus, emphasizing circumstances where security for rarely used and small applications, fast timing, and the capability of various applications to interact very efficiently, are crucial.


What are the problems that Ethereum solves?

As good and revolutionary as the bitcoin platform is, Vitalik believes that the platform implements the blockchain technology wrongly which has limited the operations of the applications built on the blockchain.

The bitcoin platform was designed as a peer-to-peer digital platform, availing prospecting developers just two options:

  • To either expand the functions laid down in the existing or current application which would definitely consume a lot of time and could also be a very rigid and rigorous process
  • Or these developers would have to design a new platform or application which asides from consuming a lot of time, can be very expensive

This implies that platforms like the mastercoins, bitshares, colored coins and others that were developed on the bitcoin technology, have a very narrow focus even though they aimed towards providing an improved variety of functionality for its users.

Although the bitcoin platform is able and equipped to carry out its promises, it is not a reliable and adequate foundation for which another application should be built upon. This is so because developers are usually limited to just three approaches to build their applications. These approaches are:

  • Developing a new blockchain
  • Scripting
  • Developing a meta-protocol

If the developer chooses to develop a new blockchain, there would be a lot of freedom. However, it is time-consuming and requires a lot of bootstrapping effort. Scripting is easy to standardize and implement, but it places a lot of limitation on what it can do. Developing a meta-protocol is good too and very easy but it comes with a lot of faults and issues in scalability.

In regards to these, Ethereum’s intent in solving this is to improve and merge the three approaches offered by the bitcoin platform, granting these developers the freedom to develop decentralized applications based on consensus.


How does Ethereum solve these problems?

As easy as the claim to provide developers with the opportunity to develop whatsoever application they desire sounds, there is a need to know how this was achieved.

According to Buterin Vitalik, there are five elements employed by the Ethereum platform to solve the problem it aimed to improve. These elements need to be understood to a certain degree, and they include:


  • The Smart Contract


These are a set of codes that oversees every trade of value that occurs on the platform ranging from shares and properties to money and information between two or more parties. These contracts operate on the Ethereum blockchain the way it was programmed to, acting as autonomous agents which executes itself whenever a specific condition is met.

For example, the bitcoin platform is programmed to handle simple demands like the sending of a specified amount of bitcoin from user A to user B. Meanwhile, on the Ethereum platform, a contract that stipulates that ‘send a specified amount of ether to user A if he comes online by 7 pm’, can be created. Smart contract executes itself when it is designated without the help of a third party. More so, it could handle more complicated actions.


  • Ethereum Virtual Machine


The ability of the smart contract to execute and run is made possible by the Ethereum Virtual Machine and the ether. A Turing complete scripting language which handles computational problems is also included in the Ethereum Virtual Machine.

With the help of the Ethereum Virtual Machine, Ethereum is made into a programmable blockchain that helps keep all the contracts working and in synchronization with the network. The ability of the Ethereum platform to handle as many applications as possible is solely hinged on the Ethereum Virtual Machine.


  • Solidity


Solidity is the programming language of the Ethereum platform just like JavaScript is a programming language. through solidity, developers can write their contracts on the platform, thus enhancing the Ethereum Virtual Machine


  • Ether


As bitcoin is to the bitcoin platform, so is ether to the Ethereum platform. Without the ether, no operation can be done on the Ethereum network. Through the ether, developers are enforced to provide good and relevant applications, with the network running smoothly.

Asides, ether is also used for trading. Developers pay transaction fees for both storage and services. Ether is that which fuels the Ethereum platform. Hence, any developer that wants to create a decentralized application or user that want to make use of the smart contract would have to make use of the ether.


  • Proof of Work


Proof of work is a protocol that determines a fake from a real transaction. Since the Ethereum platform is a decentralized system, the way through which transactions are validated and rejected to avoid attacks such as spamming, is through the proof of work.

Also called mining, proof of work helps in the facilitating transactions, dispelling bad guys from fraudulent practices on the network. The proof of work as the name suggests requires that all miners provide a proof showing that a particular work had been carried out.

These five elements make it very possible for developers to develop their objective and arbitrary rules of ownership, formats for the transaction and also the functions of state transition.

What makes Ethereum better than its competitors?

Ethereum’s primary competitor is Bitcoin, and there are different reasons why Ethereum has the upper hand over the Bitcoin platform. The primary reason Ethereum is better than the bitcoin platform is that the Ethereum aims to broaden the use of the blockchain technology using the smart contract.

The bitcoin is a peer to peer platform and does not allow for a complex task. All it does is to send and receive. Meanwhile, Ethereum, through the smart contract allows for way more complex tasks.

Also, the bitcoin offers just a single application of the blockchain technology of which developers could only tweak to the extent to which the technology allowed. Thus, limiting the possibilities of the emerging application.

Ethereum is better than the bitcoin in this aspect as it provides what is referred to as an “ultimate abstract foundational layer” which is a blockchain endowed with a Turing-complete programming language which allows developers to create their contracts and applications, setting up their own rules. As a result, most cryptocurrencies out there are built on the Ethereum platform because of its inherent ability to accommodate.


How can Ethereum be categorized?

Ethereum can be categorized into

  • Digital currency: the Ethereum platform has its digital currency called the ether used for operating on the platform. Without this currency, there can be no transaction
  • Smart contract: the smart contract is the reason the Ethereum platform is significant and distinct. All the functions it provides is hinged on the smart contract
  • Build Dapps: the platform allows developers to build their decentralized applications to function based on the discretion of the developer.
  • Platform: Ethereum is a platform on which other platforms or applications can be built upon
  • Token Issuance: Ethereum can also be categorized as token issuance for other platforms.


What is Ethereum’s vision on security?

Ethereum vision on security is solely hinged on their launch of the Ethereum Casper Proof-of-stake protocol. This protocol has an inbuilt process through which any element or validator that seems malicious would be detected and punished. In the Casper proof of stake, the validators (synonymous to miners in proof of work) would stake part of their ether then the validating of the blocks begin through placing of bets.

Once the block is attached, these validators will be rewarded based on how much they bet. If during this, a participant acts otherwise, trying to pull a nothing at stake, such would be punished by having their stake slashed. This works best because there is something to lose if caught in the act. The Casper POS seeks to ensure security to the peak as even participants who intentionally or unintentionally go offline would be punished too, therefore, reducing laziness or carelessness.

The issue of security is going to be the biggest achievement of the Casper POS as, if a validator stores up his own money to stake on the network, it implies that he has to do everything possible to protect his investment, which includes playing by the rule since the consequences would be grave. You definitely cannot participate in the validating process if you have not invested or staked.

The vision of Ethereum on security is thus to eradicate whatsoever source of maliciousness capable of ruining the network. The question to ask is no longer IF it would be implemented but rather WHEN it would be implemented.


Examples of Ethereum use cases/applications

There are three types of Ethereum use cases/applications, and they include

  • Financial applications: this feature provides users a better way of entering and managing contracts using the money. It includes hedging contracts, sub-currencies, wills, wallets, contracts as relating to employment, etc.
  • Semi-financial application: this feature avails both monetary and non-monetary involvement
  • Non- financial application: this has no financial involvement at all. An example is a use of voting and election processes.

Aside from the above classification, Ethereum use cases are numerous and can be seen individually. Some of them include:

  • Storage system: using the smart contract, the inefficiencies encountered by most online storage platforms like the dropbox, google drive, etc. can be improved. There could be cases of these online storage system interfering with user’s data for investigation purposes for instance. The Ethereum platform provides full confidentiality of users’ data making it a decentralized online storage system.
  • Financial Market: this is the most popular use case on the Ethereum network. A lot of fraudulent practices ranging from deception to manipulation, however, with the use of the smart contract, these activities can be reduced to the barest minimum
  • Reputation and Identity System: using the Ethereum platform, one can create a contract for registering a name with a value that would remain forever. Through the smart contract problems like monopolization of data, identity theft and the like can be well managed
  • Wallets for saving: the Ethereum platform allows users to keep their money securely. If user A wants to save she can decide to open a contract with user B and program the contract in such a way that a certain amount is deducted from user A account into user B account automatically. Anytime there is a need for withdrawal; user A would contact User B. If user B decides to go, rogue, user A can deny user B access to the funds
  • Crop Insurance: through the creation of a contract one can use a weather report instead of a price index.
  • Escrow Replacement: rather than have a third party called an escrow, a contract can be opened as a substitute. However, the contract must be very detailed and equipped with the normal conditions so as not to fall victim to an error.


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