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July 11, 2018

What is Ethereum (Easy explanation)

The Bitcoin fever has aroused interest of many investors and the word Ethereum ends up appearing at some moment in the eyes of those who are searching for information. So let us better understand what Ethereum is.

What is Ethereum

Ethereum is an open, public platform that uses the power of blockchain to process smart contracts and, like Bitcoin, is one of the pioneers in working with the distributed ledger concept.

The platform allows the development of decentralized applications, they do not depend on a central system to interact with each other.

The Ethereum creator

Vitalik - Criador do Ethereum

Vitalik Buterin was born in Russia where he lived until he was 6 years old. His parents immigrated to Canada in search of better job opportunities.

While studying at a school in Canada, Vitalik was placed in a special group of gifted and to study mathematics, programming, and economics.

Vitalkin learned about Bitcoin from his father who is a computer scientist and became very interested in the concept. He started college but eventually quit in 2014 to devote full time to the idea of creating the Ethereum platform.

The opportunity to devote himself to the project came when he won a $ 100,000 scholarship while introducing the Ethereum proposal.

The Origins of Ethereum

It all starts in 2013 when Vitalik introduces the document (white paper) with the detailed description of the Ethereum project. At that time this young visionary already had experience writing about Bitcoin in the magazine Bitcoin Magazine.

The official development of Ethereum began in 2014 through the Swiss company Ethereum Switzerland GmbH with the work of a team of developers Vitalik Buterin, Mihai Alisie, Anthony Di Iorio and Charles Hoskinson.

A non-profit foundation called Ethereum Foundation was also created.

The Ether cryptocurrency

It is important to understand that there is the platform called Ethereum and the Ether cryptocurrency that is generated inside the platform and used to compensate the miners.

It is common to find people in the market, news and social media referring to the currency as Ethereum instead of Ether, but it is understandable that there could be such confusion because the symbol for the Ether currency  is the ETH.

What is gas on the Ethereum platform?

Another important term used is the "gas" that is the unit of measure of the computational expense used in the transactions within the Ethereum platform.

The concept is actually quite simple. Each type of operation performed such as addition, subtraction, multiplication, division, and more complex operations has a cost inside the platform and this cost is measured in "gas".

Obviously simpler operations such as addition have lower cost, while more complex operations such as SHA3BASE that generates hash have a higher cost.

See the table below for an example of the total cost of an operation

Operation

Cost in gas

Addition 9 ( + )

3

Greater-than( > )

3

SHA3BASE

30

Addressing

2

TOTAL

38

For software development with the Ethereum platform it is possible to limit the amount of "gas" that should be used, thus avoiding contract loops.

The limit can be used for each block within the blockchain, this would be equivalent to the maximum limit of 1MB for Bitcoin's transaction processing.

Up to 4.2 million gas can be used per block, if the block or contract gas limit is exceeded, the progress of the gas is reversed (performs the rollback).

Examples of how to use Ethereum

As already explained, the platform allows the development of software that can run with decentralized processing, using the smart contracts that are intelligent contracts capable of performing incredible tasks.

With practical examples it is easier to understand the concepts, let's go to them:

1. Solution for transport system

Example without using smart contract

OK, I'll use an example of a person who lives in São Paulo and needs to take a train daily to go to work. I'm going to call this person, Ricardo.

Ricardo leaves his house at 5:00 am, get into a train at station "A" at 5:30 a.m., and arrives at the station "B" at 6:00 a.m., he walks a bit and arrives at his job  at 6:30 a.m.

man waiting for train

There is a tolerance of 10 minutes for being late, but if Ricardo arrives 15 minutes late he is not allowed to work and miss the day.

On Monday, Ricardo arrives at station "A", buys his ticket and waits for the train that takes time to arrive and ends up being delayed for 15 minutes. He desperately run from station "B" towards the building where he works but fails to arrive on time and misses the day.

The transport company doesn't care about Ricardo's problem, and he still keeps using the same service because he depend on it.

Example using smart contract

Now let's see how using the Ethereum platform and the Smart Contract could help Ricardo to solve his public transportation problem.

Imagine another person in our story, his name is Julius and has a software development company and is seriously involved with Ethereum.

Blockchain

Julio creates a software that uses smart contract to automate the process of selling tickets on the transportation company. Now Ricardo can use his cell phone and through an App he can buy his ticket and use the same service.

The company now has greater efficiency in the sales process as it does not depend on a huge staff, it can also have statistics such as the number of people using the service and getting in and out on each platform.

The system now records that Ricardo enters the platform "A" at 5:30 a.m. and leaves the platform "B" at 6:00 a.m. and also records the delayed arrival.

woman look at the mobile

With the smart contract system, there is an automatic discount on the price charged for the ticket, so Ricardo can pay less because of such delay.

With the implementation of smart contract, the system is now automated, more economical and fairer. The company is also concerned with the delays so as not to lose revenue with millions of people who are now paying less.

2. Solution for monitoring websites

Example without using smart contract

A website receives a lot of visits per day and so the creator has decided to offer spaces where people can put advertising banners.

There are ways to track the number of page views and clicks on the banner, but none are good enough to actually manage the entire process and charge the customer for only the clicks or number of daily views.

Example with the use of smart contract

With a smart contract it is possible to write the code and the Ethereum platform takes care of the rest, the client can pay only when someone actually performs a action related to the banner on the site.

The idea of tracking clicks on the banner can be expanded to other possibilities such as using smart contract to monitor video views for example.

The development of this application could be done using the Browser Ethereum Mist for example, a very common tool among the developers.

Ethereum Browser - Mist

How ethereum miners are paid

The transactions of the smart contracts are processed in the blockchain of the Ethereum and the miners are paid for this job.  In practice when an application for smart contract use is created, miners payment rates must be set.

The more speed in processing is required, the higher the rate being paid to the miners in the blockchain. This makes the contract value negotiable.

Below a image with an example  of faster processing configuration

Smart Contract

So the smart contract can run without dependent on company's server. Computers on the Ethereum platform network do the job more efficiently and redundantly, and at a fairer price.

Ethereum Mining (how to mine Ether)

And suddenly you're interested in Ethereum's mining and you want to know how that works and if you can really earn some money by becoming a miner.

The mining concept of Ethereum is the same as that of Bitcoin.

Ethereum mining concept (Ether)

As you may know, the currency of the Ethereum platform is Ether (ETH) and you may have an accumulation of that currency through processing tasks for smart contracts. This tasks are performed by devices that are part of the network.

Remember Ricardo's example that he buys a ticket to take the train using a mobile application? The contract transaction processing can be performed by a computer that is connected to the Ethereum platform network.

There are more technical details in the mining process, but speaking in a simpler way, you would be earning a reward in ETH digital currency to perform the computational work of the transportation company contract.

This job is called mining and you don't choose if you want to process a specific contract, you simply join the network where there are other computers that distributes the tasks among the miners.

How to mine Ethereum (Ether)

To mine cryptocoins you need powerful computers capable of performing the processing task required by the platform on which they will operate.

Basically with a computer and software it is possible to join the group of miners from a platform for specific currencies like Ether or Bitcoin.

There are people who started mining crypto coins with their own laptops or desktops, others bought or set up servers with more processing power and got into the "mining business." But unfortunately this is a thing of the past.

When a cryptocurrency begins to gain value and become popular, many people enter the mining business and the system automatically increases the level of difficulty to mine, so it is necessary to have even more powerful computers.

Level of difficulty

The difficulty increases to the point that you can end up spending more money with electricity that is greater than the return of the coins you mined.

Each month the difficulty level (known as difficulty) increases a lot and now in 2018 several people have given up mining.

The hardware to mine ethereum (ether)

On a traditional computer such as your Desktop or laptop the main processor (CPU) can be used for crypto coin mining, but in practice this is not as efficient as using the computer's graphics processor (GPU).

It is common to see many people putting together the RIGs that are computers with a motherboard with basic processor and several video cards (GPUs) that are only used to carry out the work of cryptocurrency mining.

Seeing that there was a race for cryptocurrency mining, some companies began to manufacture specific hardware with special processors called ASICs. This type of hardware is currently the best option for mining.

Mining Ethereum on the cloud

A simpler option is to make a mining contract with a company that will make available the processing power of the servers to do the mining.

You simply buy processing units for the cryptocurrency you want to mine, like ETH for example and the company does all the work for you.

Obviously the profit will come after a certain time if the currency you are mining get value enough to cover the amount invested.

An example of a mining company is Genesis, which sells contracts to mine coins such as Bitcoin and Ethereum (ether).

Conclusion

Ethereum is a very promising platform, the concept is brilliant and Vitalik is a genius for having developed something that has the potential to revolutionize the way services are offered, charged, executed and controlled.

I believe that with sufficient time and support this platform will become a universal standard that companies will adopt around the world, if this does not happen with Ethereum, it will certainly happen with some platform that is based on the same principles and logic of smart contracts (smart contracts).

As for the currency of the platform, it is a mystery because the volatility of the quotation, the speculations and economic interests of the world makes it impossible to predict what can actually happen. But I bet it's a good investment option for the long term.

Books and stuff about Bitcoin

There are books of experts in the area of cryptocurrency. If you want to understand more about bitcoin it is worth checking the links below:

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