Crypto Currencies

Ether explained - Chapter 1: What is Ethereum? What is Ether?

22/07/2019 | 3 min read

Vontobel now offers investors access to the crypto currency «Ether». But what is Ether? And why has the second best-known crypto currency gained so much popularity in such a short time? In eight chapters, we want to give you high-quality knowledge about the exciting topic of «Ether».

Vontobel now offers investors access to the crypto currency «Ether». But what is Ether? And why has the second best-known crypto currency gained so much popularity in such a short time? In eight chapters, we want to give you high-quality knowledge about the exciting topic of «Ether».

When we read about «Ethereum», we typically associate it with a crypto currency - like Bitcoin. This definition is not entirely wrong, but Ethereum is much more than a simple crypto currency. It's actually an open source platform based on blockchain technology that allows developers to build and implement distributed applications using smart contracts. Within the Ethereum platform, there is the crypto currency «Ether», which is used to run applications based on the Ethereum blockchain.

Ethereum's goal is to fundamentally change the way the Internet works: A collaboration of computer systems without any central third parties. Ethereum allows software applications to run on a network with many private computers (also known as a decentralized system).


What is a decentralized system?

Personal and financial data, but also passwords, are stored on a server or on server farms («cloud») of large corporations such as Facebook, Google and Amazon. This server is basically just a centralized computer with a database. But the downside of centralization is vulnerability: if this computer is damaged, all data and its website disappear. In addition, there are countless examples of unauthorized access to data. With blockchain technology, the same database is distributed across a large number of computers so that all information in the database is public. No one can really shut down the database as long as a broad network of computers contributes to it.

In summary, this means that centralized mega computers and cloud servers of enterprises will be replaced by a large, distributed network of many small computers operated by volunteers from around the world.

What is a blockchain?

At first glance, a blockchain is nothing more than a digital database of accounts or a database in which any kind of information can be stored, processed, shared and organized. A blockchain therefore provides an opportunity for many people to agree on a record even though they do not know or trust each other. By using cryptography, mathematics and accurate rules, everyone can agree on a list of records («blocks») that have happened. In the Bitcoin example, all parties can agree on a ledger of all payments made, and they can check how much money everyone owns at a particular date. This concept is also known as «distributed ledger technology». This type of money is called «crypto currency» or «digital currency» because computer, just like in online banking, track the money.

Ethereum uses the same concept, but instead of just tracking payments, it keeps track of computer programs. These computer programs can still be used to track payment flows, but they can also be used for much more such as loans and banking, legal, compliance, auctions, or even deciding who won an election! 

So, what is Ethereum?

Ethereum wants to reinvent the way the Internet works. Ethereum's vision is to create a «world computer» - a huge network of many private computers running various Internet applications without third parties. Removing central third parties has many advantages. Since Ethereum is a computer network operated by the user community, this means that personal data is no longer stored on central servers of large corporations and cannot be hacked, sold or destroyed - it is safer!

Furthermore, decentralization means that no user or group of users can be excluded from using applications, so that people from all countries can use them without permission. Even the Ethereum applications themselves do not need permission to exist, which means they cannot be removed or censored from an App Store.

Ethereum can be used for anything you can write a computer program for. When there is a situation where a programmer wants to keep an eye on something, and it would be a problem if someone could hack or manipulate the results, Ethereum can help! The results will look like normal websites or mobile apps, but they cannot be manipulated. As long as they are properly created, not even the person who created the app will have the power to break the rules he or she agreed to.

Ether - «Programmable Money»

To call ether a digital currency can be a little misleading - because it works more like a «digital good». Just as you need gasoline to refuel your vehicle, you need ether to run applications on the Ethereum blockchain. Ether drives the so-called «smart contracts», keeps DApps (decentralized apps) running, generates tokens during ICOs (initial coin offerings), facilitates transactions on the Ethereum blockchain, and makes payments. This is why Ether is also referred to as «programmable money».

Conclusion: From the Internet of Information to the Internet of Value

The Ethereum platform is changing the way we use the Internet. Decentralized applications are causing a major shift from an «Internet of information», where we can directly view, exchange and communicate information, to an «Internet of value», where people can directly exchange values without any third parties.


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