It’s helpful to have a basic understanding of what the blockchain is before diving in to Ethereum. If you are not familiar with the blockchain, first check out this post (2 minute read).
What is Ethereum?
The first implementation of the blockchain was created as part of the release of Bitcoin in 2008. Beyond all its innovations, the Bitcoin blockchain itself was made intentionally simple. You can send and receive Bitcoins, but Bitcoin’s blockchain is pretty much limited to sending currency transactions.
The major innovation of Ethereum is that you can write complex logic inside the blockchain itself and takes the Bitcoin blockchain to the next level. Ethereum is a more generic blockchain that allows developers to build apps– like games, social networks, financial and insurance services, etc., inside the blockchain. The Bitcoin blockchain was limited to currency transactions, but Ethereum takes the blockchain innovations and applies them more generally, while maintaining the decentralized nature of the network. Because the Ethereum blockchain is more complex, the apps in the ecosystem will be able to solve more general problems and get the most out of decentralized technology, and the ecosystem will be able to build on itself.
Why should I care?
Logic that is written inside the blockchain is called a smart contract. With smart contracts you can create and interact with electronic agreements with pre-determined terms with actions that run autonomously. Using smart contracts, the Ethereum platform allows people to solve problems in unique ways that reduce the reliance on human trust and central authorities. It has the potential to fundamentally alter the way we do business on the internet and think about employment and interact with the economy.
One great innovation already built on top of Ethereum is the DAO. The DAO is a decentralized autonomous organization and a kind of venture capital fund lead by the investors themselves. The DAO allows for individual entities to build their own cryptocurrency on top of Ethereum and use this cryptocurrency to issue shares. One outcome of this feature is a sort of IPO meets crowdfunding allowing startups to do an ICO or initial coin offering, and raise funds from individual investors in exchange for shares in the form of the newly minted cryptocurrency. This turns the IPO on its head and allows crowdfunding contributors to receive a token that has monetary value in exchange for their contribution. Compared this to many Kickstarters where you might get a free T-Shirt.
There are many other possibilities for new business models and solving new problems in Ethereum that we touch on in other posts, like the ability to be compensated for discovering an artist or a company (and funding them by buying their token, which may rise in value if they hit it big), to the emerging sharing economy, and cost saving measures that cut out the middle man.
It will allow complex interactions by any two parties anywhere in the world and reduce the reliance on expensive centralized infrastructure. This has the potential to be a game-changer not only in financial institutions in industrialized nations but also provide access to services that have previously been denied to those in poor, isolated countries. It could provide financial solutions for the 400 million people in India without a bank account.
Because of the nature of complex logic being written in the blockchain, the Ethereum ecosystem will build upon itself as developers continue to publish for dApps. The blockchain has the potential to fundamentally change society and finance and dApps on the Ethereum blockchain are uniquely poised to solve global problems in a scalable and cost-effective way.