Before you'll understand ethereum, it helps to first understand the web .
Today, our personal data, passwords and financial information are all largely stored on other people’s computers – in clouds and servers owned by companies like Amazon, Facebook or Google. Even this CoinDesk article is stored on a server controlled by a company that charges to hold this data should it be called upon.
This setup features a number of conveniences, as these companies deploy teams of specialists to assist store and secure this data, and take away the prices that accompany hosting and uptime.
But with this convenience, there is also vulnerability. As we’ve learned, a hacker or a government can gain unwelcome access to your files without your knowledge, by influencing or attacking a third-party service – meaning they will steal, leak or change important information.
Using ethereum, the app doesn’t require one entity to store and control its data. To accomplish this, ethereum borrows heavily from bitcoin’s protocol and its blockchain design, but tweaks it to support applications beyond money.
Ethereum aims to abstract away bitcoin’s design, however, so that developers can create applications or agreements that have additional steps, new rules of ownership, alternative transaction formats or different ways to transfer state.
The goal of ethereum’s ‘Turing-complete’ programming language is to allow developers to write more programs in which blockchain transactions could govern and automate specific outcomes.
This flexibility is perhaps ethereum’s primary innovation, as explained in the guide “How Ethereum Smart Contracts Work“.
The ethereum blockchain
The structure of the ethereum blockchain is very similar to bitcoin’s, in that it is a shared record of the entire transaction history. Every node on the network stores a copy of this history.
The big difference with ethereum is that its nodes store the most recent state of each smart contract, in addition to all of the ether transactions. (This is much more complicated than described, but the text below should help you get your feet wet.)
For each ethereum application, the network needs to keep track of the ‘state’, or the current information of all of these applications, including each user’s balance, all the smart contract code and where it’s all stored.
Bitcoin uses unspent transaction outputs to track who has how much bitcoin.
While it sounds more complex, the idea is fairly simple. Every time a bitcoin transaction is made, the network ‘breaks’ the total amount as if it was paper money, issuing back bitcoins in a way that makes the data behave similarly to physical coins or change.
To make future transactions, the bitcoin network must add up all your pieces of change, which are classed as either ‘spent’ or ‘unspent’.
Ethereum, on the other hand, uses accounts.
Like bank account funds, ether tokens appear in a wallet, and can be ported (so to speak) to another account. Funds are always somewhere, yet don’t have what you might call a continued relationship.
Brian Behlendorf, creator of the Apache Web Server, has gone thus far on label this centralized design the “original sin” of the web . Some like Behlendorf argue the web was always meant to be decentralized, and a splintered movement has sprung up around using new tools, including blockchain technology, to assist achieve this goal.
Ethereum is one among the most recent technologies to hitch this movement.
While bitcoin aims to disrupt PayPal and online banking, ethereum has the goal of employing a blockchain to exchange internet third parties — people who store data, transfer mortgages and keep track of complex financial instruments.
The ‘World Computer’
In short, ethereum wants to be a ‘World Computer’ that might decentralize – and a few would argue, democratize – the prevailing client-server model.
With ethereum, servers and clouds are replaced by thousands of so-called “nodes” travel by volunteers from across the world (thus forming a “world computer”).
The vision is that ethereum would enable this same functionality to people anywhere round the world, enabling them to compete to supply services on top of this infrastructure.
Scrolling through a typical app store, for instance , you’ll see a spread of colourful squares representing everything from banking to fitness to messaging apps. These apps believe the corporate (or another third-party service) to store your mastercard information, purchasing history and other personal data – somewhere, generally in servers controlled by third-parties.
Your choice of apps is in fact also governed by third parties, as Apple and Google maintain and curate (or in some cases, censor) the precise apps you’re ready to download.
Take the instance of a web document service like Evernote or Google Docs.
Ethereum, if all goes consistent with plan, would return control of the info in these sorts of services to its owner and therefore the creative rights to its author.
The idea is that one entity will not have control over your notes which nobody could suddenly ban the app itself, temporarily taking all of your notebooks offline. Only the user can make changes, not the other entity.
In theory, it combines the control that folks had over their information within the past with the easy-to-access information that we’re wont to within the digital age. Each time you save edits, or add or delete notes, every node on the network makes the change.
It’s worth noting that the idea has been met with skepticism.
Although the apps appear to be possible, it’s unclear which blockchain applications will actually prove useful, secure, or scalable, and if they're going to ever be as convenient to use as the apps we use today.