The Elysian Fields of Ethereum

If the implications of blockchain’s potential come to fruition and create a juster, fairer society, the innovations baked into Ethereum will be thought of as the inflection point.

Blockchain’s potential to facilitate more than payments became more apparent with the creation in 2015 of the Ethereum blockchain. The Ethereum blockchain stores and records lines of computer code, including entire programs, which are visible to all.

This innovation enables the creation of smart contracts. Smart contracts are self-executing agreements in which a chain of actions follows when certain conditions are met. These are automatically enforced and tamper proof.

This math-based tamper-proof quality removes third-party and counterparty risks.

You must pay a fluctuating “gas” fee in ether to verify a transaction on the Ethereum network. That is the incentive like Bitcoin’s miner payments. Gas fees fluctuate based on the network traffic and capacity.

The Ethereum blockchain is designed to store lines of code. It and others like Cardano and Avalanche, issue and use their own tokens. Ethereum’s is called “ether.” Cardano’s is called “ada” and Avalanche is named “avax”.

Ada is a nod to the proto-computer scientist Ada Lovelace who created the first computer in the 1850s with Charles Babbage. She was the daughter of the famous poet Lord Byron.

Cardano is also a reference to a famous mathematician Gerolamo Cardano. These references point to the math-based nature of cryptocurrencies.

Think of money as having three eras through history as we have evolved. The first is commodity-based currencies like gold and silver. The second is government-based fiat currencies like the dollar, euro, and yen. Governments and guns back these fiat currencies. The third era we entered a decade ago is math-based currencies: cryptocurrencies.

Ethereum is the second generation of blockchain. Bitcoin was the first and is based on using the blockchain as a transaction ledger for digital property. Ethereum built on expanding the applications that could reside in a blockchain to include computer code in the form of smart contracts.

The Ethereum blockchain acts as a Turing Complete distributed computer. A Turing Complete computer is considered a machine programmed to carry out arithmetic or logical operations automatically.

Implementing a blockchain is beneficial because it functions comparable to a new type of computer. A physical computer stores and processes data using a set of instructions known as a program. These criteria are known as being “Turing Complete” after Alan Turing (of Enigma code cracking fame), who first defined the fundamental criteria of what a computer is. A Turing-complete language (also called a universal language) is one where you can compute anything that any other computational method can compute.

Smart contracts can execute any contractual condition or function. Furthermore, they are Turing-complete, meaning that they use programming languages with conditional statements and conditional branching. These programming languages have “if, then, else” and can replicate any computer logic.

Blockchains like Ethereum and Bitcoin run as layers on top of the internet.

The Ethereum blockchain, like a virtual computer that runs on top of a network of actual computers, provides a mechanism to store and execute data. As a result, the computer will continue to run as designed and intended.

Every traditional computer is controlled by a person or organization that can change their mind. These proprietary chokepoints are sometimes evident at the physical, hardware level: Apple, in many ways, retains broad control over the devices it sells through its ability to push software updates like how it neutered Facebook’s trackers. More importantly, this applies across all web pages and applications. For example, each time someone logs on to Facebook, they rely on the servers the company runs to host its website. By controlling the hardware, companies can change the software as they please.

On a blockchain, though, this relationship is inverted: the software governs the hardware and can make guarantees. Computers controlled by blockchain technology are, in Mr. Dixon’s words, “computers that can make commitments .” A central controlling agent can’t tamper or change the game’s rules. This arrangement removes or at least drastically reduces counterparty risk.

If you have ever dealt with making a claim to an insurance company, you know what counterparty risk is.

Ethereum’s Turing complete blockchain concept has spurred the development of innovative applications, including decentralized finance (DeFi), decentralized autonomous organizations (DAOs), nonfungible tokens (NFTs), and a slew of layer 2 and third-generation blockchains.

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