Many of the services we use today have one thing in common: they are governed by a central body. When we deposit money into our bank, we trust our bank to keep our money safe. When we purchase insurance, we trust insurance companies to deliver on our agreed terms. Similarly, with our Gmail accounts, we trust Google to store our personal information securely and to maintain our privacy. The centralized model has been a business standard for hundreds of years, but history has proven that it has many flaws. Governments have a mixed track record of influencing third party services for information (Remember when the US government tried to woo over Silicon Valley?). Centralized business models offer convenience, but having a single point of failure makes them vulnerable to attacks as we repeatedly see in security breaches like the Yahoo! hack and, most recently, with Equifax.
Ethereum is an open-source, decentralized platform using blockchain technology that enables the development of decentralized applications and smart contracts. Decentralized applications have no middlemen and users interact all in a peer-to-peer fashion. Smart contracts are business logic coded into programs that are capable of automating, facilitating, executing and enforcing terms of agreements. Ethereum’s blockchain connects thousands of computers (known as nodes) around the world, forming a massive, many times mirrored “world computer.” Anyone can access it, upload programs, and execute programs on.
It Is More Than Just Money
Ethereum was designed to apply blockchain technology to applications beyond payments. It’s platform improves upon Bitcoin’s as a programmable general purpose blockchain that can do everything any other blockchain can and more. The genius of Ethereum lies with its design to support 1) a Turing-complete programming language and 2) Rich statefulness. In simpler terms, being “Turing-complete” means Ethereum can compute anything computable given enough resources. “Rich statefulness” refers to the system’s ability to remember things at a blockchain level. Altogether, these functions enable the implementation of smart contracts and DApps (Decentralized Applications).
Smart contracts are codified agreements that live on the blockchain and can move digital assets when triggered by certain events. These digital contracts can be instructed to carry out a conditional (“If this, then that”) transaction or function. If a predefined condition is met, then a predefined function is executed. Travel insurance, for example, can leverage smart contracts. If you contribute to this travel insurance smart contract, your ticket details, travel information, insurance payment and claims will be remembered on the blockchain. This smart contract will monitor information pertaining to your travels. If your flight is canceled or delayed, the contract can automatically update itself and execute your policy to issue you a refund or rebook you to another flight.
As mentioned above, Ethereum is a platform for building Decentralized Applications (or DApps). In general, DApps could refer to any applications that is built on top of a blockchain. Here is a quick primer on blockchain: a blockchain is a distributed ledger where every node running the network has an identical copy. Unrecorded transactions are grouped into blocks for miners to process. Miners are tasked with solving a complex mathematical puzzle to verify validity of transactions and to record them on the chain. Transactions are permanent once recorded on the blockchain.
Decentralized applications inherit the exciting features of blockchain technology:
Tamper-proof: Data is immutable once on the blockchain
Transparent: Fully auditable
Trustworthy: Verification by consensus (Proof-of-Work) *soon to be changed to Proof-of-Stake
Secure: Distributed network, cryptographic encryption
What is Ethereum Used for?
Ethereum developers have the freedom to build anything. Bitcoin as electronic cash payment is just one particular application of blockchain technology. Ethereum extends blockchain technology’s concept of cryptographic proof and distributed consensus to trustless agreements. Here are a few powerful disruptive use cases:
Unlocking the Potential of IoT (Internet of Things)
By 2020, there will be more than 20 billion connected devices across the globe. Growth of the IoT ecosystem comes with challenges such as identifying, connecting, and securing these devices. Current infrastructure will undoubtedly need to to maximize the potential of smart devices. Decentralized applications can enable and support an economy of machine-to-machine (M2M) communications.
The Ethereum-based startup, Chronicled, is developing an open-source registry and protocol enabling physical property to be securely linked to a blockchain. Chronicled is also developing microchips with unique identities that can write immutable, time-stamped transactions onto a blockchain for wide use cases such as product authentication, product tracking, proximity-based commerce, IoT interoperability, per-item insurance and military applications.
Another Ethereum based startup in the IoT space is Slock.it. This company is building an infrastructure called “Universal Sharing Network” that allows users to lease internet connected objects from others to use in a manner similar to Airbnb. Slock.it wants to enable users to find and rent any underused assets such as vacant housing, office space as well as machinery from your smartphone.
Copyright management has long been a difficult problem for the industries in culture and the arts – fine art, music, publishing, cinema to name a few. Artists rely on royalty payments and licensing fees to be reimbursed for their content but the internet has made it impossible to track illegal distribution of copyrighted materials. Ethereum can ensure true ownership of content always and smart contracts enable royalty payments to be paid in real time. Artists will be able to maximize their earnings by eliminating third-party institutions like to manage and distribute their content.
Ujo is building a “rights and payment infrastructure” that allows artists to manage their music licensing and distribution. Instead of registering copyrights and signing with publishers to enforce payment from somebody using an artist’s creation, the artist may simply utilize Ujo’s platform to accomplish the same things.
Identity Verification Systems
The way we prove our identities to others remains reliant on paper/plastic documents, physical contact and handwritten signatures. Our digital identities are fragmented and spread over the world as almost every service today requires us to register with them, from shopping online to visiting a doctor. These centralized companies become reckless with our data as their database grows and the incentives for sharing this data increase. Our lives are becoming increasingly digital, keeping our personal information secure yet shareable when needed is difficult. uPort is a DApp that aims to give control of your identity back and make it easy to prove who you are. It is an Ethereum-based self-sovereign identity system that allows people to fully control the flow of their personal information and authenticate themselves in various contexts.
Smart contracts enable the automation of insurance policies to facilitate terms. The idea that an insurance contract can pay out a policy without the slow, multi-step processes that require the actions of the policyholders and insurance agents is exciting and enticing. Dynamis is a smart contract for peer-to-peer insurance running on the Ethereum platform. It provides supplementary unemployment insurance by using the LinkedIn social network as a reputation system. The example I used earlier in this article about travel insurance is real. Etherisc is a decentralized flight delay insurance application which can issue policies and pay out valid claims completely autonomously.
The Future (Decentralized Autonomous Organizations)
Imagine a self-driving car that can take care of itself; it will have a digital currency budget to get gas, to pay for maintenance when its sensors detect issues, and it can be instructed from one location to another. It would take part in an Uber-like ride sharing network as essentially a machine working for itself. To make it less weird, it’ll probably be a good idea to give the car some personality like a friendly voice or a puppet in a chauffeur getup. The idea of machines becoming members of our economy is inching closer to reality. While this might sound like science fiction, Ethereum makes such Decentralized Autonomous Organizations (DAOs) entirely possible.
A DAO is a completely independent entity that is distributed, transparent, self-sustaining, and exclusively governed by the rules members program into it. At its most bare bone form, an organization can be simplified down to a set of contracts. Workers understand their role and are paid a salary that is laid out in their employment contract. Vendors and customers have business contracts that maintain supply chain relationships. Office space, machinery, intellectual properties have lease agreements. Theoretically, these contracts could be replaced via smart contracts. A DAO doesn’t just apply blockchain technology to an organization – the code itself is the entire company. Ethereum paves the way for a wave of next generation internet technologies that will improve the infrastructures we have today such as escrow services, government, p2p marketplaces, social networks, insurance, remittance services, identity systems, file storage, medical records, real estate, smart property and more.
Also published on Medium.