Andru Istomin - Ethereum For Dummies

Ethereum For Dummies:

Everything You Need to Know About Ethereum, How to Mine Ethereum, How to Exchange Ethereum and How to Buy ETH

Andrus Istomin

Copyright Andrus Istomin, 2017

All rights reserved.

The moral right of the author has been asserted

No part of this book may be reproduced,

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Introduction

D igital money started a revolutionary transaction and financial system. You have questions and are curious about Ethereum. This book will give you all the answers you seek. Experts believe that in near future, Ethereum will replace Bitcoin because of its development environment and vastly superior technology. We will not promise that you will become an Ethereum expert overnight by reading this book, but we can guarantee you will have sound knowledge on Ethereum once you finish reading the book.

Chapter 1: What is Ethereum?

Y ou have probably heard the word Ethereum during the last couple of years. Ethereum is the rising star in the world of digital currencies, also called cryptocurrencies. A person by the name Satoshi Nakamoto created Bitcoin in 2009. Since then, various other cryptocurrencies have been introduced in the digital world. Ethereum has grown in popularity and it may even boost the price of graphics cards because it is an important tool to mine. To understand Ethereum, you have to understand what cryptocurrency is.

What is Cryptocurrency?

Ethereum is commonly known as a cryptocurrency, but it is more than that. It is a digital platform that allows users to draw up contracts and conduct transactions by using a currency called ether. You need to know what a cryptocurrency is as well as the concept of blockchain to know the difference between Bitcoin and Ethereum.

A cryptocurrency is a type of digital currency created through complex encryption. Like a banknote or coin, a cryptocurrency has no physical form and it is not issued by the governmental authority or a central bank. Units of cryptocurrency are created and managed through a technology called blockchain. Cryptocurrency exists as data on the internet.

A blockchain is a digital public ledger and builds among a group of computers. Every transaction is recorded in blocks. The blocks must be validated by a certain number of computers on the blockchain network before they get into the ledger. Everyone in the network can access the ledger. Any change is visible to everyone and any one can take a look at a complete history of every transaction that has ever occurred.

People who validate the transactions are called miners. Miners solve complex computational problems to validate each transaction. Mining cryptocurrency is an intense activity and involves a lot of planning and powerful hardware. Miners are given rewards in exchange of validating blocks. The reward is usually cryptocurrency. For example, Ethereum miners receive either and Bitcoin miners receive Bitcoin.

A digital signature is created to authenticate every transaction of cryptocurrency, so if you send someone an amount of cryptocurrency, the same thing happens. Your public key is the address that receives or sends the currencies. When you send funds, you use your private key, when someone sends you funds; they send it to your public key. Your private keys are the password that gives you access to the funds. With every transaction, your private key creates a digital signature and miners use this signature to verify the transaction. To ensure the transaction can be repeated, a new signature will be generated for every individual transaction.

Why is this important?

Previously, digital transactions needed a third party such a bank to validate or authorize the transaction. The reason is because digital currencies are usually a file, which can be copied and distributed to several individuals. To authorize these transactions, the third party takes a fee. However, cryptocurrencies are all about eliminating the need of authorities and financial institutions. And they still need to prevent the problem of copied digital currencies and double spending.

Blockchains eliminate the need for a third party by allowing peer-to-peer transactions. This means if any data in the block were changed, other computers on the cryptocurrency network would need to review and revalidate it, which prevents tampering. No authority or bank can seize or freeze cryptocurrencies because no single authority or computer holds them and it can only be accessed by the user with the private key. This is the reason why governments cannot seize or freeze cryptocurrency accounts.

There is a difference between Bitcoin and Ethereum. Bitcoin is designed to function as a means of payment and strictly a digital currency. On the other hand, Ethereum takes a grander approach. Ethereum acts a platform which people can use other tokens to create and run programs and smart contracts.

Ethereum focus on smart contracts

A smart contract is a written code that can facilitate the exchange of content, property, money, shares, and anything of value. A code that creators upload to the blockchain. When specific conditions are met, a smart contract becomes like a self-operating computer program when running on the blockchain. Every time one of these contracts is implemented, every node on the computer runs it and includes to the blockchain or the public ledger. This makes it tamper-proof in theory. Smart contracts run on the blockchain, they run exactly as they are supposed to without any possibility of fraud, downtime, censorship, or third party interference.

Every computer or user on the Ethereum network can see every transaction. For example, you want to rent a car from a service, then a conditional smart contract is generated. Once you send the agreed amount of funds, the service will send you a digital key to unlock the car. The whole process is run on blockchain and every user on the network can see the transaction. Similarly, everyone also sees the rental service sending you the key to unlock the car. The blockchain assures that if the service doesnt send you the key, the token is canceled, so you dont have to pay. There is no way to tamper with the process because every computer on the network is keeping track of this transaction through the digital ledger. If someone tries to hack it or alter the details of the network, then everyone on the network will notice it.