You can’t turn on the news today and not hear about cryptocurrency or better yet Bitcoin the most popular and most lucrative currency on the market today. While bitcoin is all the buzz most people don’t have the slightest clue how it works or why this technology is so amazing we just know it’s trading at $14,000 and has grown over 1,000% in 2017. In the middle of this buzz you might have head of Ethereum another cryptocurrency that has skyrocketed in the last few years with a market cap hitting $40 billion.
So what makes Ethereum different then Bitcoin? Well both leverage blockchain technology which leverages public and private key encryption, a decentralized ledger, a consensus algorithm and miners.
Miners, for those who don’t know, are computers that interface with the blockchain protocol and validate transactions on the ledger. For instance if I send my friend Ben 2 bitcoin these miners will validate the transaction and store a copy of the ledger on their local machine. Today the Ethereum network is made up of over 25,000 nodes.
This all sounds great, but so what? Well Ethereum introduced the idea of smart contracts and along with smart contracts came the idea of Dapps. Dapp simply stands for decentralized application, basically an application which runs on all nodes of a decentralized peer-to-peer network.
Let me explain this in a little more detail. Today, when a developer wants to deploy an application they need to fire up an instance on Amazon AWS or create a VM with Microsoft Azure. This is great, we don’t have to buy servers anymore or manage datacenters, we simply trust Amazon or Microsoft to do it for us. The problem with this is that even with Amazon AWS or Microsoft Azure someone still has to setup auto-scaling groups, or manage Kubernetes, handle load balancing, and more.. The overhead associated with IaaS provides like Azure or AWS has significantly reduced the overhead of running a traditional datacenter not only in man power but in physical assets as well, but many companies still have to run a large cloud team and/or DevOps team which cost millions of dollars in annual salaries plus the cost of the cloud services themselves.
Following? I hope so because Dapps make all these problems go away and will probably be significantly less expensive to run vs cloud platforms when this technology matures. By leveraging smart contracts (which means writing Dapps) software developers no longer need to manage their own set of infrastructure, they can simply write code and publish that code to the Ethereum blockchain. For now you can think of a Dapp as an IF THIS THEN THAT statement which is the foundation of any simple program, but you get the benefit of it being stored on all nodes on the blockchain and all operations of that IF THIS THEN THAT statement being verified by the blockchain and the miner nodes. This removes the need for a software developer to pay Amazon (in the short term, many large enterprises will want to build their own private blockchain peer-to-peer networks for some Dapps and push other Dapps to the public blockchain of Ethereum as well) or other cloud providers for resources!
Now, miners do get paid to run a node on this network for spending valuable CPU time processing changes to the blockchain and executing smart contracts, this payment is known as gas. Miners can set their own gas prices, and can even refuse to process transactions which don’t meet minimum gas requirements. This money then doesn’t go to a single entity like Amazon or Microsoft but is spread across a peer-to-peer network of users (until Microsoft or Amazon create their own blockchain service).
This is by no means a definitive guide to Ethereum or even smart contracts (hopefully I will be publishing more technical blog posts on those later), but I wanted to open people’s minds up to the idea that Ethereum and blockchains that leverage smart contracts are more then just cool new cryptocurrencies, the ideas introduced by Ethereum with smart contracts and Dapps is truly the next generation of cloud computing. Already we are seeing blockchain technology being used for:
- Supply Chain Management
- Health Care Record Management
- Elections & Voting Systems
- Birth & Death Certificates
- Decentralized Social Networks
- Video Games
- Gaming and Gambling
- IoT (internet of things)
- Land Registry & Title Management
- Much more…
A more comprehensive overview of use cases of blockchain technology can be found in the MEDICI report titled Blockchain Use Cases: Comprehensive Analysis and Startups Involved.