Vitalik Buterin came up with the idea for the Ethereum network in 2013. Buterin is a software developer who worked with the bitcoin network and wanted to create a cryptocurrency that would offer its users more functionality compared to bitcoin. The crowdsale for the Ethereum network ran in July and August of 2014. The network went live a year later, on July 30, 2015. This article will introduce you to the main features of the network.
Open and decentralized
Just like bitcoin, Ethereum network is based on blockchain technology, is open and decentralized, meaning that there is no single authority that processes transactions or makes decisions about what happens on the network. The network was developed by the Swiss organization called Ethereum Switzerland GmbH and a Swill non-profit called the Ethereum Foundation.
The network can execute smart contracts
One of the main differences between the Ethereum network and other blockchain networks is Ethereum’s ability to run and execute smart contracts. Smart contract are a way of using a cryptocurrency to create agreements between parties on blockchain networks. Smart contracts do not add capabilities to regular contracts. Instead, they allow parties to create contracts in a way that does not require a lot of trust or a presence of a third party.
This means that two or more parties who do not know each other or do not trust each other can create a contract on the Ethereum network and the network will execute the contract as created, in a way that does not provide either party with an option of deceiving the other party. When parties enter into agreement on a blockchain network, the network will execute the agreement regardless of how the parties feel about it after entering into it.
In the past, many of the contracts that people and organizations needed to create required supervision of a judge or a lawyer. This process is typically long, expensive and complicated no matter whether it happens in the private or public sector.
Smart contracts on the Ethereum network use Distributed Autonomous Organization (or DAO), also known as Decentralized Autonomous Corporation (or DAC). Like the Ethereum network itself, DAO is open-source and, just as its name suggests, decentralized. It does not belong to any person, organization, or country.
DAO is an autonomous organization on the Ethereum network that has no conventional structure, no board of directors and no chief executive officer.
Also just like the Ethereum network, the DAO came to life via a crowdfunding campaign that was the largest crowdfunding event in the history of crowdfunding.
Every smart contract on the Ethereum network has to operate within the rules and requirement of the DAO, which means that all smart contracts protect both the creator of the contract and the party executing the tasks or conditions described in the contract.
This means that parties that create smart contracts on the Ethereum network do not have to spend any time or money on attorneys or third party arbitrators.
Just like with cryptocurrencies on the open blockchain networks, it is impossible to change a contract once it becomes active on the Ethereum network. For this reason, you want to make sure that the contract states exactly what you want it to state as altering a contract or adding provisions to it later is impossible.
Smaller fees and expenses
Because the Ethereum network runs smart contracts on DAO, the network eliminates the need for third-party supervision by performing all functions associated with a contract automatically. For example, you can create an organization on the Ethereum network that employs people to complete tasks. You can create contracts on the network that will guarantee that your employees will get paid. Typically, an organization would need an office, a paid intermediary between the organization and the workers or some kind of physical location for the workers to have trust that they will get paid. With Ethereum network, the network executes the contracts. The structure of the network and the way it works are what guarantees that the contract will go through.
New player factor
One of the disadvantages of the Ethereum network and cryptocurrencies in general is that these technologies and concepts are still very new. In terms of their capabilities and actual functionality the networks are similar to the Internet during its early years.
Legal inexperience of the average user
While the Ethereum network does take away the need for lawyers and judges from the operational standpoint, it does not take away the need to know what the parties are doing when they enter into an agreement. Certain agreements may have loopholes and issues that can be easily prevented by consulting with an attorney and making tweaks to the agreement.
Changes that occur on the network
Changes and updates may not feel like a disadvantage unless you have an urgent project with a deadline and can’t finish it because a server goes down while it is installing new updates. This is why constant progress is an advantage that sometimes can turn into a disadvantage, especially with a decentralized network that will not always send you a warning about something happening.
While the Ethereum network does allow its users to create remote decentralized organizations, this fact doesn’t mean that every such organization is going to be successful. It is true that you can use blockchain technology to guarantee payments and transparency and you don’t need a physical office. At the same time, having employees come to work to a physical location does have its advantages. When people work from home, they may be located in different time zones. They may also have to deal with their personal problems, issues and distractions that will decrease the quality of their work. Because of this, in addition to blockchain technology and the Ethereum network you need business systems and processes if you want to build a company using the Ethereum network.