Sep 28, 2020
A3: Blockchain: Ethereum, Smart Contracts, and What’s Next
Last article, we covered what a blockchain was and what it offers to both individuals and businesses. Pretty cool, right?
This produces a great gateway to talk about the following topics: Ethereum and Smart Contracts.
Ethereum
Ethereum is a blockchain-based, open-source platform where individuals or companies can run decentralized applications (dApps) and execute smart contracts. The “currency” on the platform is known as Ether. But, let’s step back for a moment to understand what this is at a conceptual level.
Think of a house. A house has a foundation, support beams, and a general frame. Think of Ethereum as the same thing. Ethereum is the infrastructure, the support beams, and the outline of the house. Then, consider the applications and contracts that can be run on the platform as the interior design of the house or the “customizable” features. Companies or individuals have different needs, so they execute certain things on the network.
For a quick, visual dive into Ethereum, check out this video below.
Ethereum has led to innovation and adoption in many spaces, with other 2500 dApps being built on the Ethereum blockchain. Major companies such as Santander, Intel and Microsoft also comprise what’s called the “Enterprise Ethereum Alliance”. This makes it apparent that market interest is there to use a platform like this and that people like the advantages to using Ethereum. Advantages include fast deployment, the ability to conduct and execute private transactions (think banks), interoperability, among others.
But, there’s a catch. Ethereum has a scalability problem. Major institutions make thousands of transactions per second and Ethereum has shown to have trouble managing this workload. If the concept of scalability is new to you, consider this lemonade stand example.
You open a lemonade stand by yourself and you have five customers per day, every business day. This customer base and output is manageable for you. However, word gets out that your lemonade is the cream of the crop. You open the next business day and your line is 100 people long. Despite the length of the line, you can only afford to have one cash register so customers are waiting and getting frustrated. Some even leave the line, making your lemonade stand unable to process their request for lemonade due to long wait times and eventual failure to deliver the promised product. This is scalability in a nutshell. It’s being able to properly serve clients on a mass scale. Ethereum has this problem.
However, there is hope on the horizon with Ethereum 2.0, their next official iteration of the platform. Scalability is the number one problem that is potentially solved with this latest installment. Read more about it here.
(Also, Ethereum isn’t without its competitors and some argue that its competition could overtake its place in the market. Consider this article here to learn about Cardano. And no, this isn’t the only competitor).
Now, back to a few other aspects of Ethereum. What is a smart contract? A dApp? Well, let’s investigate.
dApps
Turn your phone on and head to the app store. There, you’ll find applications to games, services, etc. These “dApps” are similar in nature, but simply better designed than traditional applications. Let’s examine why from our friends at district0x…
Game changing, right? dApps run on a decentralized blockchain, evolve faster due to their open source nature, and have no central entity controlling it. Why is this good? Let’s say you have the Lyft application on your phone. It has your previous rides, credit card number, and most likely, your home address in the recent trips. Sensitive stuff. If Lyft was a dApp, you’re smooth sailing as they’re decentralized, so hacking your account will be quite difficult given that there is no central point of contact for a hacker to exploit.
Examples of dApps currently out today and more in-depth analysis on dApps can be found here. If not, enjoy the bird’s eye view.
Smart Contracts
This is my favorite part of the Ethereum ecosystem. As always, let’s first relate smart contracts to something you probably know. The most famous analogy for this is a vending machine. When interacting with a vending machine, the transaction is black and white. I have $1.50 and I would like to buy a bottle of water. If I put the $1.50 in, I receive the water. If I do not, I do not receive the water. Smart contracts work the same way.
Smart contracts are self-executing agreements between two people, with terms being directly stated in lines of code. These are revolutionary because the contracts only execute when every term has been met. Not sure why this is groundbreaking? Let’s look at the music industry.
Conceptual Scenario: Artist X has been booked at a local club to perform. As most artists know, club owners can be stingy and “wishy-washy” on their word. Artist X has played at this venue once before and the owner promised him $300 in exchange for two hours of performing and 100 tickets sold. However, Artist X never got the money despite selling the tickets himself and the club owner stopped answering his pleas to get paid. Well, Artist X isn’t so naive this time. Hello, smart contracts. This time, Artist X constructs an agreement with the venue that states “when 100 tickets are sold, Artist X receives $300”. As the club’s site hits 100 tickets sold on the night of the show, the artist is paid immediately. Artist X can now take the stage knowing he’s being paid for his work.
Smart contracts can also help artists and their group mates navigate complicated revenue sharing agreements, a task that has become disjointed and confusing. Take a look below.
On the whole, these agreements can work for any industry and ensure one key thing — trust. You can’t change them or flake on the agreement and my above example is an illustration of that. This “trust” also doesn’t require a middleman or a leap of faith. It’s right there in the code. No proper business. No deal.
So far, we’ve briefly covered Bitcoin, Blockchain, Ethereum and smart contracts. I am hopeful that your understanding of these things is better than it was a few articles ago. This discussion of smart contracts also provides us with a transition into my favorite technology/company — Chainlink.
Until then…
-M
*Videos from district0x are used. All credit and ownership of the materials is theirs. If, at any point, district0x would like these to be taken down, I will do so immediately.*
