This blog is meant to inform those who are interested in understanding more about Ethereum, thinking about investing in ETH or curious on a high level understanding of what Ethereum is. I tried my best to remove as much financial jargon as possible, but additionally aimed to reduce cryptocurrency technical lingo. If you would like a deeper more technical understanding of Ethereum, please see the link at the very bottom(relevant articles from Forehand Financial). Please enjoy!
Ethereum is essentially the city layout, but things can be built on the layout of the city. While one cannot necessarily change the layout (without further releases of Ethereum’s network), one can build on top of it, in fact many projects and other things. Homes, parks, bridges, games, trees, markets, hospitals – you name it. These things that you can build on top of the city layout are essentially non-controlled applications on Ethereum’s network.
Picture a large vibrant city, with no controlling body or government. It is large, growing and there are a lot of transactions that occur throughout. This city has no center power, so it is not completely controlled by any single business or person. If one business were to go bankrupt, the city will still be able to operate – because there is no central point of failure.
The things that go in the city do not always need to be new. They can be old businesses or buildings, that need to be renovated. They can also be started completely from scratch, like a brand-new coffee shop. The people that transact in the city can do so directly with each other. There is not a bank, card processor, government entity or financial institution taking a cut of the profits on the transactions of the city. Only transactions occur between the people and that is it. No reseller, no middleman – just you and the other party (Unless you dictate otherwise).
Without police or a central authority to ensure people are operating in check, the individuals/business/groups in the city enforce the rules. It is a collaborative effort that everyone in the city partakes to make sure the city is operating in the best legal and ethical manner possible. All those who do participate in helping to police and ensure ethical behavior will receive a little money in exchange for doing so. This money is called Ether.
Smart contracts run the city. If someone commits a crime and is found guilty in the court of law, no worries, the smart contract will execute due to the terms and conditions written therein. If a borrower defaults on a lender, again no problem, the lender will receive the collateral automatically as written per the contract.
Ether is the electricity, the movement, or the lifeblood of the city. Without Ether, the city will turn into a ghost town. People who better the city(stake), receive the Ether as a type of incentive to continuously improve, refine and weigh in on improvements.
Revisiting the city layout from earlier on, the city wants individuals building things whether it may be for monetary gain, improving how things are done or simply for enjoyment. If a guy named Sam wants to build a few properties to rent out, he will then pay charges to the city. Individuals who decide to live in Sam’s properties likely will need to pay to use the property. If Sam’s properties use a lot of the city’s resources (electricity, water, etc.) he will need to pay more, if Sam’s properties use less resources, he will need to pay less Ether.
As dictated from the founders of the city, only 18 million Ether will be created per year. To keep the city in balance, and prevent drastic inflation, this number was decided on by the founders to help promote transactions amongst individuals. This number will keep the city operating at a healthy level.
All in all, Ethereum is a city. ETH is the lifeblood of that city. Both are needed to create the excellent fin-tech ecosystem we have today. The city is ever evolving with further upgrades to the layout and the technology that the city can be built upon.
Relevant Articles from Forehand Financial: https://wordpress.com/post/forehandfinancial.com/443
Article References: https://commons.wikimedia.org/wiki/File:Smart_contracts_in_insurance_policies.png
Disclaimer:
Nothing stated in this article is a recommendation from Forehand Financial to buy or sell a particular security or asset class. You should wisely consider your tolerance for risk, time horizon, and financial goals before making an investment. With investing, you run the risk of losing money, always read an investment prospectus and make an informed decision before allocating capital to a particular investment.
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