The Ethereum Blockchain - an Introduction

Ethereum is the second big player in blockchain technology, Bitcoin was the first.
Digital currency and crypto payments hit the nerve in the times of the raging financial crisis. At Bitcoin it is really only about payments in one direction - which happens in return, somehow is dubious. This is exactly where Ethereum goes in with programmable counter-performance transactions and simply calls the programs to be executed "Smart Contracts".

Blockchain geeks are speaking their own language. However, it is mainly about four axes or attributes, which are always present and used: distributed / localized, decentralized / centralized, permissionless / permissioned, and tokenized / tokenless.

1. distributed / localized

Most systems used today for accounting and for payment transactions are implemented in their own server rooms or in their own data center with relational databases.
Accordingly, a localized blockchain is operated on a manageable number of infrastructures by a manageable number of organizations.
In contrast, a distributed blockchain runs on a larger number of independent infrastructures and is run by a larger number of independent organizations.
This constellation requires complete replicas of the blockchain and, in addition to other security techniques, the use of a consensus protocol to ensure and maintain consistency.
Distributed blockchains are therefore resistant to major system failures or malicious attacks.

2. decentralized / centralized

Decentralized blockchains give all participants the same privileges a priori. This does not mean that the participants will negotiate special roles later.
But it means that there are no predefined participants for such special roles.
In contrast, a centralized blockchain assigns special roles to selected participants. Authentication and authorization are close together in a centralized blockchain.
In a decentralized blockchain, however, the participants typically act anonymously or pseudonymously. It is precisely this lack of identification that carries the risk of Byzantine faults.

3. permissionless / permissioned

The Nakamoto consensus from Bitcoin provides a new practical solution for a long-time problem of computer science: the problem of Byzantine generals.
How can trust be ensured without trustworthy third parties? Since 1987, it is clear that there is no general solution to this problem. However, partial or special solutions are possible under restrictive assumptions.

With permissionless blockchains everyone is allowed to participate, nobody can or must ask permission.
Permissioned blockchains, however, are closed events, only certain participants are allowed to access.

Permissionless blockchains thus work with unknown participants without distinguishable rights and privileges.
In contrast to this, permissioned blockchains are familiar with their participants and assign special rights and privileges to them.

4. tokenized / tokenless

Many blockchains have native tokens and are therefore called tokenized blockchains. For Bitcoin, these tokens are the bitcoins (BTC) and for Ethereum, they are Ether (ETH).
On tokenized blockchains different tokens can be set up (Bitcoin / Colored Coins, Ethereum / Smart Contracts).
Native tokens typically serve two main purposes in tokenized blockchains: they reward the participants in the consensus protocol and prevent spam and DDoS attacks.
Economic incentives for consensus formation are only relevant for decentralized blockchains, and here they are also necessary.
No one will contribute equipment and energy consumption without reward if there is not something to be earned. Tokenless (centralized) blockchains are used, for example, when traditional clearing / settlement systems for classic currencies are to be placed with Blocktech. Euro or US dollars are then displayed as tokens on the blockchain and can be the subject of corresponding transactions.

After this consideration of some Blocktech vocabulary, however, a fairly clear picture emerges. The core is about two clusters decentralized / distributed / permissionless / tokenized and centralized / localized / permissioned / tokenless.
The first cluster, initiated by Bitcoin, sees itself as a disruptive innovation and also combines social and political ambitions with its demands on social and entrepreneurial upheavals.
The second cluster forms the core of the efforts of banks and insurance companies and claims an incremental innovation around cost structures and throughput times in clearing / settlement.

Ethereum is decentralized / distributed / permissionless / tokenized. It can be understood as a cryptocurrency and a payment system - but this is falling to short....

To be continued...

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