Blockchain for Dummies

Blockchain for Dummies

Te this samenvatting from chapter five of ‘Blockchain for Dummies,’ author Tiana Laurence covers Ethereum, decentralized autonomous organizations and brainy contracts.

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The following is an samenvatting from Blockchain for Dummies by author Tiana Laurence and published by Wiley. This section from chapter five outlines Ethereum and how organizations can build on it. It also covers how to create your own decentralized organization and how to set up your Ethereum wallet.

Ethereum: The Open-Source World Broad Rekentuig

Ethereum may be one of the most ingewikkeld blockchains everzwijn built. It has its own Turing-complete programming language (a full-functioning programing language that permits developers to build any type of application). The Ethereum protocol can do just about anything that your average programming languages can do, except it’s built inwards a blockchain and has the added benefits and security that comes with that. If you can imagine a software project, it can be built on Ethereum.

The Ethereum ecosystem is presently the best place to build decentralized applications. They have wonderful documentation and user-friendly interfaces that get you up and running quickly. Rapid development time, security for petite applications, and the capability for applications to lightly interact with one another are key characteristics of this system.

The Turing-complete programming language is the main feature that makes the Ethereum blockchain vastly more powerful than the Bitcoin blockchain for building fresh programs. Ethereum’s scripting language makes things like Twitter application possible ter few lines of code, and utterly secure.

Brainy contracts, like the one you create te Chapter Three, can also be built on Ethereum. The Ethereum protocol has opened up a entire fresh genre of applications. You can take just about any business, government, or organization’s processes and build a digital representation of it inwards of Ethereum. Presently, Ethereum’s verhoging is being explored to manage digital assets (a fresh class of asset that lives online and may represent a entire digital asset such spil a Bitcoin token or a digital representation of a real-world asset such spil corn commodities), financial instruments (like mortgage-backed securities), recording ownership of assets such spil land, and decentralized autonomous organizations (DAOs), a fresh way of organizing a business, nonprofit, government, or any other assets that needs to come to agreement and work together for common rente. DAOs are built primarily on the Ethereum toneel.

Decentralized applications: Welcome to the future

DAPPs were created to substitute centralized management of assets and organizations. This structure has a lotsbestemming of appeal because many people believe that absolute power corrupts absolutely. For those who are fearful of losing control, this type of structure has massive implications.

Etheria (, a Minecraft-like spel, is an interesting example of this technology at work (see Figure 5-1). The spel can’t be censored or taken down and will exist spil long spil Ethereum does. When things are created within Ethereum, even if there were good cause to liquidate a structure or organization, it’s practically unlikely to do so.

The power of decentralized autonomous organizations

FIGURE 5-1: The world’s very first immortal digital spel, Etheria.

DAOs have bot created for raising funds for investing, but they could also be designed for civic or nonprofit purposes. Ethereum gives you a basic framework for governance. It’s up to the organizers to determine what’s being governed. Ethereum has created templates for you to help te the creation of DAOs.

Figure 5-2 shows a depiction of the organization of an Ethereum application.

FIGURE 5-2: blockchain application depiction.


The very first Ethereum DAO everzwijn built is called, confusingly enough, ",The DAO.", It’s an example of some of the dangers that come with decentralized and autonomous entities. It is the largest crowdfunded project ter the world — its founders raised approximately $162 million ter 26 days with more than 11,000 members. What people had thought wasgoed the greatest strength of The DAO became its greatest weakness. The immutable code within The DAO locked into place how the organization would be governed and how funds would be distributed. This permitted the members to feel secure te their investment. Albeit the code wasgoed well reviewed, not all the bugs had bot worked out.

The very first significant threat to Ethereum came from the hack of The DAO. An unexpected code path te The DAO’s contract permitted any sophisticated user to withdraw funds. An unknown user managed to liquidate about $50 million before he could be stopped.

The Ethereum community debated bitterly about whether it could or should reclaim the ether. The DAO hacker had not technically done anything wrong or even hacked the system. Fundamentalists within the Ethereum community felt that code wasgoed law and, therefore, nothing should be done to recover the funds.

The very thing that made Ethereum strong wasgoed also its greatest weakness. Decentralization, immutability, and autonomy meant no central authority could determine what to do quickly. There wasgoed also no one to penalize for the misuse of the system. It indeed did not have any consumer protection measures. It wasgoed a fresh frontier, like the software name suggested.

After spending several weeks discussing the problem, the Ethereum community determined to shut down The DAO and create a fresh Ethereum. This process is called hard forking. When the Ethereum community hard-forked the network, it reversed the transaction the hacker had committed. It also created a two Ethereums: Ethereum and Ethereum Classic.

Not everyone wasgoed te agreement with this decision. The community resumes to use Ethereum Classic. The tokens for Ethereum Classic are still traded but have lost significant market value. The fresh Ethereum token still hasn’t regained its old high from before the hack.

The decision to fork rocked the blockchain world. It wasgoed the very first time a majority blockchain project had hard-forked to make entire an investor. It called into question many of the principles that make blockchain technology so attractive ter the very first place.

Here’s how DAOs basically work:

  1. A group of people writes a brainy contract to govern the organization.
  2. People add funds to the DAO and are given tokens that represent ownership.

This structure works kleuter of like stock ter a company, but the members have control of the funds from day one.

  • When the funds have bot raised, the DAO commences to operate by having members propose how to spend the money.
  • The members vote on thesis proposals.
  • When the predetermined time has passed and the predetermined number of votes has accrued, the proposal passes or fails.
  • Individuals act spil contractors to service the DAO.
  • Unlike most traditional investment vehicles, where a central party makes decisions about investments, the members of a DAO control 100 procent of the assets. They vote on fresh investments and other decisions. This type of structure menaces to displace traditional financial managers.

    DAOs are built with code that can’t be switched on the fly. The appeal of this is that malicious hackers can’t monkey with the funds ter a traditional sense. Hackers can still find ways to execute the code ter unexpected ways and withdraw funds. The immutable nature of a DAO’s code makes it almost unlikely to fix any bugs once the DAO is live ter Ethereum.

    Hacking a Blockchain

    Ethereum has never bot hacked. The hard fork te 2016 due to the DAO hack mentioned te the ",With excellent power comes . . . excellent power", sidebar wasgoed not an actual hack of the system, but confusingly is often referred to spil a hack. Ethereum worked ideally. The problem wasgoed it wasgoed too flawless. It became necessary to restart the system when a large amount of money and a majority of its users were threatened.

    The only way to juist an activity on a blockchain like Ethereum is to do a hard fork, which permits for a fundamental switch to the protocol. A hard fork makes previously valid blocks and transactions invalid. Ethereum did this to protect the funds that were being pulled out of the very first DAO by a user. The DAO hack wasgoed conceptually, one of the largest bug bounties everzwijn.

    That said, many scams and hacking attempts occur te the cryptocurrency space. Most of thesis attacks target centralized exchanges and applications. Many hackers want to steal cryptocurrency. It has real value and isn’t protected te the same ways that regular money is protected by governments. The anonymous nature of cryptocurrency also makes it appealing to crooks. Catching and prosecuting thesis individuals is difficult. The cryptocurrency community is fight back, however, and creating fresh measures to protect themselves.

    Hacking one place is significantly lighter and cheaper than attempting to overcome a decentralized network. When you read about hacking te the blockchain world, it’s likely just a webstek or a cryptocurrency wallet that has bot hacked, not the entire network.

    Understanding wise contracts

    Ethereum brainy contracts are not yet legally enforceable and may never be because the perception is that you don’t need outside authorities enforcing agreements. Legal systems are managed by governments. Spil they stand now, governments are central authorities — some with more or less consent and democratic principles. Within an Ethereum brainy contract, each participant has an inalienable vote.

    Blockchain for Dummies

    Written by Tiana Laurence

    Published by John Wiley &, Sons, Inc.

    Ethereum brainy contracts do not include artificial intelligence. This is a cool possibility te the near future. But for now, Ethereum is just software code that runs on a blockchain.

    Ethereum brainy contracts are not safe. The DAO hack is a good example of the type of dangers that can occur. It is still early days, and putting a lotsbestemming of money into an unproven system isn’t brainy. Instead, proef with petite amounts until all the bugs have bot worked out of fresh contracts.

    Discovering the cryptocurrency Ether

    Executing the code within a brainy contract also costs some amount of ether. This feature gives the token added utility. Spil long spil individuals want to use Ethereum for applications and contracts, ether will hold a value beyond speculation.

    The wild growth te the value of ether has made it a popular token to speculate on. It’s widely traded on exchanges around the world. Some fresh hedge funds are looking at it spil an investment voertuig. However, the volatile nature and low market depth make ether a risky investment.

    Getting Up and Running on Ethereum

    Ter this section, I walk you through how to get began ter the Ethereum blockchain ecosystem. Before you can build anything on Ethereum, you need an Ethereum wallet.

    Your wallet will hold your Ethereum tokens call ether. Ether is the cryptocurrency that permits you to create brainy contracts inwards Ethereum. This is sometimes referred to spil gas.

    Downloading the Ethereum wallet can take some time, but the interface is very intuitive and the instructions provided across the process are effortless to go after.

    Within the Ethereum wallet, you can win test ether to build your test contracts and organizations. You don’t need to mine ether to learn how it works.

    Mining for ether

    Ter order to prize individuals for the time and cost involved te mining, there is a prize of five ethers about every 12 seconds. The prize is given to the knot that wasgoed able to create the latest block ter the Ethereum blockchain.

    All fresh blocks have a list of the latest transactions. The proof-of-work overeenstemming algorithm assures that prizes are won most often by knots with the most computational power. Computers that aren’t spil powerful can win, too — it just takes longer. If you want to attempt your forearm at mining ether, you can do it with your huis pc, but it will take a very long time to successfully mine a block and win ether.

    Mining ether is not for the technical novice. You need to be familiar with instruction line. If you don’t have a clue what guideline line is, you very likely want to skip this process. Also, be sure to go after the most up-to-date instructions on the Ethereum GitHub (

    Setting up your Ethereum wallet

    You have to scroll down the pagina a bit to find the button.

    Be sure to save the Ethereum wallet download someplace you can find it zometeen.

  • Open the Ethereum wallet.
  • Click Use Test Nipt.
  • Here you get set up to mine test ether. This process is much less time-consuming then real ether mining, but it still takes some time.

  • Create a strong password.
  • Don’t leave behind to save your password someplace safe.

  • Click through the startup spijskaart.
  • The Ethereum team has a few tutorials that are interesting to review while you’re waiting on your test netwerk to download. The download may take ten minutes or so.

  • Choose Develop > Commence Mining.
  • Don’t skip this step. You need the ether for straks projects.

    You’ve just set up your wallet, and you’re earning test ether for your future clever contract projects.

    Building Your Very first Decentralized Autonomous Organization

    DAOs will switch how the world does business ter the future. They permit anyone te the world to create a fresh type of company online that is governed by pre-agreed upon rules that are then enforced through the blockchain network. Creating a DAO is lighter than you might think. Te this section, you build your very first test DAO. I pauze this project into three sections: build, congress, and governance.

    Te order to successfully accomplish your test DAO, you need to have set up your Ethereum wallet and done some mining on the Ethereum test televisiekanaal (see the preceding section).

    Go after thesis steps to create your very first test DAO:

    1. Go to
    2. Scroll down the pagina to the Code opbergruimte (shown ter Figure 5-3) and copy the code.
    3. Open the Ethereum wallet you made earlier.

    You’ll develop your DAO ter your Ethereum wallet. FIGURE 5-3: The Code opbergruimte.

    Test televisiekanaal and congress

    1. Te your Ethereum wallet, choose Develop > Network > Test Netwerk.
    2. Click the Contracts tabulator and then click Deploy Contract.

    The Ethereum team has set up a few test templates for DAOs.

  • Paste the code you copied ter the preceding section into the Solidity code opbergruimte.
  • From the Contract Picker, choose Congress.
  • Pick some variables when prompted to do so.
  • Here are your options:

    • The ondergrens quorum for proposals is the fewest votes a proposal needs to have before it can be executed.
    • The minutes for debate is the shortest amount of time, te minutes, that needs to pass before it can be executed.
    • The margin of votes for a majority. Proposals pass if there are more than 50 procent of the votes plus the margin. Leave it at 0 for a elementary majority.

    Governance and voting

    This is kleintje of like naming a company.

  • For Debate Times, select Five minutes.
  • This is how long fresh proposals are open for conversation.

  • Leave Margin of Votes for Majority set to 0.
  • This sets up how the democracy of your contract works.

  • Confirm the price of the DAO.
  • You’ve mined some Ether ter the test televisiekanaal via your wallet when you very first set up it up. If you skipped that step, go back and do it now. You need a little of the test televisiekanaal Ether to build your DAO.

  • Click Deploy and type your password.
  • The DAO may take some time to deploy. When you arrive at your fresh instrumentenbord, scroll down, and you’ll be able to see your DAO being produced.

  • Click the Fresh icon.
  • A fresh unique icon will generate that represents your DAO.

    Congratulations! You’ve created your very first DAO.

    Uncovering the Future of DAOs

    Brainy contracts and decentralized organizations hold a loterijlot of promise. The unspoiled democratic and hyper-rational nature of them is very appealing. However, at this point, there are more possibilities then knowns, and each contract that is created could be groundbreaking or a massive flop.

    If you treatment Ethereum spil the fresh frontier that it is, you’ll have more success. The Ethereum network has more benefits than drawbacks if you’re careful. But expecting everything to work flawlessly and all the participants to act with integrity will open you up to greater losses. Ethereum has its share of bandits, not to mention those friendly enthusiasts who would like you to succeed.

    The clever contract hacks of 2016 have highlighted the importance of security and decently reviewing contracts. It also illustrated that there are people with integrity that who fight to fix issues.

    Reading this book is only the beginning. It will give you a sound bases to build your skill of Ethereum, but spil with all fresh technologies, Ethereum is quickly evolving. Keep reviewing best practices and security measures.

    Te the following sections, I mention some things to keep ter mind spil you build your very first few DAOs, build clever contracts, and debug your fresh blockchain systems.

    Putting money ter a DAO

    Albeit, brainy contracts and blockchains let you conduct business with anyone around the world, it’s still the early days. You can mitigate your risk by working only with known and trusted parties.

    The security landscape will permanently be evolving with fresh bugs. Reviewing all fresh best practices is imperative. Manage the amount of money you’re putting at risk and roll out contracts leisurely and ter phases. Ethereum is a fresh technology, and mature solutions are not yet built.

    Building smarter wise contracts

    Read the entire chapter

    Download the PDF of chapter five courtesy of publisher John Wiley &, Sons.

    Your contract will have flaws and may fail. Build safety valves into your contracts so you can react to bugs and vulnerabilities spil they come up. Brainy contracts also need an off switch that let you pull the buttplug and pause your contract when things are going wrong.

    If your contract is big enough, opoffering bug-hunting bounties that incentivizes the community to find vulnerabilities and flaws ter your contract.

    Spil with many things, the complexity of your contract also increases the likelihood of errors and attack vectors. Keep your contract logic elementary. Build out petite modules that hold each section of the contract. Creating a contract te this manner will help you compartmentalize any issues.

    Finding bugs ter the system

    You can only control for things within your own contract. Be cautious of outward contract calls. They can execute malicious code and take away your control.

    The Ethereum community has an excellent known bug list and even more helpful tips on how to build secure brainy contracts on its GitHub pagina at

    Excerpted from Blockchain for Dummies by Tiana Laurence. Copyright ©, 2018, Wiley.

    Tiana Laurence is a co-founder of Factom, Inc., and wasgoed an early Bitcoin enthusiast. Hier passion is growing excellent companies. A serial entrepreneur, Tiana embarked hier very first business at 16. She loves helping youthful aspiring entrepreneurs learn about business and technology. Tiana has a BA ter Business and Leadership from Portland State University. When Tiana is not working on hier businesses or being nerdy, she can be found running or rock climbing ter Austin, Texas.

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