What is Ethereum? https://blockgeeks.com/guides/what-is-ethereum/
By now, almost everyone has heard of Bitcoin. But how many people have heard of Ethereum? Ethereum is a Canadian made blockchain technology that not only acts as a currency, but can execute smart contracts. But what does that actually mean? How does it work? We cover all of that right here!
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Is Ethereum similar to Bitcoin? Well, sort of, but not really.
Like Bitcoin, Ethereum is a distributed public blockchain network. Although there are some significant technical differences between the two, the most important distinction to note is that Bitcoin and Ethereum differ substantially in purpose and capability. Bitcoin offers one particular application of blockchain technology, a peer to peer electronic cash system that enables online Bitcoin payments. While the Bitcoin blockchain is used to track ownership of digital currency (bitcoins), the Ethereum blockchain focuses on running the programming code of any decentralized application.
In the Ethereum blockchain, instead of mining for bitcoin, miners work to earn Ether, a type of crypto token that fuels the network. Beyond a tradeable cryptocurrency, Ether is also used by application developers to pay for transaction fees and services on the Ethereum network.
There is a second type of token that is used to pay miners fees for including transactions in their block, it is called gas, and every smart contract execution requires a certain amount of gas to be sent along with it to entice miners to put it in the blockchain.
“Bitcoin is first and foremost a currency; this is one particular application of a blockchain. However, it is far from the only application. To take a past example of a similar situation, e-mail is one particular use of the internet, and for sure helped popularise it, but there are many others.” Dr Gavin Wood, Ethereum Co-Founder
What is a smart contract?
Smart contract is just a phrase used to describe computer code that can facilitate the exchange of money, content, property, shares, or anything of value. When running on the blockchain a smart contract becomes like a self-operating computer program that automatically executes when specific conditions are met. Because smart contracts run on the blockchain, they run exactly as programmed without any possibility of censorship, downtime, fraud or third party interference.
While all blockchains have the ability to process code, most are severely limited. Ethereum is different. Rather than giving a set of limited operations, Ethereum allows developers to create whatever operations they want. This means developers can build thousands of different applications that go way beyond anything we have seen before.
“ [Ethereum] blockchain has some extraordinary capabilities. One of them is that you can build smart contracts. It’s kind of what it sounds like. It’s a contract that self-executes, and the contract handles the enforcement, the management, performance, and payment” Don Tapscott
The Ethereum Virtual Machine
Before the creation of Ethereum, blockchain applications were designed to do a very limited set of operations. Bitcoin and other cryptocurrencies, for example, were developed exclusively to operate as peer-to-peer digital currencies.
Developers faced a problem. Either expand the set of functions offered by Bitcoin and other types of applications, which is very complicated and time-consuming, or develop a new blockchain application and an entirely new platform as well. Recognizing this predicament, Ethereum’s creator, Vitalik Buterin developed a new approach.