Ethereum is how the Internet was supposed to work.
There are four core technological building blocks that are coordinated to enable the Ethereum decentralized application platform to operate:
1) Cryptographic Tokens and Addresses: a mathematically secure unique voucher system that can act as numeraire and be used pay for goods, services or assets, and can also be used to represent a mathematically secure, pseudonymous identity;
2) Peer-to-peer Networking: individual users connect their computers together forming a network to exchange data without a central server (both Bitcoin and Ethereum run on P2P networks);
3) Consensus Formation Algorithm: this algorithm permits users of the blockchain to reach consensus about the current state of the blockchain (the Bitcoin blockchain reaches consesus on a global state change every 10 minutes on average whereas the Ethereum blockchain reaches consensus approximately every 15 seconds).
4) Turing Complete Virtual Machine: a virtual machine is a computer that exists as software, and can be run at a layer of abstraction above the underlying hardware; “Turing complete” means that this software computer can run any computer program one defines and is powerful enough to implement any program defined in any similarly computationally complete system (as opposed to Bitcoin, which has a virtual machine but can only run a much simpler class of programs);
These 4 pillars of decentralized application technology are designed to enable smart contracts. Smart contracts are computer protocols that facilitate, verify, or enforce the negotiation or performance of some sort of agreement (e.g. a legal contract emulating the logic of contractual clauses or a financial contract specifying responsibilities of the counterparts and automated flows of value). Smart contracts usually have a user interface that can be implemented as web page, an application, or a mobile app. Thus traditional contracts could become outdated for the purposes of certain transactions. Rather than drafting a costly, lengthy contract employing attorneys, banks, notaries and Microsoft Word, contracts might be created with a few lines of code, perhaps constructed automatically by wiring together a handful of human readable clauses.