How Ethereum Differs from Bitcoin
Blockchain Explained with Joe Lubin
What is Ethereum?
An introduction to smart contracts, consensus algorithms, cryptographic tokens, and decentralized applications.
Blockchain Explained with Joe Lubin
Ethereum is a decentralized, open source, and distributed computing platform that enables the creation of smart contracts and decentralized applications, also known as dapps.
Smart contracts are computer protocols that facilitate, verify, or enforce the negotiation and performance of some sort of agreement. For instance, a smart contract could be used to represent a legal contract emulating the logic of contractual clauses or a financial contract specifying responsibilities of the counterparts and automated flows of value.
A smart contract is pretty much exactly what you think it would be: it’s an auto-executing, programmed agreement that is recorded on the Ethereum blockchain. It operates based upon an if, then logic, so that if x action happens, then y action occurs. Here’s a helpful definition from the Ethereum Foundation:
“Smart contracts are applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.”
Let’s break down what all that means:
Four core technological building blocks form the foundation of Ethereum’s smart contract platform:
Cryptographic tokens and addresses: a mathematically secure unique voucher system that allows for assets to be built on existing blockchains. These act as a standard for computing value, or numeraire. They can serve as payment for goods, services, and can also be used to represent a mathematically secured and pseudonymous identity.
Peer-to-peer networking: individual users connect their computers together to form a network that can exchange data without a central server. Bitcoin and Ethereum run on P2P networks, as does nearly every other cryptocurrency in use today.
Consensus algorithms: these algorithms permit blockchain users to reach a consensus about the current state of the blockchain. The Bitcoin blockchain reaches consensus on a global state change (which typically involves adding a new block to the blockchain) about once every 10 minutes, whereas the Ethereum blockchain reaches consensus in approximately 15 seconds.
Turing complete virtual machine: a virtual machine is a computer that exists in software form and can be run at a layer of abstraction above its underlying hardware. A “Turing complete” system can run any program and is powerful enough to implement any program defined in any similarly computationally complete system. For comparison, Bitcoin is not Turing-complete as its virtual machine can only run a much simpler class of programs.
These four pillars of dapp technology are designed to enable smart contracts. Smart contracts usually have a user interface that can be implemented as a web page, an application, or a mobile app. In the future, traditional contracts may become outdated for the purposes of certain transactions. Rather than drafting a costly, lengthy contract employing attorneys, banks, notaries, and Microsoft Word, contracts could be created with a few lines of code. Smart contracts could potentially be constructed automatically by wiring together a handful of human-readable clauses.
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