What is Ethereum (ETH)?
What is Ethereum (ETH)?
A smart contract is pretty much exactly what you think it would be, they are auto-executing programmed agreements that are recorded on the ethereum blockchain. Here’s the Ethereum Foundation’s statement for a more precise definition.
“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 that all means.
- Downtime – the applications never shut down unexpectedly and can never be switched off.
- Censorship – Ethereum nodes(computers running the protocol) are distributed around the world eliminating censorship from a central authority.
- Fraud Resistance – the contract cannot be changed, hacked, or manipulated.
- Third parties – the contract self-executes, which does not require an intermediary
There are four core technological building blocks that form the foundation of Ethereum’s smart contract platform:
1) Cryptographic tokens and addresses: a mathematically secure unique voucher system that acts as a standard for computing value, or numeraire. These can serve as payment for goods, services, or assets, and can also be used to represent a mathematically secured and pseudonymous identity.
2) 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.
3) Consensus formation algorithm: this algorithm permits 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.
4) 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 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 a 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.
Learn more about Ethereum
- Ethereum White Paper
- Ethereum Yellow Paper
- Ethereum Blog
- Ethereum Forum
- Network Statistics
- Where to Start
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