What is Ethereum?
Before you start to read up on Ethereum, an “altcoin”, please start by reading on Bitcoin for Super Dummies so you have some context to what the other cryptocurrencies can do. Because afterall, almost all cryptos got their ideas from Bitcoin.
Ethereum is an open source (free for anyone to contribute) platform that runs on blockchain technology [See article on Bitcoin and blockchain here].
It allows developers to build and run decentralized applications [See article on Bitcoin and decentralisation here, again].
In the Ethereum network, miners mine Ethereum, a crypto token that powers the network.
Ether can be used to pay for transaction fees on the Ethereum network. This encourages the miners to continue helping out the blockchain and updating all the transactions on it.
How is it different from Bitcoin?
Instead of just having a blockchain for a currency like Bitcoin, Ethereum introduced “smart contracts” into it’s network, that’s why.
What are smart contracts?
Smart contracts are contracts.. but smart. Just kidding — they are digital contracts.
By law, a contract is an agreement between you and someone else with a promise of giving/receiving something.
Traditionally we would type out a contract on Microsoft Word or a typewriter, print it out and get the other person to sign the contract with you so there’s a legal agreement. If someone breaks the contract you can haul their ass to court and get the law to help you out.
With smart contracts you don’t have to worry about the other person not fulfilling the agreement — because the terms and rewards are programmed by code.
Example: On the smart contract, I would code in the following instructions — If you agree to send me 1 Ether through the blockchain, my code will automatically send you… whatever it is that you desire.
The contract cannot be changed, it cannot be reversed, and the original programmer of the contract cannot it nor put in a fake code to stop it from getting executed upon receiving 1 Ether. The contract is public and available for everyone to see on the blockchain. You cannot run and you cannot hide.
Beat that, traditional contracts!
Ethereum’s goal is to use blockchain to replace internet third parties such as Amazon and Facebook’s cloud and servers.