“There is intelligent speculation as there is intelligent investing.”
— Benjamin Graham (The Intelligent Investor)
Most people think about cryptocurrencies this way:
So, that’s the normal way of looking at things: the point of all that stuff on the left is to make that shiny coin on the right. People in Venezuela, for example, are finding crypto currencies quite useful this way.
But there’s also another way of looking at it:
This is the perspective that has quite a few technologists buzzing: the point of the coin on the left is to create all that stuff on the right. But this way around is a bit of a head-scratcher.
How the heck does a coin…. “create” something? What does that even mean? And even if it did — what is it creating? …
Ok, you know a bit about Bitcoin (see: Explain Bitcoin Like I’m Five). You’ve been seeing the blockchain on the news.
But what’s this new Ethereum thing? Apparently it’s this crypto-currency you can use to build “smart contracts”. Sounds impressive. So, uh… what are they again? (Spoiler: They’re not that smart. And they’re not really contracts!)
Instead of a one line definition, let’s try to get an intuition. First, we’ll revisit the blockchain and the word “trust”. Then, we’ll talk about the word “contract”. Understanding both words is the secret.
Most of the time, when we think Bitcoin (or Ethereum), we have a mental image of, well…coins. …
We’re sitting on a park bench. It’s a great day.
I have one apple with me. I give it to you.
You now have one apple and I have zero.
That was simple, right?
Let’s look closely at what happened:
My apple was physically put into your hand.
You know it happened. I was there. You were there. You touched it.
We didn’t need a third person there to help us make the transfer. …