Brian Colombana: What Are Smart Contracts? How Do They Work?

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What is a smart contract?

A smart contract is just that–a contract between two or more parties in which various conditions can be set and enforced automatically once those conditions have been met. These contracts are not only enforceable over the blockchain, but they can also employ all of the traditional tools and processes we’ve come to expect from centrally-managed legal systems: transfer of goods and services, identification validation, dispute arbitration, etc. The key difference in enforcing these contracts on the blockchain is that this process is automated through code instead of relying on a trusted third party such as a bank or lawyer to ensure that obligations are upheld. This allows for increased trust in the system without relying on faulty human dynamics such as dishonesty or breach of contract.

As per Brian Colombana the Ethereum project was the first to introduce smart contracts. Introduced in 2013, the system allows for a Turing complete programming language that enables developers to build applications on top of a blockchain foundation that can autonomously control digital assets. This would be a bit like being able to develop apps that run on Google’s App Engine or Amazon’s AWS service but have those apps maintain full control over their data and how it is used rather than relying on the platform provider as an intermediary between your application and users’ information. Additionally, because these applications are built on a public standard just as Bitcoin has been, any application developed within Ethereum also operates outside of any specific country or jurisdiction–its value isn’t tied to anything except its trust value.

What’s the Difference Between Bitcoin and Ethereum?

The primary difference between Bitcoin and Ethereum is that Bitcoin was developed as a decentralized digital currency. At the same time, Ethereum is meant to be used for all kinds of programs. As such, people refer to their Ether (the cryptocurrency native to the system) both as “Ether” and “bitcoin.” Some say, “I made ten bitcoin today,” but they mean their account has 10 Ether in it. You could then say, “I want you to take 2 bitcoin out of my account for this transaction,” which again means that 2 Ether should be sent from one account to another. Otherwise, they’re pretty much interchangeable words at this point since, unlike currencies like the US dollar, Ether is not meant to be used as a transaction currency. Rather, it’s mainly there to allow developers to build decentralized applications on top of the Ethereum blockchain since Ether is required for those apps (decentralized apps) to run.

Are Bitcoin and Ethereum the Same Thing?

Bitcoin and Ethereum have often been lumped together, thanks largely partly because they can be mined via mining rigs. Still, as we mentioned before, Bitcoin was developed as an alternative financial system, while Ethereum was developed as a super-computer that supports any program. Mining Ether isn’t quite like mining bitcoin; you’re not looking for strings of code representing the answer to some complex math equation (although that can be said about how many cryptocurrencies work in general). Rather, Ether is mined by competing to offer your computing power to the network. Think of it as cloud storage or shared processing power for a virtual machine. This process is called Proof-of-Work (PoW) mining because you’re proving that you can do something for someone else–in this case, store and process data for the Ethereum blockchain. As long as your computer is performing these tasks, it receives rewards. If your computer goes offline or malfunctions in some way, those rewards are also revoked until performance resumes.

Is Ethereum Better Than Bitcoin?

While both have their advantages, many people say that Ethereum has more potential than Bitcoin, thanks largely to its ability to handle smart contracts and decentralized applications at scale. Because bitcoin is built on a financial infrastructure, it doesn’t have the flexibility to build new applications with it easily. Ethereum also has a faster transaction time (ten minutes vs. about an hour and a half for Bitcoin), and Ethereum processes more transactions per day than Bitcoin currently does.

What Is Ether?

Ether is the cryptocurrency native of the system that’s necessary to use Ethereum apps or otherwise support their networks; however, Ether can also be traded on cryptocurrency exchanges like Poloniex and Bitfinex. If you’re not planning on using any of your Ether but still want to hold onto it long-term, you should probably store your Ether in some wallet rather than leave them sitting on an exchange. This is because you’re still responsible for holding onto your Ether’s private key to be able to use them.

Conclusion by Brian Colombana:

Bitcoin is a cryptocurrency, while Ethereum is an open-source blockchain platform. Bitcoin was designed to be used as digital currency while Ether runs on the Ethereum platform. Ether is used as currency on the Ethereum platform to power transactions.

You can read more about cryptocurrencies and blockchain technology in general here.

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