An introduction to smart contracts, consensus algorithms, cryptographic tokens, and decentralized applications.
How Ethereum Differs from Bitcoin
Blockchain Explained with Joe Lubin
Ethereum: The World Computer
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:
- 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: the contract cannot be changed, hacked, or manipulated.
- Third parties: the contract self-executes and therefore does not require an intermediary.
Four core technological building blocks form the foundation of Ethereum’s smart contract platform:
Cryptographic tokens and addresses: amathematically 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.
Learn more about the Ethereum blockchain
A Short History of Ethereum
An overview of the upgrades and hard forks of Ethereum’s past, with an eye toward what lies ahead.
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A Guide to Gas
A guide to gas, its purpose, its nuances, and its utility on the Ethereum blockchain.
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ConsenSys Academy
In-person and online blockchain courses for developers, enterprises, and general enthusiasts.
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As a seasoned expert in blockchain technology and decentralized applications, I bring a wealth of knowledge and hands-on experience to delve into the intricate world of smart contracts, consensus algorithms, cryptographic tokens, and decentralized applications (dapps). My expertise extends beyond theoretical understanding, encompassing practical insights gained through active engagement in the field.
Let's start with Ethereum, a groundbreaking decentralized computing platform that has revolutionized the way we conceptualize and execute digital agreements. Ethereum enables the creation of smart contracts and dapps, redefining traditional processes through automation and decentralization.
Smart Contracts: Smart contracts are the backbone of Ethereum's functionality. These computer protocols automate, verify, and enforce agreements without the need for intermediaries. They operate on an "if, then" logic, executing predefined actions when specified conditions are met. The Ethereum Foundation aptly defines smart contracts as applications that run exactly as programmed, ensuring no downtime, censorship, fraud, or third-party interference.
Cryptographic Tokens and Addresses: Ethereum employs cryptographic tokens and addresses, constituting a mathematically secure voucher system. These tokens act as a standard for computing value and can represent assets on the blockchain. They provide a secure and pseudonymous identity, serving as a means of payment for goods and services.
Peer-to-Peer Networking: Peer-to-peer networking is a fundamental aspect of Ethereum, connecting individual users' computers to form a network that exchanges data without a central server. This decentralized structure eliminates the need for a central authority, enhancing security and transparency.
Consensus Algorithms: Consensus algorithms are crucial for establishing agreement on the current state of the blockchain. In Ethereum, consensus is reached approximately every 15 seconds, a notable difference from Bitcoin's 10-minute consensus intervals. These algorithms facilitate trust among users by ensuring a consistent and verifiable state of the blockchain.
Turing Complete Virtual Machine: Ethereum's use of a Turing complete virtual machine sets it apart from Bitcoin. This virtual machine, existing in software form, allows the execution of any program and provides the flexibility to implement a wide range of applications. In contrast, Bitcoin's virtual machine is not Turing-complete, limiting its capabilities to a simpler class of programs.
These four core technological building blocks form the foundation of Ethereum's smart contract platform, enabling a new era where contracts are self-executing, secure, and free from the limitations of traditional legal processes. As we explore the potential of smart contracts, envision a future where transactions are streamlined through code, replacing cumbersome traditional contracts with efficient, automated solutions. The Ethereum blockchain stands at the forefront of this transformative wave, and understanding its underlying principles is key to navigating the decentralized landscape.
