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Differentiating Bitcoin from Ethereum & Understanding Smart Contracts

Differentiating Bitcoin from Ethereum & Understanding Smart Contracts

If you’ve been following the recent digital currency news, then chances are that you’ve heard about Ethereum and all the buzz that it has been creating since its launch. As Ethereum is still quite new, many who are just hearing of it tend to ask themselves the following question: Why use Ethereum, when we already have Bitcoin, a much more popular digital currency?

This exact question represents the source to a lot of confusion surrounding the two projects. While they seem similar at first, their core purpose is extremely different. To put things better into perspective, Bitcoin is only meant as a digital currency, used to buy/sell products and services, whereas Ethereum is slightly more different. In fact, it represents a platform based on blockchain technology, used by people to develop decentralized applications, which work thanks to smart contracts, and are fuelled by Ether, the currency of Ethereum.


Understanding smart contracts is the key to understanding what Ethereum and Ether are, along with their purpose on the market. With this in mind, they are digitized versions of traditional contracts that run on the blockchain, and are programmed to self-execute when several conditions written directly into their source code are met. Therefore, they are trustworthy, because once programmed, the terms associated with the contract in question cannot change.

Some of the main benefits associated with smart contracts include: no dependence on any third party for the reinforcement of the contract, thus eliminating the middleman; making third party vendors obsolete, thus making contracts speedier; eliminating the risk of being cheated; making the contracts failsafe, as they are immune to node failures, power failures etc.

To make things easier to understand, smart contracts are used for transacting and exchanging anything between two parties or more, as long as the conditions meant to trigger the contract are met. However, these contracts aren’t always free, and to fuel them alongside the Ethereum blockchain, Ether is used. Therefore, Ether isn’t meant to be transacted as a digital currency, but rather to act as fuel for the execution of these contracts, and keeping the Ethereum blockchain up and running at all times.

The possibilities are virtually unlimited, yet some of the cases where smart contracts could come in extremely handy, include supply chain management, dealing with real estate, protecting all forms of intellectual property rights, governance and much more. Constant research on Ethereum and its possible uses in the future continue, and if the projects proves its worth, chances are that in the future, we will all be dealing with smart contracts of all kinds.

Based on everything that has been outlined so far, what’s your opinion on the future of Ethereum and smart contracts? Let us know your thoughts in the comment section below.

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