Ethereum is a platform which enables developers to create decentralised (peer-to-peer) applications. While bitcoin enables peer-to-peer transactions, storing this information in the blockchain, the Ethereum platform stores computer programmes. These programmes are written, uploaded to the platform and carried out by a decentralised network of computers.
An example of such a program could be: if account A has a balance of B, and today is 11th June 2018, then transfer C ether to account D – if not, don’t do anything. This programme is known as a smart contract.
Smart contracts enable trust on automated systems; I can write a programme that makes sure my ether is only sent when some criteria are met. In practice, this could take the form of an investor only wishing to invest if the company is able to deliver within some time frame. An investor could create a smart contract which required him/her to pay-in only if predetermined conditions of their contract are met – for example, reaching a company milestone.
Ether (ETH) is used to compensate those who supply the computing power, which allows the programmes to be executed. Ether is a cryptocurrency, like bitcoin, but its primary purpose is to compensate those who power the platform. While ether can be used as a means of exchange, like bitcoin, this is not its only role.
Ethereum enables developers to use a generalised blockchain to create decentralised applications (more sophisticated computer programmes), taking advantage of the smart contract built into the platform.
One example of this is 4G Capital, a company using the Ethereum platform to bring microfinance to small businesses in Africa. Borrowers are educated in how to use the decentralised application and smart contracts, ensuring they meet their obligations to investors.
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