Understanding Ethereum

Smart Contracts

“(…) Similar to how the internet protocol HTTP (Hypertext Transfer Protocol) facilitates communication over computer networks, Bitcoin and Ethereum are considered protocol layers because they are what facilitate actions on the blockchain. On top of the protocol layer third party developers can develop their own programs on what is called the application layer. A primary difference between Bitcoin and Ethereum is the ease of developing on the application layer. Ethereum’s primary programming language, Solidity, is less restrictive compared to developing on the Bitcoin platform and notably allows for developers to program smart contracts. A smart contract is computer code that can facilitate the exchange of any information of value such as money or property ownership. Smart contracts are called “smart” because they can self-operate when specified conditions are met, this allows middlemen to be cut out of transactions. The fact these smart contracts run on the blockchain is attractive because they can operate in a transparent and conflict-free way, without the risk of fraud, censorship, or interference.

A real world example of smart contracts being used is in crowdfunding. The incumbent crowdfunding platforms such as Kickstarter and Indiegogo act as the middlemen in crowdfunding transactions. They collect money from public supporters and pay it out to the project if the funding goal was reached before the deadline. These organizations are useful but they take a high fee for their services and there is an inherent risk of human error. Ethereum allows these types of platforms to be replaced by autonomous smart contracts. The entire crowdfunding transaction can be written into smart contracts as demonstrated here. This allows for middlemen along with their high fees to be cut out as well as a much lower risk of error because smart contracts are made available for public scrutiny. (…)”

Via Hacker Noon | read full article here: http://ow.ly/QSSy30iPKNf