In this lesson
- find out how Ethereum differs from Bitcoin
- understand what a smart contract is – using a vending machine
- see what has been built on Ethereum and where the risks hide
Bitcoin basically does one thing: send bitcoin. At the end of 2013, a nineteen-year-old programmer called Vitalik Buterin asked: what if a blockchain could run any program? That is how Ethereum was born – the network went live on 30 July 2015.
A smart contract: a vending machine without a shop assistant#
Think of a vending machine. You put in a coin, choose a number and the machine hands you a snack. No shop assistant, no haggling – the rules are built right into the machine.
A smart contract works the same way, just on a blockchain: it is a program with rules like "when a payment arrives, send back a token". Once uploaded to Ethereum, it runs on its own, everyone can see it and nobody can quietly change it – unless its authors built in a way to pause or upgrade it. That is a risk too.
Running it costs a fee in Ethereum's currency (ETH), called gas – literally the fuel. The more complex the program and the more people want to use the network at that moment, the more fuel you burn.
What has been built on Ethereum#
- Tokens – custom currencies or vouchers anyone can create with a smart contract. Most "cryptocurrencies" you have heard of are actually tokens on Ethereum or a similar network.
- DeFi (decentralized finance) – loans, exchanges or savings without a bank, run only by contracts. This is called DeFi.
- NFTs – a digital "certificate of ownership" for a picture, a ticket or an in-game item. In 2021–2022 they caused a frenzy, and many sold for millions; a large share of them is worth almost nothing today.
Bitcoin vs. Ethereum#
| Bitcoin | Ethereum | |
|---|---|---|
| Main purpose | storing and sending value | a platform for programs |
| Number of coins | max. 21 million | no fixed cap |
| Who writes blocks | miners (proof of work) | validators (proof of stake) |
| New block | ~10 minutes | ~12 seconds |
Code does exactly what it says
Including its mistakes. If a smart contract has a bug, an attacker can exploit it and drain the money – and no customer hotline will bring it back. Huge sums have been lost in DeFi this way. Do not send money you are not willing to risk to contracts you do not know.
Common myths#
- "Ethereum is just another Bitcoin." Bitcoin is mainly money; Ethereum is mainly a platform that other things run on.
- "A smart contract is smart." It is just a program. It does not know what is fair – it does exactly what someone wrote. Even if that someone made a mistake.
- "An NFT means I own the picture." Usually you only own a record on the blockchain that points to the picture – it does not give you the copyright.
Summary
- Ethereum (2015) is a blockchain that runs programs – smart contracts.
- A smart contract is like a vending machine: rules in code, no middleman.
- Tokens, DeFi and NFTs were built on Ethereum; running programs costs fees (gas).
- A bug in the code can mean lost money – nobody can "bend" the code, not even for a good reason.