In 2008 Satoshi Nakamoto lobbed an idea hand grenade into the world, shouted “good luck!” and disappeared again forever. That idea was bitcoin and it kickstarted some of the most exciting areas in computing around today.
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One of the many exciting things about bitcoin was the idea that you could trust the contents of a ledger to be true, without any central authority controlling it and without having to trust any of the people who have access to it. In bitcoin the ledger is a sequence of transactions, like “1 BTC was transferred from account A to account B”. The transactions are grouped together into blocks and those blocks are chained together into a blockchain that represents the complete ledger. Anyone on the network can read through the sequence of transactions to work out how much bitcoin any account has, which is what constitutes the state of the whole system.
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Ethereum takes some of the ideas from bitcoin and blasts off with them in an even more fascinating direction. Like bitcoin, ethereum has a way of transferring value between accounts, with a value called ether (often referred to as eth). But the real innovation of ethereum is that you can also transfer value to smart contracts.
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Smart contracts are programs running on the ethereum virtual machine. They run on every node in the ethereum network and their state is stored in the ledger after they’ve been executed. The ledger is stored on the blockchain, so it’s effectively impossible to tamper with. The result is that once a program’s released it’s guaranteed to run, without interference from any central authority and its results can’t be tampered with. Even better, anyone can write a smart contract and anyone can inspect the source code of any smart contract!
As if all that wasn’t enough, smart contracts can transfer value to other accounts (those representing wallets and those representing other smart contracts). So your program can use any other program in the ethereum network and can send and receive value natively!
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Having programs that can send and receive value that can’t be tampered with opens up a world of possibilities, but before we can explore that, we need to get some ether to play with.
Next: getting some ether.