What is Etherium in simple terms and how it differs from bitcoin
An ultimative guide to Ethereum: what smart contracts are, how to use ether, and how it is changing the modern economy. If you still don't understand why you need ethereum, this is the guide for you.

How is ether different from bitcoin?
Ether is the second most popular cryptocurrency.
Bitcoin is simply a convenient way to store and transfer funds.

But the range of actions made with money is much wider: money can be lent, deposited, invested, given for growth and so on.

Smart contracts in Ethereum allow you to do all of this and provide the basis for a new economy free of states and banks.
Let's quickly understand what a smart contract is.
What is a smart contract
A smart contract is simply a piece of software code embedded in a blockchain. The code spells out the terms of the contract. When they are met, a transaction occurs automatically.
A smart contract is an alternative to legal contracts. In legal contracts, the third party is the judicial system of the country where the contract is concluded; it is responsible for the execution of the contract.
A smart contract is exactly the same contract, only digital. It exists within the Ethereum system and its execution is guaranteed by a computer program, with a rigorous mathematical system at its foundation.
Here are two simple examples of smart contracts.
Vasya raises money for a hoverboard on Kickstarter
Let's imagine a situation where Vasya's company raises $10 each on Kickstarter to build a hoverboard from Back to the Future.
The terms of the deal are simple:

participants transfer $10 each
money is locked in on Kickstarter
if 100% of the goal amount is raised - Kickstarter gives the money to the creators of the project
if they do not raise the money within the given timeframe, the money is sent back to the participants
The third party in this case is a crowdfunding platform Kickstarter and we have to trust it on our word that our sent $10 will pass to the creators of the hoverboard, or will return to us.

This contract can be implemented through a smart contract.

Vasya simply writes a program in a special Solidity language, where the terms are spelled out. When those conditions are met, then the contract is signed, and the transaction is completed: the money either goes to Vasya or comes back to the counter-borrowers.

And this is much more reliable:

The money isn't transferred to a third party - it's just locked in the blockchain
any participant will be able to look through the programming code and see how it works exactly as declared in the condition (if the smart contract has permission to read it)
The granddaddy of smart contracts: the soda machine
An even simpler example.

Imagine a soda machine in a university cafeteria.

You deposit coins, choose a drink, and the machine automatically dispenses the item to you. A simple contract has been fulfilled: I give you the money, you give me the duchesse, and without a third party intermediary.

This means that you have received a soda irreversibly - the machine can't catch up with you and take the product back (of course, if the machine is in good working order).

The vending machine is the granddaddy of modern smart contracts. This is the analogy that scholar Nick Szabo once gave when describing their concept.

How exactly does the etherium build a new economy
To build a full-fledged economy, you need a contracting tool and a third party trusted by both sides of the transaction.

But the idea behind cryptocurrency is that people don't want to trust banks or the state.

That's where Etherium comes into the picture, providing a self-sufficient technical layer that performs its functions clearly and impartially, whether it is trusted or not. In Bitcoin, smart contracts are harder to do.

Ethereum extends the concept of cryptocurrency to the crypto-economy through smart contracts. If the basic idea of bitcoin is money independent of the state, the basic idea of ethereum is an economic system independent of the state

Today, the global economic network consists of the economies of individual states: the U.S., Japan, China, the EU and so on. Cryptocurrencies allow you to separate the economy from the country. Etherium is an economy without a country.

Ryan Sean Adams, Etherium apologist and founder of Bankless
Now to the practical part: how exactly to use Ether and when you might need it.

How to use ether.
Ethereum has two types of accounts: a wallet and a smart contract. Both can make transactions, store coins, and accept ether.

The main difference is that the coins in the smart contract balance are not managed by a person, but by an algorithm.

A regular wallet is controlled by a bundle of public and private keys, while a smart contract is controlled by a hash of its own code. Because of this, a smart contract cannot be changed - if you change even one character in the contract code, the hash will change irreversibly and the blockchain will reject it.

It's important not to be confused: Ethereum and ether are different things
Bitcoin can be conventionally divided into two components:

BTC - as a monetary asset, a unit of money
Bitcoin blockchain - a system that makes transactions of BTC
In analogy with ethereum


Ether is cryptocurrency
Ethereum is a blockchain system
It is important to understand that Ether and Ethereum are not synonymous.

An example from a traditional economic system,

Take an ordinary American dollar and send it to Finland via wire transfer. The main interbank transaction system is called SWIFT. Through it, the bank in Finland will get the transfer information.

In the context of this example, USD can be replaced by Ether, and the SWIFT system along with the banks can be replaced by Ethereum.

How to make a transaction in Ethereum?
You can do three things in Ethereum:

transfer ETH to another user
Create a smart contract and write it on the blockchain
execute a smart contract
A smart contract is just a code that can be executed by making a transaction to its address.

When you transfer ether, your transaction information is written to the Ethereum blockchain by the miner. When you add or execute a smart contract code, when you add a block, the program code is executed.

You have to pay a commission for each transaction.

This commission goes to reward the miners whose computers are involved in adding blocks and executing smart contract code.

The unit of reward in Ethereum is called gas.

What is gas?
Gas (gas or gasoline) is the unit of commission payment in Ethereum.

For example, a transfer from wallet to wallet costs 21000 gas.

The price of gas is calculated in gwei - ethereal pennies. Gwei = 0.000000001 ETH.

If everything is clear with the price of transfer, the cost of writing or executing a smart contract depends on its complexity - the more operations, the more gas is needed for its execution.

In Ethereum, you set your own transaction fee
When you queue any of the transactions, you specify

Recipient's address

ETH amount to transfer (can be 0)
What is the maximum amount of gas you are willing to spend on the transaction
Your gas price in Gwei value.