Bitcoin - The first digital cash system
Bitcoin, introduced in 2009, is the first and best-known blockchain application. It works like a digital cash system. Imagine having a digital wallet that you can use anywhere in the world without needing a bank. Many computers around the world, called nodes, manage payment transactions. You can imagine this as a public yet anonymous "cash book" that transactions are not directly linked to real identities. To make the network secure and validate the authenticity of payments, Bitcoin uses a consensus mechanism called "Proof of Work" (PoW). This PoW is based on highly complex cryptographic encryption and makes the network very secure.
To understand what this means in practice, let's compare a traditional bank transfer to a Bitcoin transaction:
Traditional bank transfer:
- You transfer €100 to a friend
- The bank checks your identity
- The bank checks your account
- The bank makes the transfer
- The bank documents the transaction in its system
- Cost: Transfer fees
- Time: 1-3 business days for international transfers
Bitcoin transaction:
- You send Bitcoin to your friend's wallet address
- The Bitcoin network automatically checks if you own the coins
- Thousands of computers confirm the transaction
- The transaction is stored immutably in the blockchain
- Cost: Variable network fees
- Time: Around 10-60 minutes
Key features of Bitcoin:
- Limited supply: Maximum of 21 million Bitcoin - like digital gold
- Decentralization: No single actor (like a bank) has control
- Pseudonymity: Transactions are publicly visible but not directly linked to real names
- Security: "Proof of Work" (PoW) makes the network extremely secure through complex mathematical calculations
Ethereum - The programmable blockchain
If Bitcoin is digital money, then Ethereum is a digital computer. Introduced in 2015, Ethereum fundamentally expanded blockchain technology: Ethereum expanded the concept of blockchain to include smart contracts. If Bitcoin is a digital cash system, then Ethereum is like a global, decentralized computer that allows developers to run complex programs, so-called smart contracts, directly on the blockchain. Imagine being able to create automated, self-executing contracts that work without intermediaries - that's Ethereum. Ethereum originally also used PoW, but switched to "Proof of Stake" (PoS) in 2022. With PoS, it is as if participants deposit part of their assets as a deposit in order to receive the right to validate transactions. After the change, this led to a significant reduction in energy requirements by well over 90% compared to the previous PoW consensus mechanism.
To understand the importance of this innovation, here is a practical comparison:
Bitcoin vs. Ethereum - a comparison:
- Bitcoin: Like a digital bank account - You can send and receive value
- Ethereum: Like a programmable bank account - You can:
- Send and receive value
- Set up automatic payments
- Create digital contracts (smart contracts)
- Use decentralized applications (DApps)
An example of smart contracts:
Traditional method:
- You want to buy a house
- You need a notary
- You need a bank
- The process takes weeks
- High fees for intermediaries
With Ethereum Smart Contract:
- Contract is written in code
- When you pay, ownership is automatically transferred
- No intermediaries needed
- Process takes minutes
- Lower fees
Main features of Ethereum:
- Smart Contracts: Automated, self-executing contracts
- Ether (ETH): The "currency" for transactions in the network
- Continuous development: Regular improvements for greater efficiency
Other important blockchain platforms:
- Solana: The "high-speed train" among blockchains - very fast, very cheap
- Cardano: The "scientific approach" - thoroughly tested, very reliable
- Polkadot: The "blockchain connector" - links different blockchain networks
- Binance Smart Chain: The "cost-efficient" - focuses on cheap, fast transactions
These different blockchain technologies complement each other:
- Bitcoin: Digital gold and store of value
- Ethereum: Programmable financial world
- Newer platforms: Solve specific problems such as speed (Solana) or networking (Polkadot)
Understanding these technologies is important, because they form the basis for the new digital financial