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What Key Innovation Did Ethereum Introduce to Evolve Beyond Bitcoin’s Blockchain?
Trace the evolution of blockchain from Bitcoin to Ethereum and discover the significant innovation that set Ethereum apart. Learn how the introduction of smart contracts and decentralized applications (DApps) transformed the blockchain from a simple payment system into a global, programmable platform for a new generation of internet services.
Question
Describe the evolution of blockchain technology from Bitcoin to Ethereum. What was a significant innovation introduced by Ethereum compared to Bitcoin?
A. A fixed monetary supply model.
B. The concept of digital wallets.
C. Smart contracts and decentralized applications.
D. A proof-of-work consensus mechanism.
Answer
C. Smart contracts and decentralized applications.
Explanation
Ethereum introduced smart contracts and decentralized applications, marking a significant evolution from Bitcoin’s blockchain technology. The evolution from Bitcoin to Ethereum represents a pivotal shift in the capabilities of blockchain technology. While Bitcoin was designed primarily as a secure, decentralized peer-to-peer electronic cash system and a store of value, Ethereum was envisioned as a global, decentralized computer.
The most significant innovation Ethereum introduced was the concept of smart contracts. These are self-executing contracts with the terms of the agreement written directly into lines of code. This programmability unlocked the potential for building decentralized applications (DApps) on top of the blockchain, allowing for a vast range of use cases beyond simple currency transactions.
This key difference transformed the blockchain from a specific application (digital money) into a general-purpose platform. Developers could now use Ethereum to create complex, censorship-resistant applications for:
- Decentralized Finance (DeFi): Creating lending platforms, exchanges, and stablecoins without traditional financial intermediaries.
- Non-Fungible Tokens (NFTs): Enabling the creation and ownership of unique digital assets.
- Supply Chain Management: Automating processes and tracking goods with full transparency.
- Gaming: Building games where players have true ownership of in-game assets.
Analysis of Incorrect Options
A. A fixed monetary supply model: This is a feature of Bitcoin, which has a hard cap of 21 million coins. Ethereum, by contrast, has a dynamic supply model with no fixed cap, although its issuance has become deflationary at times due to fee-burning mechanisms.
B. The concept of digital wallets: Digital wallets were fundamental to Bitcoin from its inception, allowing users to store, send, and receive bitcoins. Ethereum adopted and expanded upon this existing concept.
D. A proof-of-work consensus mechanism: Bitcoin was the first major blockchain to successfully implement a Proof-of-Work (PoW) consensus mechanism. Ethereum initially used PoW as well but has since transitioned to a more energy-efficient Proof-of-Stake (PoS) model.
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