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Is it possible to use other cryptocurrency than Ether (for example, Bitcoin, Litecoin etc.) within Ethereum smart contracts? I can imagine this will not really be compatible except for other currency being burned? (read I will provably burn Bitcoin and the smart contract will give me some Ether for it?)

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It is not possible to directly store or manipulate other cryptocurrencies from within an Ethereum smart contract. There are some services such as BTC Relay which make this possible, but it is not a native capability of Ethereum.

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