What is Ethereum

What is Ethereum & How Does it Work?

In this article, we look at what is Ethereum and how does it work?

Ethereum is a decentralized platform that runs smart contracts, a type of digital contract that runs on a blockchain network. Ethereum enables developers to build and deploy decentralized applications and offers users a secure and transparent way to conduct transactions.

We will explore the basics of Ethereum and how it works, and its potential applications in the real world.

What is Ethereum & How Does it Work?

Ethereum is a decentralized open-source platform that enables the development of smart contracts and distributed applications. It is a blockchain-based platform that supports a virtual machine and Ethereum’s native cryptocurrency ETH.

Ethereum allows developers to design, deploy, and execute decentralized applications called Dapps to interact with a peer-to-peer network of nodes. It is similar to Bitcoin in many ways but provides an expanded set of features and capabilities.

Ethereum has the potential to revolutionize the way transactions and contracts are handled across the web, making them more secure, transparent, and efficient.

How Does Ethereum Work?

Ethereum works by using a consensus algorithm, allowing all participants to agree on a single version of the truth without the need for a middleman. This algorithm is called a Proof of Work consensus, and it is what makes Ethereum secure and reliable. The consensus algorithm allows the Ethereum network to process transactions without needing a central authority or third-party intermediary.

Ethereum also utilizes a virtual machine, which is a virtual environment for executing code. This virtual machine allows developers to create and deploy Dapps without compiling code, making it easier and faster to develop applications. Ethereum is an innovative platform that is quickly becoming the go-to platform for blockchain-based applications. With its ability to provide a secure, immutable, and transparent environment for transactions, Ethereum is set to revolutionize the way the world does business.

Ethereum History

In 2013, Vitalik Buterin, a programmer and cryptographer and his Ethereum cofounders wrote a whitepaper detailing the power of smart contracts and how it could pave the way for mainstream blockchain adoption.

In 2014, Buterin and his team launched the Ethereum network. Ethereum has since grown to become the world’s largest open-source blockchain project, with various applications, including cryptocurrency trading, gaming, and financial services.

The Ethereum network has also become popular among developers, who have used it to create and deploy decentralized applications. Ethereum is also now a popular platform for building blockchain-based applications, and its use is becoming increasingly widespread.

Ethereum 2.0 has also been launched, a new version of the Ethereum blockchain. It offers enhanced performance and additional features, including sharding, cross-chain communication, and state channels. Ethereum 2.0 is also more scalable and efficient than the original Ethereum network, making it a better choice for large-scale applications.

What are Smart Contracts?

Smart contracts are self-executing programs that are implemented once a certain set of conditions are met.

You can define certain conditions to the blockchain using pieces of code, and once these conditions are met, the platform automatically implements them without the need for human intervention. Think of it as Google Play Store, where you can create your own applications. As with Google Play Store, Ethereum also has a defined set of regulations which are not subject to change. All users must abide by these rules when creating their programs on Ethereum.

Using smart contract functionality, anyone can build decentralized applications on the Ethereum blockchain that do not require human oversight.

Today Ethereum is being used by giant businesses, for example, Amazon, Microsoft, Google, and Fidelity.

Decentralized & Secure

Like Bitcoin, Ethereum has a vast network of validators. Ethereum runs on 2000+ nodes worldwide, making it impossible to attack the network. Even if a few nodes are attacked, the network will continue to work seamlessly because of the network validators.

Moreover, Ethereum has defined security protocols for building decentralized apps on the platform, which are considered the best on the blockchain. Despite cut-throat competition and constant innovation in smart contract blockchains, Ethereum remains the #1 choice for developers.

Proof of Stake

A heavy criticism of Ethereum was its huge carbon footprint. With millions of transactions daily, Ethereum was consuming high amounts of energy. With Ethereum’s move from Proof of Work to Proof of Stake in Sep 2022, the Ethereum network has reduced its energy consumption by 99.95%. 

This is a huge step for Ethereum’s future. With a low carbon footprint and a highly decentralized network, the Ethereum network ticks all the boxes for a perfect blockchain.

Layer 2 Solutions

There are two main problems with the Ethereum blockchain. It has high transaction/gas fees and slow transaction times. For this reason, layer 2 solutions are required.

Think of Layer 2 solutions as a diversion bridge. If the Ethereum main net is crowded, layer 2 solutions will divert some transactions to its own network to be done faster and cheaper. Layer 2 solutions like Arbitrum and Optimism add speed, scalability, and cost-effectiveness to Ethereum transactions.

Ethereum’s cofounder Vitalik Buterin wants to create an equitable and fairer society with decentralized applications. With innovations like decentralized finance and decentralized autonomous organizations, Ethereum is bringing power back to the people.

How Does Ethereum Make Money?

Ethereum makes money through transaction fees. When users send transactions on the Ethereum network, they must pay a fee for processing the transaction. These fees are paid in Ether, Ethereum’s native cryptocurrency. The fees are used to incentivize miners to process transactions on the Ethereum blockchain, and the funds are also used to cover development costs associated with the Ethereum network.


In conclusion, Ethereum is a decentralized open-source blockchain platform that enables users to create and deploy distributed applications (dApps) using smart contracts.

The Ethereum platform is extremely secure and features a proof of stake consensus algorithm, further ensuring its security.

Overall, Ethereum is a powerful platform revolutionising how we use the internet.


What is Ethereum?

Ethereum is a decentralized open-source blockchain platform that enables users to create and deploy distributed applications (dApps). It is powered by the Ethereum Virtual Machine (EVM), which allows for the execution of smart contracts. Ethereum also has its own cryptocurrency, Ether, which can be used to pay for transaction fees on the network.

What is an Ethereum Smart Contract?

A smart contract is a computer protocol that facilitates, verifies, or enforces the negotiation or performance of a contract. Smart contracts allow for automated transactions and the ability to store data on the blockchain. They are self-executing contracts, meaning that once the terms of the contract are met, the contract is automatically executed.

What is Ethereum Used for?

Ethereum is primarily used as a platform for creating and deploying decentralized applications. It can also be used to store data on the blockchain and features low transaction fees and fast transaction times.

What is Ethereum 2.0?

Ethereum 2.0 is a new version of Ethereum that was launched in Sep 2022. It features improvements to the platform’s scalability, security, and usability.

What is the Difference Between Bitcoin and Ethereum?

The main difference between Bitcoin and Ethereum is the purpose of their respective networks. Bitcoin was designed to be a digital currency, while Ethereum was designed to create decentralized applications (dApps) and smart contracts.
Ethereum also has its own cryptocurrency, Ether, which is used to pay for transaction fees and is required to use the Ethereum platform. On the other hand, Bitcoin does not have its own currency and relies on the network for security.

Share this article:

Leave a Reply

Your email address will not be published. Required fields are marked *

Disclosure:  Some of the links in this article may be affiliate links, which can provide compensation to me at no cost to you if you decide to purchase a paid plan. These are products I’ve personally used and stand behind. This site is not intended to provide financial advice and is for entertainment only, You can read our affiliate disclosure in our Privacy Policy.

Table of Contents

Subscribe To Our Newsletter & Exclusive Discord

Join the Every Bit Helps mailing list to receive our newsletter & get access to the latest deals & to our Discord community.

Congrats You Have Successful Subscribed!