What is Ethereum?

What is Ethereum?


What is Ethereum?

Ethereum is an open-source peer-to-peer platform that allows a person to create and use decentralized apps that operate on blockchain technology.

Just like Bitcoin, it is owned by no one and controlled by none. There is a slight difference between Ethereum and Bitcoin, and is that Ethereum was built to be flexible and adaptable. It is very easy to build applications on this platform, and with the release of homestead, it is now safe for people to use such applications.

Blockchain technology is the fundamental basis of Bitcoin and Ethereum, which was initially described in a white paper by Satoshi Nakamoto as an “open-source electronic cash system” in 2008. Although the main function of the blockchain was discussed in depth in the initial the original paper, it was not until some years later that the blockchain technology became a house-hold name.

A blockchain is a distributed and public ledger where each network node calculates and records transactions. The transactions are categorized into blocks.  You can only add a single block one at a time. In addition, each block has a mathematical proof that confirms that its sequence is similar to that of the previous block. In this way, the distributed database is stored in consensus across the entire network. Each user interaction with the ledger is secured by cryptography. Nodes that control and maintain the network are handled by mathematically enforced incentives into the protocol.
As far as Bitcoin is concerned, the distributed database is made up of a ledger, a table of account balances.


The value component or token currency of this blockchain is known as Ether (ETH). Ether is a token that is also used to pay for transactions expenses as well as computational services on the network. Ether is traded on cryptocurrency exchanges just like Bitcoin and other cryptocurrencies.

In April 2016, Vitalik Buterin sold around 25 percent of his ETH holdings, saying that the diversification is nothing but sound financial planning. Buterin continued to say that he does know that there is a possibility the project would not scale to greater heights, this was a response to critics that he does not express his religious fanaticism regarding Ethereum.

The Ethereum Virtual Machine

Ethereum is a blockchain that is programmable. Unlike Bitcoin which gives users pre-defined operations, Ethereum lets users create their individual operations to any degree of complexity desired. Through this manner, it serves as a podium for various kinds of decentralized blockchains apps such as cryptocurrencies.

In a narrower sense, Ethereum is basically a set of protocols that defines a specific platform for decentralized apps. At the center of the entire network, there is the Ethereum Virtual Machine also known as EVM.

The EVM executes the code of arbitrary algorithmic. In other terms, EVM is “Turing Complete.” Developers can design their own applications that operate on the Ethereum Virtual Machine using programming languages such as Python and JavaScript.
Just like other blockchains, this blockchain features a peer-to-peer network protocol. There are many nodes that maintain and update the Ethereum blockchain database. These nodes are connected to the network and each runs the Ethereum Virtual Machine and functions under the same set of instructions. For this reason, Ethereum is sometimes known as the “World Computer.”

Many developers think that this platform is mainly done to make computation more fun and efficient. Actually, computation on Ethereum is very expensive and far slower than computation on a standard computer. The caveat is that each node fuels the EVM in order to maintain consensus across blockchain. Decentralized consensus ensures there is zero downtime on the platform and also gives high levels of fault tolerance. Moreover, it makes it difficult to change the data that is stored in the blockchain. This makes it censorship resistant.

The Ethereum network is itself a value-agnostic tool or featureless rather. Just like other programming languages, it is up to developers and business persons to determine what the platform should be used for. However, it is evident that there are a few applications that are better suited than others and have more benefits. Ethereum is ideal for applications that can automate direct interactions between different peers or facilitate group actions on different networks. For example, applications for controlling open-source marketplaces or automation of financial contracts lend themselves to the Ethereum platform.

Bitcoin lets users exchange money without the need for middlemen such as banks, financial institutions or governments. However, the impact of Ethereum may be much more far reaching than Bitcoin. In theory, financial exchanges or interactions on various complexities could be done reliably and automatically using the code that runs on Ethereum.

Apart from financial applications, any platform where security, trust, and permanence are crucial (voting, asset registries, and governance) could be facilitated by the Ethereum network.

How does Ethereum Work?

Ethereum comprises of numerous features and technologies similar to those of Bitcoin while also introducing its own advanced. The blockchain of this platform monitors every account; transitions taking place on Ethereum are transfers of information and value between various accounts.

There are two kinds of accounts; the first one is the External Owner Accounts, which is also referred to as EOAs. These accounts are controlled by private keys. The other type is the Contract Accounts; these accounts are controlled by contract codes and can be activated by EOAs.

For many users, the main different between the two accounts is that EOAs are controlled by humans. This is because human beings can control private keys which on other hand control the EOAs.

Contract Accounts are monitored and controlled by the internal code.  They can also be monitored by humans, but only if they are programmed to be monitored by EOAs with a particular address.

The term Smart Contracts usually means a code that is in the Contract Account. The Smart Contract itself is a program that works when a transaction takes place in that account; users can design new contracts by executing the code to the blockchain. Contract Accounts can only function if they are instructed to carry out an operation by an EOA. Therefore, it’s impossible for a Contract Account to carry out native operations such as API, calls, or random number generation. However, it can do all these operations if it is instructed by an EOA. This is because Ethereum cannot agree on the outcome of computation if there is only one node. This is can only be made possible by a strictly deterministic execution.

Just like Bitcoin, users must pay a certain amount of money in order to use the network via transaction fees. These transaction fees protects the platform from malicious or frivolous computation responsibilities such as infinite loops or DDoS attacks. The one who initiates the transaction, most of the time the sender, must pay for all the steps of the program that they activate including memory space as well as computation. These charges are paid in Ether. These charges are then collected by nodes that approve the transaction.

The minors are nodes in the network that propagate, receive, execute and verify all the transactions. These nodes then categorize the transactions into blocks. These minors compete for their blocks to head to the blockchain. Each node is rewarded with Ether for every successful block they mine. This is a great way for users to dedicate electricity and hardware to the Ethereum platform.

Just as in the Bitcoin platform, miners are given the task of calculating and solving mathematical problems to mine a block successfully. Any complex mathematical problem that needs orders of immense resources and time to solve is a great candidate for proof of work. The proof of work concept is used to avoid a centralized minting entity for the generation of the coins.


In March 2016, the New York Times published that Ethereum’s network adoption is still in its early stages and the platform could encounter legal and technical problems that might slow down the growth of this computing platform. Many Bitcoin users say the platform may experience more security issues than the Bitcoin network because the platform comprises of very complex software. Regardless, the developers of Ethereum continue to make great headway in improving the system and adoption is rapidly occurring.

To learn more about Ethereum, visit their website.